Standard Mutual Insurance Company v. Lay
2 N.E.3d 1253
Ill. App. Ct.2014Background
- Theodore W. Lay, a small Illinois real estate agent, caused approximately 3,478–5,000 unsolicited “blast” faxes to be sent advertising property for sale; Locklear Electric received one and sued as class representative under the TCPA (Telephone Consumer Protection Act).
- Lay tendered defense to his insurer, Standard Mutual, which accepted under a reservation of rights and warned of coverage defenses (intentional acts, advertising/professional-services exclusions, limits to lessor’s-risk policies).
- Lay (later substituted by Norma Lay as executrix) settled the TCPA class action for $1,739,000; the class agreed to seek recovery only from Lay’s insurance policies and Lay assigned its rights against Standard to the class. A federal court approved the settlement and found Lay believed it had consent to send the faxes and did not intend to injure recipients.
- Standard sued for declaratory judgment denying coverage; the trial court granted summary judgment for Standard. The appellate court initially affirmed in part (reserving rights OK) and held statutory TCPA damages punitive (uninsured), but the Illinois Supreme Court reversed on the punitive/insurability point and remanded for further issues.
- On remand the appellate court concludes Standard’s policies provide coverage (advertising-injury and property-damage theories apply), the professional-services exclusion does not bar coverage, and because Standard surrendered control of the defense it cannot object to or withhold consent to Lay’s settlement.
Issues
| Issue | Plaintiff's Argument (Locklear / assignee) | Defendant's Argument (Standard) | Held |
|---|---|---|---|
| Whether insurance policies cover TCPA fax claims under advertising-injury or property-damage provisions | Policies cover advertising injury (invasion of privacy / right to be left alone) and property damage (consumption of paper/toner/time) | Policies exclude coverage: lessor’s-risk limits, advertising/professional-services exclusion, intentional-act exclusion | Covered: advertising-injury applies (Valley Forge line); property-damage may apply for negligent (not intentional) conduct; lessor’s-risk limitation not applicable here |
| Whether the professional-services exclusion bars coverage because Lay is a licensed real estate professional | Coverage still applies because claim is for tortious advertising conduct ancillary to business, not negligent performance of a real estate professional service | Real estate is a profession; providing property-sale ads is a professional advertising service excluded by policy | Exclusion inapplicable: advertising here is separate from provision of core real estate professional services (follows Westport) |
| Whether intentional-act exclusion defeats coverage for sending faxes | Lay believed it had consent; negligent misrepresentation of consent triggers coverage | Sending faxes was an intentional act and excluded | Intentional-but-believed-authorized actions can be covered when the injury-causing aspect is negligence (insured lacked intent to harm); coverage not barred categorically |
| Whether Standard retained right to control/consent to settlement and can deny indemnity after Lay settled | Because Standard accepted under reservation but surrendered control and a conflict existed, insured (then assignee) controlled defense and settlement; Standard did not object and showed no prejudice | Insurer argues it retained right to consent to settlement and was not bound by settlement it did not approve | Insurer surrendered control by allowing independent counsel/creating conflict; therefore cannot rely on consent-to-settle clause or refuse indemnity absent prejudice (no prejudice shown) |
Key Cases Cited
- Standard Mutual Ins. Co. v. Lay, 2013 IL 114617 (Ill. 2013) (Illinois Supreme Court ruling reversing that TCPA statutory damages are punitive and upholding insurer's reservation-of-rights letter)
- Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (Ill. 2006) (advertising-injury coverage can include invasion of privacy by unsolicited faxes)
- Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (Ill. 1976) (if conflict exists insurer may reimburse independent counsel selected by insured and insurer surrenders control)
- Westport Ins. Corp. v. Jackson Nat. Life Ins. Co., 387 Ill. App. 3d 408 (Ill. App. Ct. 2008) (advertising describing professional services is not necessarily a professional-services exclusion event)
- Insurance Corp. of Hanover v. Shelborne Associates, 389 Ill. App. 3d 795 (Ill. App. Ct. 2009) (negligent misstatements/acts can trigger coverage even where the act itself was intentional)
- Myoda Computer Ctr., Inc. v. Am. Fam. Mut. Ins. Co., 389 Ill. App. 3d 419 (Ill. App. Ct. 2009) (when insurer surrenders defense control it also surrenders settlement-consent rights)