Case Information
*1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION
MESA LABORATORIES, Inc., )
)
)
Plaintiffs, )
) v. ) 19 C 2340 )
FEDERAL INSURANCE COMPANY, ) Judge John Z. Lee
)
)
Defendant. )
MEMORANDUM OPINION AND ORDER
Plaintiff Mesa Laboratories, Inc. (“Mesa”) sterilizes medical devices. To promote its services, Mesa faxed unsolicited ads to dozens of dentists and their assistants. When one of those dentists initiated a class action lawsuit, Mesa turned to its liability insurer, Federal Insuran ce Company (“Federal”), for help . But Federal declined. Having spent millions of dollars to resolve the dentists’ action , Mesa has sued Federal for breach of contract, bad faith, and improper denial of claims, see Colo. Rev. Stat. Ann. §§ 10-3-1115; 10-3-1116. Convinced that it owed no duty to defend or indemnify Mesa, Federal urges the Court to enter judgment on the pleadings in its favor [16]. See Fed. R. Civ. P. 12(c). For the reasons that follow, that motion is granted.
Background [1]
I. The Orrington Action Hoping to attract new customers, Mesa dispatched unsolicited ads to dozens of dental professionals. But, rather than getting new customers, Mesa’s plan backfired. Acting on behalf of a putative class, a dentist named James L. Orrington filed a complaint alleging that Mesa’s faxes violated the Telephone Consumer Protection Act, see 47 U.S.C. § 227 (“TCPA”) and the Illinois Consumer Fraud Act, see 815 ILCS 505/2 (“ICFA”). Ex. A, Orrington Compl., ECF No. 1-1. And, because the faxes consumed ink and toner, Orrington also accused Mesa of common law conversion, nuisance, and trespass to chattels. Id .
About a year after Orrington submitted his complaint, the parties entered into a settlement agreement. Compl. ¶¶7 – 8, ECF No. 1. To resolve the dentists’ claims, Mesa agreed to pay $3.3 million. Id . By that time, Mesa had accumulated more than $75,000 in legal fees. Id . ¶ 8.
II. Mesa’s Insurance Policy
At the time Orrington filed suit, Mesa held several insurance policies issued by Federal. Id . ¶ 9. The policy at the center of this case, no. 3602-70-77, specifies that Federal “will pay damages and claimant costs that the insured becomes legally obligated to pay.” . ¶ 10; see Exhibit D, Liability Insurance Policy (“Policy”), ECF No. 1-4. As relevant here, that policy includes two exceptions: *3 1. The Intended or Expected Exclusion
Mesa’s liability insurance policy provides that the it “does not apply to bodily injury or property damages arising out of any act or failure to act:
• intended by the insured; or
• that would be expected from the standpoint of a reasonable person in the circumstances of the insured to cause injury or damage, even if the actual injury or damage is of a different degree or type than expected or intended.”
Policy at 56.
Consistent with this limitation, the Policy only covers property damages that stem from an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 56 – 57.
2. The Information Exclusion
The Policy also “ does not apply to any damages, loss, cost or expense arising out of any actual or alleged or threatened violation of: . . .
• the United States of America Telephone Consumer Protection Act (TCPA) of 1991 (or any law amendatory thereof) or any similar regulatory or statutory law in any other jurisdiction. . . . [or] • any other regulatory or statutory law in any jurisdiction that addresses, limits or prohibits the collecting, communicating, disposal, dissemination, distribution, monitoring, printing, publication, recording, sending or transmitting of content, information or material.”
Policy at 94.
III. This Litigation
Soon after Orrington filed suit, Mesa notified Federal and requested coverage. Compl. ¶13. Federal declined. Id . ¶14. The Information Exclusion, Federal said, “applies to TCPA claims and claims under similar statutory and regulatory laws.” Id . Also, Federal added, Orrington’s common law claims “did not meet the [policy’s] definition of ‘occurrence’ because the conduct at issue was not an accident, i.e. , the fax transmitter(s) intended for the faxes to be printed by the recipients’ fax machines.” . Believing that neither exception applies, Mesa brought this action. Compl. ¶19.
Legal Standard
Rule 12(c) permits a party to move for judgment after the complaint and
answer have been filed.
See
Fed. R. Civ. P. 12(c). A Rule 12(c) motion tests the
sufficiency of claims based on the pleadings.
Hayes v. City of Chi.
,
Analysis
Federal advances two reasons for this Court to enter judgment in its favor.
First, Federal submits that, because Mesa knew that its fax-blast would consume the recipients’ paper and toner, the Intended or Expected Exclusion applies. Second, Federal suggests that because Orrington’s claims arise o ut of an alleged TVPA violation, they fall within the scope of the Information Exclusion. Before addressing those arguments, the Court must decide whether Colorado or Illinois law governs this suit which invokes the Court’s diversity jurisdiction .
I. Choice of Law
In general, the party seeking a choice-of-law determination bears the burden
of showing that a conflict exists.
See Spitz v. Proven Winners N. Am., LLC
, 759 F.3d
724, 729 (7th Cir. 2014) . “Where the parties have no t identified a conflict between
the two bodies of law that might apply to the dispute . . . courts apply the law of the
forum state.”
Gould v. Artisoft, Inc.
,
The primary conflict that Mesa highlights centers on the term “occurrence.” See Pl.’s Resp. Mot. J . (“Pl.’s Resp.”) at 3 , ECF No. 22. In Mesa’s telling, Illinois law defines an “occurrence” to exclude any harm that stems from the insured’s intentional acts. . at 10 (citing Am. States Ins. Co. v. Capital Assoc. of Jackson Cnty., Inc., 392 F.3d 939, 943 (7th Cir. 2004)). Under Colorado law, however, the question is not whether the insured acted intentionally, but whether it expected the resulting harm. *6 Id . at 11 (citing KF 103-CV, LLC v. Am. Family Mut. Ins. Co. , 630 Fed. App ’x 826, 831 – 32 (10th Cir. 2015) (unpublished opinion) (clarifying that a trespass may count as an occurrence since “ it is not necessarily expected or intended that harm would result ” )); see also Colard v. Am. Family Mut. Ins. Co. , 709 P.2d 11, 13 (Colo. App. 1985) (categorizing “the damage . . . at issue” as “an occurrence” because it was “neither expected nor intended” ) (quotation marks omitted).
But this purported conflict rests on a misreading of Illinois law. In truth,
Colorado and Illinois courts unde rstand “occurrence” the same way. In
American
States
, for example, the Seventh Circuit analyzed an insured’s request for help
defending a fax-blast lawsuit.
See
As a last resort, Mesa cautions that, “Colorado and Illinois take different approaches to dealing with insurance companies that act in bad faith, as Plaintiff has alleged Defendant did here.” Pl.’s Resp. at 3 n.2. But any conflict between Colorado and Illinois law as to Mesa’s bad faith claim makes no difference to the issues raised *7 in Federal’s Rule 12(c) motion. See Fed. Ins. Co. v. J.K. Mfg. Co. , 933 F. Supp. 2d 1065, 1070 (N.D. Ill. 2013) ( “ A choice-of-law determination is required only when a difference in law will make a difference in the outcome.” ) (citation omitted). In the end, since Mesa has failed to pinpoint any relevant conflicts of law, this Court will apply the law of Illinois, the forum state. See Thornton v. M7 Aerospace, LP , 796 F.3d 757, 766 (7th Cir. 2015).
II. Merits
It is well- established that “[t] he construction of an insurance policy ’ s provisions
is a question of law.”
Outboard Marine Corp. v. Liberty Mut. Ins. Corp.
, 607 N.E.2d
1204, 1212 (Ill. 1992). “To determine whether the insurance company owes its
insured a defense, the court must simply compare the allegations of the underlying
complaint against the insured to the pertinent provisions of the insurance policy.”
Roman Catholic Diocese of Springfield in Ill. v. Maryland Cas. Co.,
Here, Federal contends it owes no duty to defend or indemnify Mesa because
Orrington ’s action falls within two of the Policy’s exclusions . As the Seventh Circuit
has warned, where “an insurer denies a duty to defend based on an exclusionary
clause within a policy, ‘its application must be clear and free from doubt.’”
Hurst –
Rosche Eng’rs , Inc. v. Commercial Union Ins. Co.,
A. The Intended or Expected Exclusion
Under the Policy, Federal pledged to help Mesa defeat lawsuits that stem from accidents, which insurers call “occurrence s .” Policy at 56 – 57. As explained earlier, the term “occurrence” excludes harms that Mesa intended or expected. So, if Mesa anticipated that its fax-blast would squander Orrington’s paper and toner, Federal is off the hook. See Orrington Compl. ¶13.
Unfortunately for Mesa, the Seventh Circuit has recognized that “senders [of
junk faxes] know exactly how faxes deplete recipients’ consumables.”
Am. States
, 392
F.3d at 943;
see also Maxum Indem. Co. v. Eclipse Mfg. Co.
,
In any event, Mesa’s argument would fail even under the more generous standard adopted by some Illinois courts. “[T]he recipient of a fax is not injured by the loss of paper and use of its fax machine,” those courts warn , “if he or she welcomes or solicits the fax.” Shelborne , 905 N.E.2d at 984. Invoking that principle, Mesa asserts that “t he faxes at issue [here] were sent with a good faith belief that [they] were invited by the recipients.” Compl. ¶ 15(c).
But the fax, which Mesa attached to its complaint, forecloses that possibility.
See Orrington
Compl. ¶ 22;
see also
Fed. R. Civ. P. 10(c) (“A copy of a written
instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”).
Tou ting an “exclusive offer for new customers,” Mesa’s fax encouraged recipients to
submit their contact information “to get started.”
Orrington
Compl. ¶ 22. Even
viewed in the light most favorable to Mesa, those instructions confirm that the
dentists did not invite the faxes. Had they done so, it is difficult to see why Mesa
would need to solicit their contact information. And the ad, not Mesa’s complaint,
controls.
See N. Indiana Gun Shows
,
B. The Information Exclusion
Even if the Expected or Intended Exclusion did not bar Mesa’s claim, the Information Exclusion would. Under that provision, Federal disclaimed *10 responsibility for “any damages . . . arising out of any actual or alleged or threatened violation of . . . the Telephone Consumer Protection Act (TCPA) or any similar regulatory or statutory laws .” Policy at 94. Although the parties agree that the Exclusion covers Orrington’s TCPA claim, see Pl.’s Resp. at 4, they dispute whether it extends to his common law claims. .; see Orrington Compl. ¶2. That disagreement matters because “[i]f any portion of the allegations in the Orrington Action is potentially covered,” then Federal “was obligate d to provide a complete defense.” [2] See Compl. ¶ 17.
As Mesa sees it, a straightforward reading of the Exclusion reveals that it
covers claims based on “ statutes and regulations, ” but not common law claims. Pl.’s
Resp. at 5;
see
Policy at 94. That interpretation is not a slam dunk, however, because
it comes close to nullifying the Exclusion altogether.
See In re Innovatio IP Ventures,
LLC Patent Litig.
,
Under
Fayezi
’s logic, Federal owed no duty to defend or indemnify Mesa
against any of Orrington’s claims. As in
Fayezi
, Orrington’s common law a nd TCPA
*12
counts derive from “the very same conduct,” namely “the sending of unsolicited fax
advertisements.”
Furthermore, Mesa’s ardent effort to distinguish the wording in the
Information Exclusion with those at issue in other cases,
see
Pl.’s Resp. at 6 -7, is
unpersuasive. The Court cannot discern any material difference between, on the one
han d, damages “arising out of any actual or alleged or threatened violation of [the
TCPA]” and, on the other hand, damages “arising . . . out of any action or omission
that violates or is alleged to violate [the TCPA].” Although Mesa argues that the
latter f ocuses on the insured’s
conduct
while the former is concerned about
TCPA
violations
, this is precisely the semantic argument that was rejected by the Illinois
appellate court in
Fayezi
,
Unable to distinguish
Fayezi
’s facts, Mesa implores the Court to reject its
reasoning.
See
Pl.’s Resp. at 8. But federal courts “ give great weight to the holdings
of the state ’ s intermediate appellate courts .”
Allstate Ins. Co. v. Menards, Inc.,
285
F.3d 630, 637 (7th Cir. 2002). And although this Court could deviate from
Fayezi
if
“there [we]re persuasive indications that the highest court of the state would decide
differently,” Me sa spotlights no such signals.
Addison Automatics
,
Conclusion
For the reasons set forth above, Federal’s motion for judgment on the pleadings is granted [16]. Judgment will be entered in favor of Defendant Federal Insurance Company as to all counts. This case is terminated.
IT IS HEREBY ORDERED. ENTERED: 1/28/20
____________________________________ JOHN Z. LEE
United States District Judge
Notes
[1] When reviewing a Rule 12(c) motion, the Court considers the facts alleged in the pleadings in the light most favorable to the non-moving party. See Buchanan-Moore v. County of Milwaukee , 570 F.3d 824, 827 (7th Cir. 2009). The facts set forth here are not disputed.
[2] Because Federal does not challenge this assertion, see Mot. J. at 7, the Court assumes it to be true for the purposes of deciding this Rule 12(c) motion.
[3] Even if Colorado law governed the “occurrence” issue, the Court would still apply
Illinois law to interpret the Inform ation Exclusion. Under the doctrine of depecage, “different
states’ law may govern different issues in a [given] case.”
Smith v. I-Flow Corp.
, 753 F. Supp.
2d 744, 747 (N.D. Ill. 2010) (citing
Townsend v. Sears, Roebuck, & Co.
,