TCPA Claims in Illinois

 

The insured was sued in a class action lawsuit for violation of the Telephone Consumer Protection Act (TCPA). In a matter of first impression, an appeals court in Illinois ruled on the issue of whether the CGL form applied. This case is Standard Mutual Insurance Company v. Lay, 2012 IL App (4th) 110527.

 

Lay, a small real estate agency in Illinois, hired a fax broadcaster to assist in his advertising effort in selling a property listing. The fax broadcaster offered a blast fax service to Lay where fax advertisements were sent to thousands of fax machines. Unbeknownst to Lay, this practice violated the TCPA because the recipients of the faxes had not consented to receipt of the faxes advertising property for sale. Lay was named as a defendant in a class action lawsuit and the defense was tendered to Lay's insurer, Standard Mutual Insurance Company.

 

In the meantime, Mr. Lay died and his wife entered into a settlement agreement. The trial court approved the settlement and Standard then filed a motion for summary judgment. It claimed it had no duty to defend Lay in the underlying action and no duty to Lay in connection with the stipulated settlement. The court granted Standard's motion and this appeal by the plaintiffs in the underlying lawsuit followed.

 

The argument against the insurer was that Lay's CGL policy provided coverage under both the advertising injury and property damage provisions, and that Lay had a right to settle the underlying action with or without the consent of Standard. Standard argued that there was no coverage under the terms of the policy, Lay had no right to settle without the insurer's consent, and that the statutory rate of $500 for each unauthorized fax was far in excess of actual damages incurred by any recipient; in other words, the damages were punitive in nature and such damages are uninsurable in Illinois.

 

The appeals court found that the damages are indeed punitive and this point was dispositive of the case. The court said that the TCPA is a strict liability statute and its purpose is to deter future sending of unwanted fax transmissions. The court decided that shifting responsibility for payment of damages beyond actual damages frustrates the TCPA's purpose of deterring and preventing the sending of unwanted faxes. After all, the court noted, there is no incentive for a current or future fax sender to comply with the TCPA if a violation is covered by liability insurance.

 

The court decided that the $500 in liquidated damages provided in the TCPA is a penalty and is in the nature of punitive damages. Such damages are not insurable in as a matter of law in Illinois. The opinion of the trial court was affirmed.

 

Editor's Note: The applicability of the TCPA exclusion in the CGL forms is still being decided in courts. But, the Appellate Court of Illinois, Fourth District, decided this case on the basis that the TCPA required punitive damages since the $500 per occurrence far outweighed the cost value of the harms suffered by the fax recipients. Punitive damages are not insurable in Illinois and that meant public policy in the state did not allow this claim to be paid by the insurer.