The Illinois Appellate Court recently offered greater protection to insurance companies from liability emanating from the Telephone Consumer Protection Act of 1991 (TCPA) and fervently condemned the reality of class action settlements rewarding only class counsel. In First Mercury Insurance Co. v. Nationwide Security Services., 2016 IL App (1st) 143924 (May 18, 2016), the Appellate Court affirmed the trial court’s judgment that First Mercury had no duty to indemnify the class (as assignees) with respect to a settlement reached in the underlying junk fax suit. The Appellate Court reasoned that as a result of the policy deductible, First Mercury’s duty to indemnify was never triggered.
As background, CE Design Ltd., on behalf of a putative class, sued Nationwide Security Services, Inc. and its owner, David Litt for TCPA violations. CE Design alleged Nationwide hired a third party to “blast fax” potential clients with an unsolicited advertisement for his business, a private detective agency. More than 3,600 people allegedly received the fax advertisement. Nationwide and CE Design ultimately settled the case for approximately $4 million. CE Design agreed to pursue recovery from only the proceeds of a CGL insurance policy issued by First Mercury to Nationwide.
However, the First Mercury policy contained a $500 deductible, which applied on a per claim basis. More specifically, it applied for purposes of property damage and advertising injury coverage to damage/injury sustained by one person or one organization due to any one occurrence/injury. Following the entry of the settlement, First Mercury filed the subject declaratory judgment action, seeking a judicial declaration regarding the deductible. Following cross-motions for summary judgment, the trial court found in favor of First Mercury.
The Appellate Court affirmed. It first found that the policy language concerning the per claim deductible was unambiguous. It then concluded that the deductible applied to each claim by a person “injured” by the junk fax. Importantly, the Appellate Court held that the expected or intended injury exclusion barred coverage for property damage, as there was no evidence Nationwide’s actions were negligent, unintentional, or accidental. Thus, only the policy’s advertising injury coverage, with its $1 million limit, was implicated — multiple coverages were not. And, because the $500 per claim deductible exceeded the advertising injury limit, the court held First Mercury had no duty to indemnify.
Finally, and most importantly, the Illinois Appellate Court joined the chorus of criticism of settlements reached in TCPA cases. According to the court, these cases do not encourage or fulfill the purposes of the TCPA: to protect and compensate class members and deter future unlawful action. They instead are designed solely to benefit class counsel. In this case especially, the attorneys sent a notice of settlement five years after the original fax blast — making it highly unlikely that an individual would elect to join the class. Therefore, settlements and judgments in TCPA cases often provide an inaccurate and misleading representation of who is actually being compensated. Accordingly, the Appellate Court offered an alternative approach to calculating class counsel’s fees –evaluate class counsel’s fee petition only after the claims process has been completed and the class members have been paid. Such approach would certainly be met with great resistance by class action attorneys, but it would certainly provide more equitable incentives for all involved, especially given the absence of caps on statutory penalties under the TCPA.