Standard Mut. Ins. Co. v. Lay (Ill. Ct. App. April 20, 2012)
In a matter of first impression, an Illinois appellate court recently held that damages assessed under the Telephone Consumer Protection Act (TCPA) are punitive in nature and, therefore, are uninsurable on public policy grounds.
A real estate agent hired a fax broadcaster to assist in his advertising effort to sell a property listing. The broadcaster represented that the fax recipients would be only entities that consented to receiving fax messages such as the one contemplated by the real estate agent. Unbeknownst to the agent, the broadcaster violated the TCPA because the fax recipients had not consented to receive faxes advertising property for sale.
One of the fax recipients, Locklear Electric, Inc. (Locklear), filed a class action lawsuit against the agent, seeking treble damages under the TCPA for the alleged sending of unsolicited faxes. The agent tendered its defense to its insurer, Standard Mutual Insurance Company. Standard assigned defense counsel to the agent, but reserved its rights to disclaim coverage on several grounds, including that the complaint did not allege “bodily injury,” “property damage,” or “advertising injury” within the meaning of the policy.
After the agent died, his wife retained new counsel and settled the class action lawsuit for $1.7 million. Under the settlement agreement, Locklear agreed not to execute on any property or assets of the agent other than his insurance policies with Standard. In the related declaratory judgment action, Standard and Locklear each moved for summary judgment. The trial court granted Standard’s motion, finding that it did not owe a duty to defend or indemnify the agent against Locklear’s TCPA claims.
On appeal, the court considered whether damages under the TCPA are punitive in nature and, therefore, uninsurable as against Illinois public policy. The court adopted Standard’s argument that because the $500 statutory rate in the TCPA for each unauthorized fax is far in excess of actual damages, it is the equivalent of punitive damages and, therefore, not covered by insurance. The court held that shifting responsibility for payment of damages beyond actual damages frustrates the TCPA’s purpose of deterring and preventing the sending of unwanted faxes.
For a copy of the decision, click here.