Court Addresses Key Points In A TCPA Case
July 06, 2011
The U.S. District Court for the Northern District of Illinois recently held that an insurer that had no duty to defend an insured in a Telephone Consumer Protection Act (TCPA) case, but did, was entitled to recover defense costs from two insurers who did not defend, but who should have. Maxum Indemnity Co. v. Eclipse Manufacturing Co., 2011 WL 2415629 (N.D. Ill. June 13, 2011).
The insured, M&M Rental Center, was represented by Hardt, Stern & Kayne P.C. and Dykema, Gossett PLLC.
Dykema, Gossett PLLC, Anderson & Wanca and Bock & Hatch LLC represented the underlying plaintiffs, Robert Hinman and Italia Foods.
With respect to the three insurance companies, Tressler LLP represented Maxum and Security Insurance Co. of Hartford (Security) and Senak, Smith & Michaud Ltd. represented First Specialty Insurance Corp. (FSIC).
Background and Settlement
In November 2005, Eclipse Manufacturing brought the original underlying class action against M&M alleging violation of the TCPA for transmission of an unsolicited fax on June 23, 2005, advertising M&M's event planning services. Eclipse assigned the cause of action to its principal, Hinman, and he and Italia Foods filed an amended complaint targeting not only the June 23, 2005, fax but also one on Oct. 29, 2004, and faxes on other unspecified dates.
The action was certified as a class, consisting of persons who were sent unsolicited faxes by M&M for four years prior to the filing of the lawsuit. The certification order, which was entered by U.S. District Judge Elaine Bucklo, was not clear whether only business entities were included or whether the class also included natural persons.
While the amended complaint identified two faxes, the class certification motion identified those two and three earlier faxes for a total of five. Bucklo found that each fax was sent to between 3,700 and 4,400 recipients. Only the Oct. 29, 2004 and June 23, 2005, faxes, however, were introduced into the record and Bucklo awarded statutory damages of about $3.8 million for those two violations by way of summary judgment.
Hinman and Italia then filed a motion to reconsider, arguing that there were fact issues on the three earlier faxes. Settlement discussions ensued and M&M eventually agreed to a judgment against it for $5.8 million apportioned among the five faxes and executable only against non-M&M and non-FSIC insurance policies. As part of the settlement, FSIC agreed to pay $100,000 into a trust for the benefit of the class. Bucklo made a fairness finding and, as a condition of settlement, the earlier summary judgment was vacated.
Insurance Coverage
Maxum issued a commercial general liability (CGL) policy to M&M for the period Feb. 1, 2004 to Feb. 1, 2005. It included coverage for personal and advertising injury, defined as including right-to-privacy claims. The policy also contained a provision that for mixed claims, i.e., lawsuits alleging damages for covered and uncovered claims, the insured had to agree to a reasonable allocation of defense costs.
Security issued a CGL policy to M&M for Feb. 1, 2000 to Feb. 1, 2004, which included personal and advertising coverage, defined as including a right to privacy.
FSIC issued a policy to M&M effective for the period Feb. 1, 2005 to July 1, 2005. It included personal and advertising coverage, but invasion of privacy was not included within the definition.
As indicated above, FSIC participated in the defense and it incurred some $643,000 in defense costs and fees. Maxum and Security received notice of the litigation by July 2006 and they brought the instant declaratory judgment action for a determination of their defense and indemnity obligations. About $576,000 of the defense costs incurred by FSIC were incurred after July 2006.
Duty to Defend
The parties filed cross summary judgment motions and in an opinion by U.S. District Judge Joan H. Lefkow, the court basically ruled in favor of FSIC.
With respect to the duty to defend, Lefkow found that none of the policies provided property damage protection, i.e., for loss of use of paper and ink because M&M's conduct was intentional. On the other hand, she found that, under Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352, 860 N.E.2d 307 (2006), the policies provided coverage for the TCPA claims to the extent they covered privacy interests and the class members' privacy interests were implicated.
While the Maxum and Security policies included privacy protection, Lefkow nonetheless agreed with them that only individuals have privacy interests protected by the TCPA, not business entities. She thus had to determine if the class definition included individuals and she concluded that the definition did not foreclose that possibility, although the number may be small.
A further duty-to-defend issue involved whether any violation occurred during a particular insurer's policy period. Security argued that the only two relevant dates were Oct. 29, 2004 and June 23, 2005, the dates of the two faxes introduced in court and that these dates were outside its policy period. Lefkow disagreed, however, finding that there was no question but that faxes were actually sent during Security's policy period, even though they were not introduced in court.
She thus concluded that both Maxum and Security had a duty to defend, while FSIC, whose policy did not extend to privacy coverage, did not.
Equitable Contribution
Two issues arose concerning contribution. One was whether FSIC, not having a duty to defend, defended as a volunteer, thus negating its right to contribution for defense costs. Lefkow found that FSIC was not a volunteer. She said it may have acted out of an abundance of caution, but that ultimately it did what it was supposed to do under Illinois law, defend under a reservation of rights. It was therefore entitled to reimbursement of defense costs from the other insurers.
The second issue was enforcement of the mixed claim allocation provision in the Maxum policy. Lefkow found that it should be enforced, in accordance with the language of Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 828 N.E.2d 1092 (2005), allowing an insurer to seek reimbursement of defense costs pursuant to a specific policy term. Accordingly, Maxum would be required to pay only defense costs that could reasonably be allocated to claims covered by its policy.
Duty to Indemnify
With respect to the duty to indemnify, Lefkow observed that a key issue was whether the $5.8 million settlement was entered into in reasonable anticipation of personal liability. While two of the faxes here were introduced into evidence and were part of Bucklo's original judgment (later vacated based on the settlement), three faxes were not introduced and Lefkow found that Hinman's and Italia Foods' argument for reasonableness based on those three faxes was a stretch. She nevertheless found a fact issue and denied summary judgment for apportionment as to the three faxes.
A second issue was whether any allocation of the settlement could occur in light of the fact that coverage existed only with respect to a subsection of the plaintiff class, i.e., for faxes sent to individuals not associated with a business entity. Lefkow ended up denying summary judgment on this issue as well and gave the parties the opportunity to undertake discovery of the extent of any indemnity obligation for the individuals.
The court therefore granted FSIC's summary judgment and partially granted and denied the other motions in accordance with it ruling.
Key Points
(1) Coverage under a typical CGL policy for TCPA claims exists only with respect to individuals.
(2) An insurer providing a defense under a reservation of rights ordinarily will not be regarded as a volunteer for contribution purposes.
(3) Mixed claim allocation-of-defense provisions in policies are enforceable.
