Court Applies Advertising Coverage To TCPA Claim
November 02, 2011
The 1st District Appellate Court recently found coverage for claims brought under the Telephone Consumer Protection Act (TCPA) against a corporate insured, and, in addition, found that the insured had not breached the voluntary payments condition in the policy by entering into a settlement agreement with the claimant after the insurer denied coverage. Pekin Insurance Co. v. XData Solution, Inc., 2011 Ill. App. 102,769, 2011 WL 4578485 (1st Dist. Sept. 30, 2011).
The insured, XData, and claimant, Targin Sign Systems Inc., were represented by Anderson & Wanca of Rolling Meadows and Bock & Hatch LLC. Pretzel & Stouffer Chtd. represented the insurer, Pekin.
Background
XData was alleged to have sent some 4,600 unauthorized fax advertisements to recipients during 2005. As a result of the unauthorized faxes, Targin, one of the recipients, brought a class action against XData in early 2009 for violation of the TCPA, 47 U.S.C. Section 227, conversion and consumer fraud. It sought, among other damages, $500 for each unauthorized fax under the TCPA. The complaint included an allegation that Targin's and other class members' privacy interests had been violated.
XData tendered the defense of the class action to Pekin, issuer of a commercial general liability policy to XData. Pekin declined coverage in March 2009 and in April brought a declaratory judgment action seeking a determination of coverage obligations. Targin and XData subsequently entered into a settlement for $1,975,000, to be satisfied solely from the proceeds of XData's insurance policy; the circuit court approved the settlement in June 2009.
Targin filed a motion for summary judgment in the coverage action and Pekin filed a cross motion. The circuit court found that Pekin had a duty to defend and indemnify and consequently granted Targin's motion and denied Pekin's. Pekin then brought this appeal.
Corporate Privacy
In an opinion by Justice Themis N. Karnezis, the 1st District affirmed. He first addressed whether the claim against XData constituted an "advertising injury" under the Pekin policy. Such an injury included oral or written publication of material that violated a person's "right of privacy." Relying on language in Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill.2d 352, 860 N.E.2d 307 (2006), Pekin argued that such a right of privacy applied only to natural persons and not corporations.
Karnezis observed that the court in Valley Forge found "advertising injury" coverage for a TCPA claim under generalized allegations against the insured and he reasoned that if the general allegations in that case were sufficient to trigger coverage, "then the more specific allegations in the underlying complaint" also should be sufficient.
As for whether "advertising injury" coverage for privacy interests in an insurance policy should apply only to natural persons and not to corporations, Karnezis said the court in Valley Forge did not make such a distinction. He also observed that Valley Forge rejected the distinction between secrecy rights and seclusion rights, as recognized by the 7th U.S. Circuit Court of Appeals in American States Insurance Co. v. Capital Associates of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). He found this rejection significant in declining to recognize a distinction between corporate and individual privacy.
Karnezis further indicated that if the court in Valley Forge "intended for there to be a distinction between individuals and corporations, it would have discussed that distinction." In addition, he noted that TCPA claims generally apply to corporate entities. He concluded that the underlying allegations here triggered Pekin's duty to defend.
Choice of Law
Pekin argued that Indiana law, rather than Illinois law, should apply because XData is an Indiana corporation. It further contended that under two federal court decisions construing Indiana law, Indiana does not extend insurance coverage for an "advertising injury" to TCPA claims.
Karnezis responded that a choice of law determination is necessary only when a difference in law would make a difference in outcome. In his view, there was no conflict between Illinois and Indiana law because the two federal court decisions relied on by Pekin only "predicted" Indiana law and there was no state court decision on point. Therefore, Karnezis applied Illinois law.
'Occurrence'
Pekin further contended that the complaint against XData did not allege "property damage" or an "occurrence." Karnezis, however, construed the argument as relying, once again, on Indiana law, and he declined to find a conflict between the two states' laws because of the absence of Indiana state law interpreting claims based on the TCPA.
Voluntary Payment
Finally, Pekin argued that, by reaching a settlement of the underlying case, XData violated the "voluntary payments" provision of the Pekin policy. That provision prohibits an insured from voluntarily making a payment without the consent of the insurer.
Karnezis rejected the argument on the ground that XData settled with Targin and the class members only after tendering to Pekin and receiving Pekin's denial of coverage. "Having been abandoned by its insurer," according to Karnezis, XData did not breach the provision and, instead, Pekin "breached its duty to defend" by denying coverage. Under these circumstances, XData did not need Pekin's consent.
Karnezis acknowledged that the purpose of the voluntary payments provision is to prevent collusion, but he found no evidence of collusion here, since "Pekin charted its own course." He also observed that the settlement amount was within the $500 per violation contemplated by the TCPA.
Consequently, the court affirmed summary judgment in favor of coverage.
Key Points
- • Advertising injury coverage includes TCPA claims against a corporate entity.
- • Federal court "predictions" of state court law do not represent state law for purposes of determining the existence of a conflict as a predicate to making a choice of law selection.
- • The voluntary payment condition will not prevent an insured from settling with a claimant and then seeking coverage, if the settlement is reached after the insured has tendered to the insurer and the insurer has declined coverage.
