No Coverage For Telephone Solicitations Under Liability Policy

January 13, 2015 / Writing and Speaking

The 1st District Appellate Court recently held that a professional liability policy issued to an insurance broker covering negligent acts “in rendering services for others” did not cover liability arising from automated, pre-recorded telephone calls made for soliciting business.

The claimant in Margulis v. BCS Insurance Co., 2014 IL App (1st) 140286 (Nov. 26, 2014), Scott Margulis, was represented by Anderson & Wanca of Rolling Meadows. Hinkhouse, Williams, Walsh LLP represented the broker’s insurer, BCS.

Margulis brought a class action in Missouri alleging that the insured, Bradford E. Dixon, doing business as Bradford & Associates, an insurance agent or broker, had transmitted unsolicited, automated telephone calls advertising his business services. The complaint alleged that the calls were in violation of the Telephone Consumer Protection Act, 47 U.S.C. §227(b)(1)(B), and sought $500 per violation in statutory damages.

BCS provided claims-made professional liability coverage for Bradford. According to the insuring agreement, BCS agreed to pay damages caused by Bradford’s negligence “arising out of the conduct of the business of the insured in rendering services for others” as a licensed agent or broker. The policy provided for a $1 million per claim and aggregate limit.

Bradford tendered to BCS, which denied coverage on various grounds, including that Bradford’s business advertising did not involve the provision of services for others. Margulis and Bradford subsequently settled the class action for $4.9 million and the entry of judgment in that amount, with the judgment to be satisfied exclusively from the proceeds of Bradford’s insurance policies.

Margulis then filed this suit in Illinois claiming that BCS breached its duty to defend Bradford and seeking a determination that BCS was liable for the full amount of the settlement on an estoppel theory. The parties filed cross-motions for summary judgment, and the trial court granted summary judgment for BCS. Margulis took this appeal.

Analysis

In an opinion by Justice James R. Epstein, the 1st District affirmed. He initially addressed Margulis’ argument that Bradford’s advertising sought to induce the telephone call recipients to use Bradford’s specialized services as an insurance broker, and that a potential for coverage therefore arose under the “in rendering services for others” language of the insuring agreement. Margulis further contended that that language is neither definite nor specific and is therefore ambiguous and should be construed in favor of coverage.

Epstein disagreed. He observed that the “rendering services for others” language could not be ignored or rendered meaningless by interpretation.

He also agreed with BCS that the kinds of services covered by the insuring agreement would include discussing insurance needs with a customer, counseling on best-suited products, procuring or renewing coverage and the like. Negligence in any one of these kinds of activities would give rise to coverage.

Epstein further took note that the class-action allegations in Missouri contended that no established business relationship had been established between Bradford and the members of the class at the time of the calls. One therefore could not conclude that Bradford was negligent in “rendering services for others” as a licensed broker due to the fact that the recipients were not his clients or customers.

Epstein also looked to other analogous situations and found Westport Insurance Corp. v. Jackson National Life insurance Co., 387 Ill.App.3d 409 (2d Dist. 2008), close to being on point.

The professional liability policy at issue in that case, like the one here, was issued to an insurance broker and contained the “in rendering services for others” language.

In granting summary judgment to the insurer based on a claim of unsolicited faxes, the Westport court held that the offer to perform a professional service did not constitute a professional service in its own right.

Margulis argued that Landmark American Insurance Co. v. NIP Group, Inc., 2011 IL App (1st) 101155, was closer to being on point than WestportLandmark was yet another fax solicitation case against an insurance professional, but the policy involved appeared to provide broader coverage, including coverage for advertising liability. Epstein found the case less persuasive than Westport for that reason.

He also examined other cases and ultimately concluded that the actual language of the policy controls the determination of what risks are covered.

The court therefore affirmed summary judgment for BCS.

Key Point

Language in a professional liability insuring agreement extending coverage to the insured’s liability arising out of rendering services for others, extends coverage only to the insured’s negligent acts involving customers or clients, not to those involving persons who are neither customers nor clients.

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