Telephone Consumer Protection Act Exclusion Clause Precludes Other Moves

September 29, 2016 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin [September 6, 2016]

The 1st District Appellate Court recently held that a policy exclusion applicable to an insured’s liability for sending unsolicited faxes also relieved the insurer from defending conversion and consumer fraud claims based on the same conduct.

The plaintiffs, underlying claimants seeking coverage, were represented by Anderson & Wanca of Rolling Meadows. Best, Vandarlaan & Harrington of Naperville represented the insurer, Illinois Casualty Co. The case is Mortesa “Marty” Fayezi & American Awning and Window Co. v. Illinois Casualty Co., 2016 IL App (1st) 150873 (June 30, 2016).

Illinois Casualty provided commercial general liability coverage for Pat’s Pizzeria Inc. In 2006, Pat’s transmitted unsolicited advertisements by facsimile to some 3,636 recipients. One of the recipients subsequently brought a class action under the Telephone Consumer Protection Act, 47 U.S.C. Section 227, seeking statutory damages of $500 per violation.

A second count of the complaint alleged common-law conversion. And a third alleged violation of the Illinois Consumer Fraud Act, 815 ILCS 505/2.

Pat’s tendered defense of the case to Illinois Casualty, which denied coverage. It did so based on a policy exclusion for any liability “arising out of” the Telephone Consumer Protection Act.

Subsequently, Pat’s reached a settlement with the plaintiffs for $500 per fax, or $1,818,000, payable solely out of the proceeds of Pat’s liability insurance coverage. The court in the underlying action approved the settlement.

The plaintiffs then brought the instant action against Illinois Casualty in an attempt to recover the settlement amount. In response to Illinois Casualty’s motion to dismiss based on the act exclusion, the plaintiffs filed an amended complaint claiming, “on information and belief,” that the particular policy on which Illinois Casualty relied for the 2005-06 policy year, was a renewal of an earlier policy that did not contain that exclusion.

The amended complaint further alleged that Illinois Casualty did not give adequate notice to Pat’s of the act exclusion when it was added in 2005. And the plaintiffs claimed that the allegations in the underlying action “raised the potential” for act violations in earlier years where no exclusion applied, which Illinois Casualty would be obligated to defend.

The insurance company filed a motion to dismiss under 735 ILCS 5/2-619(a)(9), attaching an affidavit by an underwriter stating that the policy for 2005-06 was the first policy issued to Pat’s and was not a renewal of any earlier policy. Based on that affidavit, which was not refuted, and the act exclusion, the trial court dismissed, and the plaintiffs took this appeal.

The Section 2-619 affidavit

In an opinion by Justice Joy V. Cunningham, the 1st District affirmed. She first addressed the plaintiffs’ procedural argument that the affidavit supporting Illinois Casualty’s Section 2-619 motion did not raise “affirmative matter” as allowed by that section, but rather improperly sought to address the essential issue of liability.

Cunningham disagreed. She observed that under Piser v. State Farm Mutual Automobile Insurance Co., 405 Ill.App.3d 341 (2010), a defense that “completely negates the cause of action or refutes crucial conclusions of law or conclusions of material fact” may be the subject of an affidavit in support of a Section 2-619 motion. The affidavit here, moreover, qualified.

In addition, she agreed with Illinois Casualty that the plaintiffs’ failure to oppose the affidavit, or to file an affidavit under Supreme Court Rule 191(b) seeking the opportunity to take discovery on the issue of prior coverage, barred them from taking discovery on that subject.

She also disagreed with the plaintiffs’ argument that compliance with Rule 191(b) is not always necessary where the movant is relying on the absence of evidence supporting its opponent’s claim, as was Illinois Casualty here. Case law so stating, said Cunningham, does so in a summary judgment context, not on a motion to dismiss. Dismissal here based on the affidavit, therefore, was proper.

Counts 2 and 3

The plaintiffs further contended that even if the act exclusion were held to apply to the act count of their underlying complaint, it should not be held to apply to the conversion or Consumer Fraud Act counts.

Cunningham rejected this argument based in part on G.M. Sign Inc. v. State Farm Fire & Casualty Co., 2014 IL App (2d) 130593, where a similar argument was made. There, as here, the only facts pleaded in the underlying complaint in support of a different cause of action, were facts that also established an act violation.

Moreover, Cunningham said, the allegations of the underlying complaint were not vague or uncertain as to what was being claimed. Thus, all three counts were clearly predicated on the same facts, namely, Pat’s transmission of unsolicited fax advertisements in March 2006. All three counts therefore asserted liability arising out of the act, implicating the act exclusion.

The court therefore affirmed the dismissal in favor of Illinois Casualty.

Key points

  • An affidavit in support of a Section 2-619 motion is proper if it negates the cause of action or refutes crucial conclusions of law or conclusions of material fact.
  • Case law suggesting that compliance with Rule 191(b) concerning unavailable facts is unnecessary in anticipation of summary judgment, does not apply to a Section 2-619 motion to dismiss.
  • A policy exclusion for liability arising out of violations of the Telephone Consumer Protection Act also excludes coverage for common-law or other statutory claims, if the factual basis for such claims would constitute a violation of the Telephone Consumer Protection Act.
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