Three, Two, One, Blast Off! Illinois Court Finds Coverage For Blast Fax TCPA Violations

Last year, the Illinois Supreme Court held statutory damages of $500 per occurrence for violations of the Telephone Consumer Protection Act (TCPA) were not punitive in nature and reversed an Illinois appellate court decision precluding insurance coverage for TCPA class actions on that basis. Standard Mutual Ins. Co. v. Lay, 2013 IL 114617 (2013). The court remanded to the appellate court for consideration of the insurer's remaining arguments against coverage. On January 23, 2014, that court rejected those remaining arguments and concluded that the insurer was obligated to cover the settlement in the underlying TCPA class action. Standard Mutual Ins. Co. v. Lay 2014 IL App (4th) 110527-B (Ill. App. 2014).

The events giving rise to the case began in 2006, when Lay, a real estate agency, sent out a blast fax advertisement in violation of the TCPA. A class action ensued against Lay in 2009, and Lay tendered the claim to its insurer, Standard Mutual Insurance Company. Standard undertook the defense under a reservation of rights. Standard also filed a declaratory judgment action to determine whether it was obligated to cover the claim under Lay's policy.

Meanwhile, in the underlying class action, Lay eventually settled with the plaintiff for the full amount sought in the complaint ($1,739,000 plus costs). In return, Lay received a promise by the class not to execute on any of Lay's property or assets, other than its insurance policies with Standard. Lay then assigned its rights against Standard to the class.

The trial court initially held that Standard had no duty to indemnify Lay for the underlying class action, and therefore was not responsible for the settlement. The appellate court affirmed, finding that the statutory damages of $500 per occurrence provided under the TCPA were punitive damages and therefore uninsurable under Illinois law. In 2013, the Illinois Supreme Court disagreed and reversed the appellate court's ruling, finding that TCPA damages are not punitive in nature and therefore are insurable under Illinois law. (For an in-depth discussion of the Illinois Supreme Court's ruling, see our previous post "Illinois Supreme Court Finds Insurance Coverage for TCPA Claims under Traditional Liability Policies.") The court then remanded the case the appellate court for consideration of Standard's remaining arguments.

Having lost on its punitive damages position, Standard asserted that two of the three policies at issue only covered...