TCPA Lawsuit Quacks Again: Courts Continue to Apply Violation of Statutes Exclusion in Favor of Insurers

The Illinois Appellate Court recently modified and reissued an earlier ruling involving an insurer’s duty to defend and indemnify against an underlying TCPA lawsuit.  G.M. Sign, Inc. v. State Farm Fire & Cas. Co., No. 2-13-0593, 2014 IL App (2d) 130593 (Modified September 2, 2014). We previously reported on this important decision on May 19, 2014.  See, If It Walks Like a Duck and Talks Like a Duck … IL Appellate Court Applies Violation of Statutes Exclusion To Preclude Coverage for Non-TCPA Counts in Blast Fax Suit. After issuing its original ruling, G.M. Sign filed a petition for rehearing, which the court denied but with a modification to its original ruling.  Specifically, the Appellate Court instructed the trial court to grant declaratory judgment in State Farm’s favor and supplemented its earlier ruling by rejecting the underlying plaintiff’s attempt to trigger State Farm’s duty to defend for common law conversion and consumer fraud claims by filing an amended pleading.  Specifically, in reliance on a 2012 decision issued by the Southern District of Florida, the court chastised the underlying plaintiffs for its strategy of reversing course and purportedly changing the factual basis of their claim solely for the purpose of triggering an insurer’s duty to defend.  However, the amended pleading continued to contain all of the same or similar facts as the original pleading.  The court pointed out, in relevant part, that by the time the amended complaint had been filed, State Farm’s duty to defend was moot because a settlement had already been reached Since G.M. Sign, which was the first published appellate decision interpreting the standard ISO exclusion to conversion and consumer fraud causes of action, the United States District Court for the Southern District of Florida has also applied a similar Violation of Statutes Exclusion in precluding coverage for TCPA and conversion claims.  James River Ins. Co. v. Med Waste Mgmt., LLC, No. 1:13-cv-23608, 2014 U.S. Dist. LEXIS 138379 (S.D. Fla. Sept. 22, 2014). In James River, the underlying lawsuit contained causes of action for violations of the TCPA and common law conversion.  James River insured the fax sender, Med Waste Management.  Before James River ever received notice of the underlying lawsuit, substantial litigation occurred and a default judgment of $10,000,000 was entered against Med Waste pursuant to a settlement agreement.  After being notified of the underlying lawsuit, James River disclaimed any duty to defend in reliance on the Violation of Statutes exclusion and thereafter filed its complaint for declaratory judgment.  On cross-motions for summary judgment, the district court ruled in favor of James River. In applying the exclusion, the district court held that the common law conversion claim was unequivocally excluded because it was premised on the same underlying conduct – the transmission of unsolicited fax advertisements in violation of the TCPA.  The district court specifically noted that the exclusion applied unambiguously to all claims “arising directly or indirectly out of any action or omission that violates or is alleged to violate” the TCPA. The above rulings are further evidence of a trend whereby courts apply the Violation of Statutes exclusion to preclude coverage for all causes of action based on the TCPA violations, including those based on the sending of junk faxes.

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