Violation of Statutes Exclusions Bars Coverage Entirely for TCPA Claims
In Addison Automatics, Inc. v. Hartford Casualty Insurance Co., No. 13-cv-1922 (N.D. Ill. Mar. 31, 2015) the United States District Court for the Northern District of Illinois granted summary judgment in favor of the Hartford Casualty Insurance Co. and Twin City Fire Insurance Co. (collectively “Hartford”) and against Addison Automatics, Inc. (“Addison”). The district court held that Hartford had no duty to defend their insured, Domino Plastics, Inc. (“Domino”), because the Violation of Statutes Exclusions in the policies barred coverage entirely.
The underlying lawsuit was a class action filed by Addison against Domino for sending unsolicited fax advertisements in violation of the Telephone Consumer Protection Act (TCPA). The underlying lawsuit also included causes of action under the Illinois Consumer Fraud and Deceptive Business Practices Act and for common-law conversion. Domino and Addison agreed to an $18 million class-wide settlement, and as part of the settlement, Domino assigned to Addison its rights under its insurance policies to Addison. Addison then filed a complaint for declaratory judgment seeking to enforce the settlement under the policies issued to Domino.
Hartford moved for summary judgment based mainly on the policy exclusions entitled, “Exclusion – Violation Of Statutes That Govern E-Mails, Fax, Phone Calls Or Other Methods Of Sending Material Or Information.” They specifically barred coverage for “bodily injury,” “property damage,” or “personal or advertising injury” arising directly or indirectly out of any act or omission that violates or allegedly violates the TCPA. Hartford relied on G.M. Sign, Inc. v. State Farm Fire & Cas. Co. 18 N.E.3d 70 (Ill. App. Ct. 2014), where the Illinois Appellate Court found no coverage for TCPA claims pursuant to a similar exclusion. To evade the exclusions, Addison had filed an amended complaint that it argued opened the door to coverage under the conversion claim. The district court correctly disagreed. In relying on G.M. Sign, the district court stated, “rather than peering myopically at the legal elements of the conversion claim, the inquiry must be driven first and foremost by the language of the policies themselves.” Therefore, since the allegations of conversion arose out of the same conduct giving rise to the TCPA claim, the exclusions barred coverage.
In addition to barring coverage under the aforementioned exclusions, the district court further broadened its ruling by declaring that the conversion claim did not constitute “property damage” caused by an “occurrence.” The district court determined that in order for something to be an “occurrence” it must have been accidental, i.e., unplanned or unexpected. Since Addison’s usage of paper and ink to print the faxes was foreseen or expected by Domino, the district court reasoned that there could not have been any “property damage” caused by an “occurrence.” Notably, the district court followed a Seventh Circuit case holding similarly and disregarded contrary Illinois Appellate Court precedent, finding that the subsequent Appellate Court decision did not supersede the binding Seventh Circuit decision. Compare Am. States Ins. Co. v. Capital Assocs. of Jackson Cnty., Inc., 392 F.3d 939, 943 (7th Cir. 2004), with Ins. Co. of Hanover v. Shelbourne Assocs., 905 N.E.2d 976 (Ill. App. Ct. 2009).