In another interesting case involving Pekin Insurance Company from the Illinois Appellate Court for the First Division, Cook County, (Pekin Insurance Company v. XData Solutions, Inc.), the court considered the question of whether Pekin had a duty to defend its insured, XData, in a class action suit charging XData with sending numerous unsolicited fax transmissions in violation of the Telephone Consumer Protection Act (“TCPA”).
The class action suit, filed in January 2009, alleged that XData had sent thousands of unsolicited fax advertisements to various recipients, including the named plaintiff Targin Sign Systems, Inc., during the year 2005.
In February of 2009, XData tendered the defense of the suit to Pekin, which denied coverage in March of 2009. Thereafter, XData settled the suit with Targin, with no input from Pekin, for an agreed judgment for $1,975,000. The settlement provided that the judgment was to be paid solely out of the proceeds from XData’s insurance policy with Pekin, which covered the period from December 1, 2005 through December 31, 2005. The court order approving the settlement agreement specifically stated that XData believed that it had the recipients’ consent when it sent the faxes, and that there was no intent by XData to injure any of the recipients.
While the underlying suit was pending, Pekin filed a declaratory judgment suit against both XData and Targin claiming that it had no duty to defend XData in the underlying action. In that declaratory suit, Targin’s motion for summery judgment was granted and the trial court found that Pekin owed XData both a duty to defend and to indemnify with respect to the class action case.
On appeal, Pekin raised a number of grounds why the lower court summary judgment order should be reversed. The first was that there was no coverage under the “advertising injury” part of its policy with XData. Pekin admitted that “advertising injury” could include a claim under the TCPA, but it argued that this was true only for a “natural person” and not a corporation.
After analyzing the law of insurance coverage regarding advertising injury and a recipient’s right to privacy, the Appellate Court concurred that the sending of an alleged unsolicited fax was covered under the “advertising injury” part of the policy. Analyzing an earlier Illinois Supreme Court case, Valley Forge Insurance Co. v. Swiderski Electronics, Inc., the Court concluded, contrary to Pekin’s argument, that as far as coverage was concerned there was no difference between a natural person and a corporation. Interestingly, the Court noted that the Supreme Court in Valley Forge had rejected and refused to follow an earlier Seventh Circuit case which had found that corporations lacked seclusion rights, and therefore there was no insurance coverage for such cases as to corporations. Declining to follow that ruling, the Appellate Court held that the allegations in the class action complaint triggered Pekin’s duty to defend and that Pekin breached its contract (policy) with XData by declining coverage.
Second, Pekin argued that the Court should apply Indiana rather than Illinois law (XData was an Indiana corporation), and that Indiana law did not extend coverage for an “advertising injury” to TCPA claims. The Court rejected this argument, noting that there was no Indiana law on this issue (and showing that Pekin’s argument was based on a mis-reading of Federal case law), thus there could be no conflict between Illinois law, which did speak to the coverage issue, and Indiana law, which did not.
Third, Pekin contended that under Indiana law, the class actions complaint’s claim for conversion did not fall under the policy’s coverage for “property damage” because it did not allege an “occurrence” as defined in the policy. Again, the Court rejected this argument for the reason that it found no conflict between Indiana law and Illinois law, Indiana law being silent as to TCPA claims. Under Illinois law, as conceded by Pekin, there was both an “occurrence” and “property damage” with the definitions as set by the policy.
Fourth, the Court rejected Pekin’s argument that by entering into a settlement with Targin, XData violated the policy’s provision against “voluntary payments” of underlying claims made without the insurance company’s consent (the policy provided that no insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent). The Court noted that the settlement was made only after the defense of the underlying case had been tendered to Pekin, which defense had been refused. As the Court stated, “Pekin [by refusing to defend] charted its own course and cannot now complain that it would have had a better finish had XData not been in charge.”
Finally, the Court concluded, although it didn’t have to, that the settlement between XData and Targin was not unreasonable given the large number of unsolicited faxes alleged and the statutory damages available as to each such offense. Applying such damages to the case, the Court noted that XData faced potential damages far in excess of the approximate $2 million for which the case was settled.
This case represents a substantial defeat for Pekin, and for insurers generally in Illinois. Both insurers and insureds should take heed of it, and conduct themselves accordingly.
