Illinois Appellate Court Holds Damages Under TCPA Uninsurable As A Matter of Law

The Fourth District Appellate Court held that statutory damages for violation of the Telephone Consumer Protection Act (47 U.S.C. § 227 et seq.) are in the nature of punitive damages and are uninsurable under Illinois law and public policy.  See Standard Mut. Ins. Co. v. Lay, No. 4-1-0527, 2012 Ill. App. LEXIS 291, *19 (4th Dist. Apr. 20, 2012).  In that case, the insured real estate agency engaged a fax broadcaster to send a blast fax to recipients who, according to the broadcaster, had consented to receiving fax advertisements.  Id. at *2-3.  The insured was named in a class action in which class members sought $1.739 million in damages.  Id. at *1-2.  The insured ultimately settled for the full amount sought and, in exchange for an agreement not to execute on any of the insured’s assets, assigned to the class representative its rights under three insurance policies issued by Standard Mutual Insurance Company.  Id. at *7-8.  On cross-motions for summary judgment, Standard argued that statutory damages under the TCPA, at $500 per unauthorized fax, far exceed any fax recipient’s actual damages and therefore are the equivalent of punitive damages and uninsurable under Illinois law.  Id. at *10, 14.   The court agreed, relying on the deterrent purpose of the statute and the fact that the damages sustained by a TCPA claimant are miniscule, especially when compared to the nearly automatic $500 per violation damages amount. 

Punitive damages serve two purposes – to punish the wrongdoer and to deter future wrongdoing.  Id. at *14-15.  Seizing on the deterrent purpose of punitive damages, the court explained that the TCPA itself is intended to deter conduct:  “The purpose of the TCPA is to deter future sending of unwanted fax transmissions by those sending the faxes and deterring others from doing the same by shifting the cost and imposing penalties on those sending the unwanted fax transmissions.”  Id. at *15.  According to the court, to permit an insured to shift to its insurer the responsibility for paying statutory damages would frustrate the TCPA’s deterrent purposes.  Id. at *16. 

Recognizing the dearth of Illinois cases holding that damages under the TCPA are uninsurable on public policy grounds because they purportedly resemble punitive damages, the court nevertheless rejected the authority from other jurisdictions finding TCPA to be a remedial rather than a penal statute.  Id. at *16-17.  The court reasoned that, “[w]hile redressing harm to fax recipients is one purpose of the TCPA, deterring fax senders from sending future faxes is also a purpose of the TCPA.”  Id. at *18.   Considering the distinction between remedial and penal statutes – the former impose liability only when actual damage results from a violation and liability is contingent on damage proven by a plaintiff, whereas the former imposes liability automatically upon a plaintiff establishing that the statutory violation occurred – the court noted that the TCPA is a strict liability whose damages are a penalty.  Id. at *18-19.   The court relied heavily on the fact that the statutory damages – $500.00 per fax – far exceeds the cost of paper and toner consumed by each such fax, noting that even “in the event of miniscule damages, the TCPA provides for a finding of the amount of damage or $500 per occurrence, whichever is greater.”  Id. at *19.  Because actual damages almost assuredly will be small, the damages amount of $500 “becomes predetermined” and “is clearly not meant to compensate for any actual harm.”  Id.  Thus, according to the Court, the damages are “a penalty . . . in the nature of punitive damages[,] not insurable as a matter of Illinois law and public policy . . . .”  Id. 

The decision is particularly troubling because of its potentially far-reaching implications regarding the insurability of statutory damages.  For example, where actual property damages are minimal, statutory damages might serve to incentivize plaintiffs to pursue claims for statutory violations because, without the prospect of recovering some meaningful amount as damages, a plaintiff might be reluctant to pursue a claim.  Moreover, the court’s analysis overlooks the fact that the damages associated with a violation of the TCPA include more than the paper and ink identified by the court.  Rather, the crux of the TCPA violation is an invasion of privacy for which damages are difficult to quantify.