"Blast Fax" Telephone Consumer Protection Act (TCPA) Damages Covered Under Commercial General Liability (CGL) Policy
In Standard Mutual Insurance Co, v. Lay, 2013 IL 114617, the court held that damages awarded pursuant to the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227(b)(3) (the “TCPA”) constitute covered damages under a commercial general liability (“CGL”) policy.
In the underlying lawsuit, Ted Lay Real Estate Agency contracted with Business to Business (“BTB”), a so-called “blast fax” service, to send thousands of fax advertisements to Illinois residents. BTB falsely represented to Lay that the recipients had consented to receive fax advertisements. Recipients of the unsolicited fax advertisements brought a class action against Lay alleging violations of the TCPA, which makes it unlawful to send an unsolicited advertisement to a fax machine and authorizes damages of $500 per violation.
Lay tendered its defense of the TCPA class action to its CGL insurer, Standard Mutual Insurance Co. (“Standard Mutual”). Although Standard Mutual agreed to defend the action, it reserved its rights to deny coverage on a number of grounds and also sued Lay, seeking a declaration that statutory damages awarded pursuant to the TCPA constitute punitive damages which, according to Standard, are uninsurable under Illinois law. The appellate court agreed with Standard and held that the TCPA settlement was not covered based on its conclusion that the TCPA was a “penal statute” and, therefore, coverage was precluded based on Illinois public policy.
The Illinois Supreme Court disagreed with Standard and reversed the appellate court, holding instead that the TCPA settlement was covered because the TCPA is a remedial statute rather than a penal statute, and liquidated damages awarded pursuant to the TCPA are not punitive damages. In so holding, the court discussed the legislative history of the TCPA, noting that the statutory damages of $500 per violation authorized by the TCPA could be viewed as compensation for the annoyance and inconvenience of receiving unsolicited faxes and loss of paper and ink, and also as an incentive for aggrieved parties to enforce the TCPA.
Because the court concluded that damages awarded pursuant to the TCPA were not punitive damages, the court did not address whether they would have been covered pursuant to the exception to Illinois’ prohibition on insurance coverage for punitive damages when the punitive damages are for vicarious liability. See Scott v. Instant Parking, Inc., 245 N.E.2d 124 (Ill. App. Ct. 1969).
For more information on coverage for statutory damages, see Evaluating Coverage for Class Actions Seeking Statutory Minimum Damages: Covered Loss or Excluded Penalties? PLUS Journal (Nov. 2012).