Illinois Appellate Court “State Farm Not Responsible for $4.9 Million TCPA Judgment

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On May 2, 2014, the Second District Appellate Court in Illinois issued a unanimous opinion in favor of Dykema client State Farm Fire and Casualty Co., reversing the Lake County Circuit Court’s decision. Dykema members Michael Borders and Rosa Tumialan represented State Farm. GM Sign Inc., et al v. State Farm Fire and Casualty Co. (2-13-0593) is the first published state ruling construing the ISO form of the Distribution of Materials in Violation of Statute Exclusion (commonly referred to as the “TCPA exclusion”) under the Illinois law as related to junk fax claims.

The Appellate Court ruled that State Farm had no obligation to defend or indemnify its insured for the tendered complaint involving a stipulated $4.9 million junk fax class action settlement agreed to by its insured. The Telephone Consumer Protection Act (TCPA) exclusion applied to the alternative counts of conversion and consumer fraud and that State Farm had no duty to defend or to indemnify the plaintiff in the underlying suit. The court ruled that it’s denial of coverage was not wrongful.

  

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“Fundamentally, the court agreed that the policy exclusion for claims arising directly or indirectly out of actions which violate the TCPA extended to alternative theories premised in the same facts,” said Michael Borders, Office Managing Member of Dykema’s Chicago office. “We are very pleased with this outcome and believe that this decision may have nationwide ramifications for the insurance industry and for similarly styled TCPA class action cases moving forward.”

In 2010, GM Sign, Inc. filed a lawsuit against State Farm insured Michael Schane and his company, Academy Engraving Company, for faxing unsolicited advertisements. In the complaint, it was claimed that the defendant’s conduct violated the TCPA, constituted common law conversion by consuming paper and toner, and constituted a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. GM Sign and Schane later entered into a stipulated settlement and judgment to be satisfied only from any available insurance. After agreeing to settle, the plaintiff filed an amended complaint for the sole purpose of triggering insurance coverage for the stipulated judgment.

Now, the insurance industry implements exclusions into policies beginning in 2006 that expressly exclude coverage of TCPA and other statutory claims. Class action plaintiffs responded by arguing that these exclusions are ambiguous, unlawfully prevent coverage and/or do not otherwise apply to the alternatively pled common law and statutory claims. The GM Sign rejected these arguments. “This is a significant case that other courts will consider when ruling on similar matters,” said Tumialan, a member of Dykema’s Chicago office. “It is the first published case in Illinois construing the exclusions and among the first to address the scope of a TCPA exclusion nationwide.”

Image credit: janklowlaw.com