Why it matters: Creative pleading didn’t bring a Telephone Consumer Protection Act (TCPA) lawsuit within the scope of coverage, even where the underlying plaintiffs amended their complaint to allege state law conversion claims in the face of a TCPA policy exclusion, a federal court in Illinois determined. Asserting violations of state consumer protection law and the federal statute, the recipient of an unsolicited fax ad sued Domino Plastics. The parties reached a $17.75 million deal that included Domino signing over its rights under two insurance policies to the underlying plaintiff. Prior to the agreement, the underlying plaintiff had amended the complaint to add an additional state law count for conversion. When the plaintiff tried to enforce the settlement agreement, the insurers refused based on policy exclusions for TCPA actions. While the Illinois federal court noted the “great élan” employed by the plaintiff to avoid the TCPA exclusions, it nevertheless held that they applied because the conversion claim arose under the TCPA.
Detailed discussion: Addison Automatics received an unsolicited faxed advertisement from Domino Plastics Co. and filed a putative class action in Illinois state court in 2010. The complaint alleged violations of the Telephone Consumer Protection Act (TCPA) and the state’s Consumer Fraud and Deceptive Business Practices Act. The plaintiff amended the complaint to add a claim for conversion under Illinois state law.
In 2012, the parties settled the suit, with a state court judge entering judgment for $17.75 million. As part of the agreement, Domino assigned its rights in two insurance policies to the plaintiff class: a commercial general liability (CGL) policy issued by Twin City Fire Insurance Co. and an umbrella policy provided by Hartford Casualty Insurance Co.
Addison sought to enforce the judgment against the insurers, who refused to indemnify the class based on nearly identical exclusionary provisions in the two policies.
In an exclusion for “Violation of statutes that govern e-mails, fax, phone calls or other methods of sending material or information,” the Twin City policy included “ ‘Bodily injury’ or ‘property damage’ arising directly or indirectly out of any act or omission that violates or is alleged to violate[ ]” the TCPA as well as corollary state laws. Hartford’s exclusion was almost identical.
Addison told the court that the state law conversion claim added to the underlying complaint triggered coverage under the policy because it was not covered by the TCPA exclusions.
But U.S. District Court Judge John Z. Lee disagreed, siding with the insurers. He relied heavily on a 2014 decision from the Illinois Appellate Court in G.M. Sign v. State Farm Fire & Cas. Co., where the court confronted similar facts and determined that a TCPA exclusion negated any potential for coverage despite an attempt to plead around the exclusion with an amended complaint featuring claims for conversion.
“As in G.M. Sign, Addison filed an amended complaint to try to circumvent the exclusionary provisions and now contends that the conversion claim in the Domino lawsuit requires different elements of proof than a TCPA claim,” the court said. “Addison also argues that the conversion claim that is alleged in the amended complaint is based, not only on unsolicited faxes that contained advertisements, but unsolicited faxes that did not contain advertisements, thus asserting a claim that falls outside of the exclusions’ scope. Although these arguments may have superficial appeal, an examination of the amended complaint and the policy language reveal their flaws.”
Judge Lee focused on the language of the policies themselves. “A close reading of the exclusionary provisions reveals that their focus is not on the legal elements of a particular claim asserted by the underlying plaintiff, but the factual cause of the ‘bodily injury’ and ‘property damage’ that is alleged in the underlying complaint,” he wrote. “So long as the injury and damage alleged in the operative complaint ‘arise directly or indirectly out of any action or omission that violates or is alleged to violate’ the TCPA, the claims asserting the injury (whatever the particular legal theory may be) fall within the purview of the exclusions. That is what the language of the exclusionary provisions requires.”
Addison’s efforts to argue that some of the faxes covered by the deal included some that didn’t violate the TCPA but amounted to conversion failed. The conversion claim in Addison’s amended complaint incorporated the same allegations that formed the basis for the TCPA claim, the court said, and “[t]he injury and damage alleged in the conversion claim thus fall within the plain language of the exclusionary provisions.”
The titles of the TCPA exclusions also failed to sway Judge Lee, who said the title alone did not dictate the core of the contractual inquiry. While Addison argued that the insurers could have chosen broader language for their TCPA exclusions, the court was not persuaded.
“Addison attempts, with great élan, to avoid the clear operation of the TCPA exclusions and diminish the persuasiveness of G.M. Sign,” the judge said. “But its attempts fall short. A plain reading of the TCPA exclusions reveals that they encompass claims for injury or damage that arise directly or indirectly out of any actions that are alleged to have violated the TCPA. The underlying complaints in the Domino lawsuit concerned unsolicited facsimiles that allegedly violated the TCPA. Therefore, the TCPA exclusions precluded any coverage for defense of the underlying lawsuit and foreclosed any duty to indemnify.”
The court also adopted the insurer’s position that the policies further foreclosed indemnification because they only provided coverage for accidental property damage. A recipient’s use of paper and ink when Domino sent a fax was an expected, not unplanned, result, Judge Lee wrote, preventing coverage.
To read the opinion in Addison Automatics, Inc. v. Hartford Casualty Insurance Co., click here.