The Illinois Supreme Court held on May 23, 2013, that claims based on alleged violation of the Telephone Consumer Protection Action (TCPA) are covered under traditional general liability policies. Standard Mut. Ins. Co. v. Lay, 2013 IL 114617 (Ill. 2013). In so ruling, the Court overruled the decision of a lower appellate court, which had affirmed the trial court’s holding that the claims were not covered. The Court also broke with the determinations of courts from several other jurisdictions, which previously found that TCPA claims are not covered.
In Lay, Locklear Electric, Inc. (Locklear) filed a class action complaint against Ted Lay Real Estate Agency (Lay), after Lay’s agent sent a “blast fax” advertisement to approximately 5,000 people and entities. The plaintiffs sought the TCPA-prescribed damages of $500 per violation, as well as injunctive relief. Lay consented to a court-approved settlement of over $1.7 million, and Locklear agreed to seek satisfaction of the judgment exclusively from Lay’s insurance proceeds.
Lay’s insurer, Standard Mutual Insurance Company (Standard), then commenced a declaratory judgment action to determine its liabilities under its commercial general liability and businessowners liability policies. Among the issues to be decided was whether the TCPA constitutes a “penal statute.” Standard’s policies preclude coverage for willful violations of penal statutes. The trial court granted Standard’s motion for summary judgment on that point, which was affirmed on appeal. The appellate court held that TCPA damages are punitive and “are not insurable under as a matter of law under Illinois law and public policy and are not recoverable from Standard.” The court reasoned that the “actual damages incurred by a violation of the TCPA are more in the nature of an irksome nuisance.... Actual damages to any one individual are likely to be small. Five hundred dollars then becomes a predetermined amount of damages and is clearly not meant to compensate for any actual harm.” Id. at 10.
The Illinois Supreme Court disagreed. The court reviewed the legislative history of the TCPA, and concluded that the $500 liquidated damages under the statute were meant, in part, to be an incentive for private parties to enforce the TCPA. “Whether we view the $500 statutory award as a liquidated sum for actual harm, or as an incentive for aggrieved parties to enforce the statute, or both, the $500 fixed amount clearly serves more than punitive or deterrent goals.” Id. at 10-11. The court also held that the availability of treble damages “is but one part of the regulatory scheme, intended as a supplemental aid to enforcement rather than as a punitive measure.” Id. at 11. Consequently, the court concluded, “We hold that the TCPA is a remedial and not a punitive statute, and that the $500 liquidated damages per violation are not punitive damages.” Id. Acknowledging that its decision was at odds with holdings of the 10th Circuit, the Colorado Supreme Court, and a New York appellate court, the court stated that its ruling was based on the “true intent of Congress in enacting the TCPA. Id.
The court declined to address the issue of whether punitive damages are insurable under Illinois law, noting that resolution of that issue was not necessary to the disposition of the case. The case was remanded to the appellate court to address other remaining issues.
As TCPA class actions and other similar statutory-based claims continue to proliferate across the country, we can expect defendants to pursue coverage under traditional liability insurance policies based on the Illinois Supreme Court’s reasoning here.