PUNITIVE DAMAGES SOUGHT IN UNDERLYING ACTION NOT INSURABLE

Commercial General Liability	Punitive Damages
Telephone Consumer Protection Act (TCPA)	Class Action Suit

Theodore W. Lay d/b/a Ted Lay Real Estate Agency (Lay) faxed an advertisement for a specific sale property to Locklear Electric, Inc. (Locklear) and others. In doing this Lay violated the Telephone Consumer Protection Act (TCPA) because he had not received permission from any of them prior to sending the fax. Lay was sued in a class action with Locklear as the class representative.

Lay tendered defense of the claim to Standard Mutual Insurance Company (Standard). Standard took on the defense subject to a reservation of rights and also filed a declaratory judgment action to determine if its policies covered the claim. Lay was concerned and decided to move on its own. Its independent counsel settled the class action claim for $1,739,000 ($500 per unauthorized fax) plus costs which was the full amount the class action claim sought. In that settlement, Lay assigned its rights against Standard to the class in exchange for the class’ promise not to execute any of Lay’s property or assets other than the insurance policies with Standard.

Locklear, as the class representative, became actively involved in the declaratory judgment action that Standard ad filed. At trial, the Circuit Court, denied Locklear’s motion and granted Standard’s motion. Locklear appealed.

Locklear argued that Lay’s policies provided coverage for the underlying allegation under both its advertising injury and property damage provisions. It also argued that Standard’s failure to object to the settlement waived any right of consent it had to the settlement.

Standard argued that coverage did not exist under property damage or advertising injury. If such coverage was found, it then argued that the professional services and intentional acts exclusion would then remove coverage. Standard also disagreed with Lay regarding settling without its consent and disagreed with the settlement. Standard’s final argument was that the rate of $500 for each unauthorized fax was substantially was more than the actual damages any recipient incurred and therefore equivalent of punitive damages which are uninsurable in Illinois. Based on all of this, Standard contended that it did not have a duty to defend or indemnify Lay.

The appellate court agreed with Standard’s arguments and the circuit court’s decision. It held that Standard’s reservation of rights letter was acceptable. It agreed that the TCPA charge was a penalty and in the nature of punitive damages. Illinois law and public policy made them uninsurable and they could not be recovered from Standard.

The Appellate Court affirmed the Circuit Court’s decision to dismiss Locklear’s motion for summary judgment and to grant Standard’s motion for summary judgment.

Appellate Court of Illinois, Fourth District. Standard Mutual Insurance Company, Plaintiff–Appellee, v. Norma Lay, Individually and as Executrix of the Estate of Theodore W. Lay d/b/a Ted Lay Real Estate Agency, Defendant, and Locklear Electric, Inc., an Illinois corporation, Defendant–Appellant. No. 4–11–0527. April 20, 2012. Rehearing Denied June 11, 2012. 2012 IL App (4th) 110527, 975 N.E.2d 1099, 363 Ill.Dec. 790