Attorneys: Guolee, Terrence F.

June 2013

In a decision that will certainly be a blow to insurers in Illinois, the Illinois Supreme Court ruled on May 23, 2013 that statutory damages allowed under the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227(b)(3) (the “TCPA”) are covered damages under commercial general liability (“CGL”) insurance policies. Standard Mutual Insurance Co, v. Lay, 2013 IL 114617 (decided May 23, 2013).

In the underlying lawsuit, Ted Lay Real Estate Agency contracted with Business to Business (“BTB”), a “blast fax” service out of the New York area, to send thousands of fax advertisements to Illinois residents. BTB falsely represented to Lay (and several other companies and individuals that are now defendants in TCPA cases nationwide) that their roster of recipients had consented to receive fax advertisements. In reality, B2B was using commonly available business contact lists and had made little to no effort to seek consent from recipients to receive fax advertising. 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 negligent violations and $1,500 per occurrence if the actions are deemed to be intentional.

After being served with the suit, Lay tendered its defense of the class action to Standard Mutual Insurance Co. (“Standard Mutual”). Standard Mutual agreed to defend the action, but it also reserved its rights to deny coverage on various grounds and also sued Lay, seeking a declaration that the statutory damages awarded under the TCPA constitute “punitive” damages which are uninsurable under Illinois law.

The Illinois Fourth District Court of Appeals, in a decision that conflicted with a majority of rulings from other state courts, held that the TCPA is a “penal”, not remedial, statute. Standard Mutual Ins. Co. v. Lay, No. 04-11-0527, 2012 WL 1377599 (Ill. App. Ct. 4th Dist., Apr. 20, 2012). Per the Fourth District, this meant that the statutory damages for both negligent and intentional violations of the TCPA cannot be paid by insurance companies because they are a penalty and not insurable or recoverable from an insurance company as a matter of law in Illinois. The Fourth District, relying on Illinois precedent regarding statutory penalties, reasoned that by allowing insurance companies to pay the penalties for TCPA violations, the purpose of the TCPA - to deter future violations - would be frustrated by shifting the payment of punitive damages from the defendants to the insurance companies.

The Illinois Supreme Court, however, disagreed with Standard and reversed the Fourth District Court of Appeals, holding that the TCPA settlement was covered because the TCPA is a “remedial” statute rather than a “penal” statute. As a result, it found that the damages awarded pursuant to the TCPA are not punitive damages. In its reasoning, 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, as well as an incentive for recipients of unlawful faxes to enforce the TCPA.

The claims the potential statutory damages in many TCPA “blast fax” cases can be catastrophically high. While many major insurance carriers have affirmatively excluded TCPA junk fax cases from CGL coverage, there remain hundreds of lawsuits pending in Illinois and across the nation filed under previous coverage forms that could be impacted based on the Lay ruling. Insurance carriers should immediately review their pending TCPA cases to reassess past coverage positions and decisions made on tenders of defense. Likewise, businesses and individuals hit with TCPA claims should immediately assess whether the claims have been properly tendered, or whether effort should be made to have their insurance carrier reverse a past coverage decision.

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Terrence Guolee, a shareholder in our Chicago office, has successfully represented dozens of defendants and carriers in TCPA class action cases over the years, in both Illinois and federal courts - since the advent of TCPA class action litigation. This includes claims following from the wreckage caused to many individuals and businesses by the blast fax company “B2B” discussed above. Work has also involved consulting on exclusions for fax advertising used by several CGL carriers, as well as consulting businesses on the legality of their considered advertising options.

If you are involved in TCPA litigation or coverage issues, or have any questions regarding the case above, you can contact Terrence via This email address is being protected from spambots. You need JavaScript enabled to view it. or via 312-725-0889.

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