The transmission of advertisements over telephone facsimile machines is regulated under the Telephone Consumer Protection Act (“TCPA”). More specifically 42 U.S.C. Section 227(b)(1)(C) bans the transmission of unsolicited advertisements. However, if there is an established business relationship between the sender and the recipient of the advertisement then it is assumed that there is prior consent until the recipient of the advertisements requests that such faxes not be sent anymore. When an unsolicited fax is sent, a penalty of $500 is imposed for each fax by the TCPA.
The Illinois Supreme Court has heard arguments from a case stemming from a class action lawsuit, Standard Mutual Insurance Co. v. Norma Lay, et al. This case came for the state’s Fourth District Appellate Court which decided that the $500 penalty under the TCPA was considered punitive damages and therefore not insurable.
In this case, Ted Lay Real Estate Agency (“Lay”) sent an advertisement via fax to Locklear Electric, Inc. in 2006. Locklear had not given Lay permission to send the fax which made it a violation under the TCPA. In 2009, Lay was sued in a class action lawsuit where Locklear served as the class representative. The lawsuit was filed in Madison County Circuit Court but was later removed to the U.S. District Court for the Southern District of Illinois.
Standard Mutual Insurance Company (“Standard”) was tendered the defense of the claim. Standard undertook the defense but with a reservation of rights. A declaratory judgment action was filed in Macoupin County Circuit Court to determine the coverage under its policies. The class action suit alleged that Lay sent 3,478 unsolicited faxes in June 2006. In 2010 the lawsuit was settled for around $1.7 million, plus costs. The Circuit Court ruled that Standard did not have a duty to defend Lay. The Fourth District Appellate Court affirmed saying that the $500 in liquidated damages that are provided for in the TCPA is a penalty and is therefore punitive damages, making not insurable and not recoverable from Standard.
On March 19th the Illinois Supreme Court heard arguments on this appeal. The attorney who represents Lay argued that when the appeals panel found that the TCPA penalties were uninsurable punitive damages they should have focused on the conduct of the insured and whether the conduct that gave rise to the damages could be insured. Lay did not send the faxes themselves but rather hired someone else to do so. Therefore it was argued that this did not represent a willful or wanton conduct.
However, the attorneys for Standard said that Lay could not “hide behind” this and should still be held liable for what the outside sender of the faxes did. Additionally, Lay’s attorneys argued that the court did not take into account public policy that would favor honoring private contracts such as insurance policies. Should the Illinois Supreme Court favor the arguments Lay’s attorneys presented then they would adopt a cases by case analysis for these types of cases. IT will be interesting to observe how the court will rule when they render their final decision.
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