TCPA Damages Are Insurable Says Illinois Supreme Court

In Standard Mutual Insurance v. Ted Lay Real Estate, decided on May 23, 2013, the Illinois Supreme Court ruled that the TCPA's $500-per-call damages provision is not punitive in nature. The significance of this ruling is that, at least in Illinois, TCPA damages can be insured by marketers. Had the court ruled that the damages were punitive, the insurance company would not have been on the hook to pay for an expensive settlement because public policy prevents intentional wrongdoers from passing penalties off to their insurers.

The dispute dated back to 2009 when Ted Lay Real Estate was hit with a class-action lawsuit for sending out over 3000 junk faxes. The suit ultimately settled for $1.7 million with the unusual provision that the plaintiff agreed never to pursue any of Ted Lay's business or personal assets if insurance did not cover the settlement. It was insurance or nothing. The settlement was then tendered to the insurance company, Standard Mutual Insurance, for payment. The insurance company, claiming the $1.7 million represented a penalty that could not be legally covered by insurance, filed a declaratory judgment suit so that an Illinois state court could decide the issue. The court initially sided with the insurance company, but the plaintiff, now stepping into the shoes of Ted Lay Real Estate, kept appealing, and finally prevailed in Illinois Supreme Court this week.

The key to the Illinois Supreme Court's ruling seems to be the provision of the TCPA that allows the $500 to be increased to up to $1500 for "willful or knowing" violations: "the fact that Congress provided for treble damages separate from the $500 liquidated damages indicates that the liquidated damages serve additional goals than deterrence and punishment and were not designed to be punitive damages," said the court.

The case is not over yet, however. This ruling means that TCPA cases can be covered by insurance, but it doesn't mean that Ted Lay Real Estate's policy actually covered junk faxes. That issue still has to be litigated. Companies using auto-dialed calls, text messages and faxes for marketing purposes would be well-advised to ascertain whether such marketing activities are covered under their policies and by local law.

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