Diverging from other states, the Illinois Supreme Court held last May that statutory damages under the Telephone Consumer Protection Act (“TCPA”) are not punitive, but remedial and therefore, insurable under commercial general liability insurance policies. See Standard Mutual Ins. Co. v. Lay, 989 N.E. 3d 591 (Ill. 2013). As a result of that decision, Judge Lefkow, district judge for the Northern District of Illinois, recently ordered insurers to cover a $6 million class settlement where defendant acted with a reasonable anticipation of its liability when it entered into the settlement with the plaintiff without input from its insurers. See Maxum Indemnity Co. and Security Ins. Co. of Harford v. Eclipse Mfg. Co. et al., Case No. 06-cv-4946 (N.D.Ill. Nov. 1, 2013). Generally, an insurer is only obligated to cover settlement if the insurer participates in settlement efforts. If a settlement, however, is reached in reasonable anticipation of liability, an insurer may be obligated to cover the settlement despite its lack of participation in settlement negotiations. Notably, an insured need not establish actual liability. Because Standard Mutual foreclosed the insurers’ argument that they did not need to indemnify for punitive statutory damages, the insurers were found obligated to cover the $6 million class settlement upon Judge Lefkow’s finding that the settlement was reached in reasonable anticipation of liability.
In light of the Standard Mutual and Maxum decisions, insurance companies should carefully consider their coverage obligations related to actions brought under the TCPA. 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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