As some of you may recall, we reported in our sister blog last May on the Illinois Supreme Court’s decision in Standard Mutual Ins. Co. v. Lay, 2013 IL 114617, holding that statutory damages under the Telephone Consumer Protection Act (“TCPA”) are not punitive, but remedial.   On Friday, we saw one of the first aftershocks of that Illinois high Court’s decision, when Judge Lefkow, district judge for the Northern District of Illinois, held that the defendant, M&M Retail Center, Inc. acted with a reasonable anticipation of its liabilities by entering into a $6 million settlement with the plaintiff without input from its Insurers.   Maxum Indemnity Co. and Security Ins. Co. of Hartford v. Eclipse Mfg. Co., et al., Case No. 06-cv-4946 (N.D. Ill. Nov. 1, 2013).

Factual Background

In November 2005, Eclipse Manufacturing (“Eclipse”) brought suit against M&M Retail Center (“M&M”) alleging that M&M had transmitted unsolicited advertisements related to event planning, on several occasions, in violation of the TCPA.  Although Plaintiff claimed receipt of five faxes, it only produced two of the five faxes.  On summary judgment, the Court determined that both faxes were unsolicited advertisements, that 7,725 faxes had been distributed, and awarded the class statutory damages in the amount of $3,862,500.  After entry of judgment, the parties engaged in settlement negotiations, and ultimately M&M and one of its insureds, FSIC,  along with two other named parties, entered into a settlement agreement resolving the entire controversy for a consent judgment against M&M in the amount of $5,817, 150.  Maxum, 795 F. Supp. 2d 722, 730 (N.D. Ill. 2001). At the time of the consent order, FSIC had covered over $500,000 in defense costs.

Subsequent to the consent order, FSIC, along with two other insurance companies, sought a declaration as to their duties and obligations to defend the case.  Id.  In early 2012, Judge Lefkow entered a final opinion, holding that FSIC did not have a duty to defend, but that M&M’s two other insurers, Maxum Indemnity Co. (“Maxum”) and Security Ins. Co. of Hartford (“Security”) did have such a duty, therefore holding that Maxum and Security had an obligation to reimburse FSIC for the costs and fees incurred in defending M&M.  Id. at 739-40.  The issue of the obligation to indemnify M&M, and, thus, cover the settlement amount agreed to by M&M, remained an open issue.  Id.

The District Court’s Opinion

On renewed motions for summary judgment, Judge Lefkow revisited the issue of Maxum and Security’s obligations to indemnify.  Just before Maxum and Security filed their renewed motions, however, the Illinois Supreme court issued its decision in Lay, foreclosing the insurers’ argument that they did not need to  indemnify for punitive statutory damages.  Maxum II, slip op. at 10.  Maxum & Security did not participate in the settlement efforts that ultimately led to the resolution of the case, and thus argued that they had no obligation to cover.  To rebut that presumption, M&M needed to establish that the settlement was reached in reasonable anticipation of liability.  Notably, an insured need not establish actual liability.  Id. at 11.

The carriers alleged that the additional settlement amount beyond the initial judgment for the additional three faxes (in the amount of $2 million) amounted to a collusive effort between the insured and the putative class to put the carriers on the hook for the settlement.  Judge Lefkow disagreed, noting that the negotiations were significantly discounted, conducted before a seasoned magistrate, and the carriers had been invited to participate but declined.  Id. at 11-13.

In the alternative, the carriers argued that the settlement only covered property damage, not coverage-triggering privacy invasions, as the Court previously allowed only the named plaintiff to proceed on property injury theories.  Judge Lefkow rejected this argument as well, identifying intervening case law holding that, under Illinois law, advertising injury related to invasion of privacy also applies to corporations, not only “natural” persons.  Id. at 16. 


This case further raises the stakes for insurance companies regarding their coverage obligations related to actions brought under the TCPA.  Most assuredly, the carriers in this case will seek review by the Seventh Circuit, as Judge Lefkow herself acknowledges that she is departing from a previous Seventh Circuit decision, Am. States Ins. Co. v. Capital Assocs. of Jackson Cnty., Inc., 392 F.3d 939, 942 (7th Cir. 2004), a decision she identifies as predicting “wrongly” Illinois law on the issue.  As the Northern District remains a hotbed for TCPA cases, insurance companies should carefully consider (and, perhaps, reconsider) their obligations and duties in light of this development.