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McKenna Law Update – June 2013

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Damages Under the Telephone Consumer Protection Act (Tcpa) Are Recoverable Under General Liability Policies Pursuant to a Ruling by the Illinois Supreme Court

Reversing the 4th District Appellate Court’s ruling, the Illinois Supreme Court in Standard Mutual Insurance Company v. Lay, 2013 IL 114617 (May 23, 2013), concluded that statutory damages under the TCPA are not punitive in nature, and therefore, are recoverable under general liability policies.The TCPA is a federal statute that makes it unlawful for marketers to send automated telephone calls, text messages, faxes and similar media messages to anyone who had not previously consented to receive such communications. 47 U.S.C. § 227 et. seq.In June 2006, Theodore Lay hired a fax broadcaster to fax blast advertisements on behalf of Lay to businesses that supposedly had consented to receive fax messages. However, unknown to Lay, many of the recipients had not consented, and Lay was sued in a class action by Locklear Electric, Inc. (“Locklear”) as the class representative. Locklear asserted that Lay violated the TCPA, seeking the statutory penalty of $500.00 for each fax sent, trebled, due to the alleged willful nature of the offenses.When sued, Lay tendered his defense to Standard Mutual Insurance Company (“Standard”), his Commercial General Liability (“CGL”) carrier that afforded coverage for “property damage” and “advertising injury.” Standard defended Lay under a reservation of rights and filed a declaratory judgment action to determine its coverage obligations under its CGL Policy. Standard asserted that it was not obligated to defend and indemnify Lay for the TCPA class action since the damages sought in the class action constituted punitive damages “which are not insurable as a matter of Illinois law and public policy.”Lay entered into a consent judgment with the TCPA plaintiffs for the full amount sought by the TCPA plaintiffs of $1,739.000.00 plus costs. By doing so, Lay insulated himself from liability, but he assigned his rights against Standard to the TCPA plaintiffs. The settlement was approved by the court. Following settlement of the underlying TCPA action, Locklear and Standard filed cross motions for summary judgment in the coverage action.The 4th District Appellate Court affirmed the trial court’s grant of summary judgment in favor of Standard on the grounds that “damages under the TCPA are in the nature of punitive damages” and so are “not insurable in Illinois” as a matter of public policy. The Appellate Court reasoned as follows:

“The purpose of the TCPA is to deter future sending of unwanted fax transmissions by those sending the faxes and deterring others from doing the same by shifting the cost and imposing penalties on those sending the unwanted fax transmissions. The actual cost to a recipient of unwanted faxes is far below $500. It would amount to the cost of a sheet of paper and some toner, as well as the brief time involved in an employee taking the unwanted fax from the fax machine. The cost to the sender of an unwanted fax is far in excess of the costs to the recipient. It is a penalty to the sender.”

However, reversing the 4th District Appellate Court’s ruling on the issue of the insurability of punitive damages for the TCPA claims, the Illinois Supreme Court disagreed and stated that “the manifest purpose of the TCPA is remedial and not penal” and went on to state that:

“The TCPA is ‘clearly within the class of remedial statutes which are designed to grant remedies for the protection of rights, introduce regulation conducive to the public good, or cure public evil’.”

Noting that since Congress provided for treble damages separate from the $500 liquidated damages, the Supreme Court held that the $500 statutory damage as a liquidated sum for actual harm does not constitute penal or punitive damages. The Supreme Court further stated that the possible imposition of treble damages under the TCPA does not make the TCPA a penal statute; therefore, a claim under the TCPA for $500 per violation is not a penalty and is insurable under a liability policy.The impact of this recent ruling is important for insurers who issue liability policies in Illinois because it means that damages for negligent violations ($500.00 per occurrence) and possibly intentional violations ($1,500.00 per occurrence) under the TCPA can be paid by insurance companies because they are not considered a penalty. Illinois is also one of the jurisdictions that have held that TCPA claims trigger the duty to defend an insured under a general liability policy, permitting defense costs coverage for the TCPA actions.For further information, contact Sumi Yang at 312.558.8306 or syang@mckenna- law.com 

Court Addresses Consent Issues Under Gender Violence Act

On March 11, 2013, the First District Court of Appeals issued the opinion in Flores v. Santiago, 2013 IL App (1st) 122454 (2013) regarding the pleading standard under the Gender Violence Act. The following are the pertinent portions of the Gender Violence Act:

“Any person who has been subjected to gender-related violence as defined in Section 5 may bring a civil action for damages, injunctive relief, or other appropriate relief against a person or persons perpetrating that gender-related violence. For purposes of this Section, ‘perpetrating’ means either personally committing the gender- related violence or personally encouraging or assisting the act or acts of gender related violence.” 740 ILCS 82/10

“In this Act, ‘gender-related violence’ which is a form of sex discrimination, means the following:

(1) One or more acts of violence or physical aggression satisfying the elements of battery under the laws of Illinois that are committed, at least in part, on the basis of a person’s sex, whether or not those acts have resulted in criminal charges, prosecution, or conviction.

(2) A physical intrusion or physical invasion of a sexual nature under coercive conditions satisfying the elements of battery under the laws of Illinois, whether or not the act or acts resulted in criminal charges, prosecution or conviction.

(3) A threat of an act described in item (1) or (2) causing a realistic apprehension that the originator of the threat will commit the act.

Generally, a battery is committed by an individual if: (a) he acts intending to cause a harmful or offensive contact with the person of the other or a third parson, or an imminent apprehension of such a contact, and (b) a harmful contact with the person of the other directly or indirectly results. The gist of the action for battery is not the hostile intent of the defendant, but rather the absence of consent to the contact on the part of the plaintiff.In Flores the plaintiff’s Amended Complaint alleges she was a patient of defendant, a licensed physician, for treatment regarding her eyes. During her exams, defendant would flirt, tease and play with plaintiff. While plaintiff was a patient of the defendant they had sexual intercourse and oral sexual contact on a number of occasions, which was not part of any standard medical examination, diagnosis or treatment for plaintiff’s health problems.The Amended Complaint alleged the sexual relationship constituted a misuse of the defendant’s authority and that the doctor- patient relationship rendered plaintiff unable to consent to any sexual contact with the defendant. The Amended Complaint also alleged that on almost every occasion when the sexual contact occurred, defendant provided plaintiff with illegal drugs including marijuana, hashish and cocaine. On at least one occasion, defendant allegedly provided plaintiff with a full bottle of liquid cocaine hydrochloride.The plaintiff claimed that the defendant allegedly knew of plaintiff’s weakness and susceptibility to drug use which allowed him to take unfair advantage of her. Plaintiff allegedly developed or relapsed into a dependency and became psychologically controlled by the defendant and she claimed she was unable to consent to any sexual contact with the defendant as a result of being plied with illegal drugs. The Amended Complaint asserted that the facts established causes of action for a violation of Section 10 of the Act and for common law battery. The defendant filed a Motion to Dismiss arguing the plaintiff failed to allege sufficient facts to show that the alleged sexual contact was without the plaintiff’s consent and the alleged sexual contact was not of the type that the Act was intended to address. The circuit court granted defendant’s Motion to Dismiss and plaintiff appealed.The Appellate Court’s determination hinged on whether the allegations that the defendant supplied illegal drugs vitiated any consent to the sexual contact. The defendant did not deny that severe intoxication may render a person unable to consent to sexual contact, but argued plaintiff failed to make sufficient allegations that the drug usage rendered plaintiff unconscious, incapacitated or unaware of the sexual contact, as plaintiff has not alleged she was under the influence of drugs on every occasion of sexual contact.
The Court found that the defendant not supplying plaintiff with drugs on every occasion of sexual contact was not fatal to the complaint, as Illinois law recognizes that episodes of nonconsensual sex may occur within a generally consensual relationship, even if they are difficult to prove. In this case, plaintiff specifically alleged defendant provided her with illegal drugs on at least one occasion and that she was without the ability to consent to any sexual contact with defendant as a result of being plied with these illegal drugs. Based on these allegations, the plaintiff may be able to prove a lack of consent based on severe intoxication.The Appellate Court’s decision only determined the allegations in the Amended Complaint were sufficient to support a cause of action under the Gender Violence Act as well as common law battery, not that the allegations could survive a dispositive motion or entitle the plaintiff to damages. However, the pleading standard that the plaintiff only needs to allege the lack of the ability to consent on one occasion when there are repeated acts of sexual contact makes it easier for complaints based on the Gender Violence Act to survive Motions to Dismiss.
For further information, contact Kelly Purkey at 312.558.3906 or kpurkey@104.236.6.34.
Categories Tort Law Update Bulletin



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