Expect the Expected: Court finds No Insurance Coverage for TCPA Settlement

Here’s a case where a medical lab sends unsolicited faxes to dozens of dentists promoting its sterilization services and gets sued in a class action by one of those dentists who did not appreciate having the unsolicited faxes consume his ink and toner. Naturally, the lab sends the case to its insurance company to defend and indemnify the lab in the TCPA class action. No go says the insurer.

So when the lab settles the case, it sues the insurance company for breach of contract, bad faith and improper denial of an insurance claim. No go says the insurer and a motion to dismiss is filed. That motion was granted.

In Mesa Laboratories, Inc. v. Federal Insurance Co., No. 19 C 2340, 2020 U.S. Dist. LEXIS 13660 (N.D. Ill. Jan. 28, 2020), the lab’s insurance policy had two pretty common exclusions. The first was the Intended or Expected Exclusion. Under this exclusion, the policy does not apply to injury or damages arising out of acts intended by the insured or that would be expected from the standpoint of a reasonable person in the circumstances of the insured to cause injury or damage.

The second exclusion was the Information Exclusion. Under this exclusion, the policy does not apply to any damages or expenses arising out of any actual or alleged or threatened violation of the TCPA or any similar regulatory or statutory law.

Now, under Seventh Circuit jurisprudence, an insurer that denies a duty to defend based on an exclusionary clause has the burden of proving that the claim fails within the exclusion and the application of the exclusionary clause must be clear and free from doubt (citations omitted). As the court stated, if the lab anticipated that its fax-blast would squander the dentist’s paper and toner, the insurance company is off the hook based on the first exclusion.

Based on Seventh Circuit law holding that senders of junk faxes know exactly how faxes deplete recipients consumables and on the language of the lab’s fax, which touted an exclusive offer for new customers and encouraged recipients to submit their contact information to get started, making it was clear that the dentist did not invite the faxes, the court had no trouble finding that the insurance company had no duty to defend the lab in the TCPA class action. As the court said, “[i]t follows that [the lab], like any other sender of junk faxes, expected to harm the recipients by depleting their ink and paper.”

Even if the Expected or Intended Exclusion did not bar the lab’s claim, said the court, the Information Exclusion would. Thus, the double-exclusion whammy hit the lab and deprived it of coverage. The lab pressed the issue on its common law claims (it conceded that the TCPA claim was expressly excluded), but the court found that those claims were also covered by the Information Exclusion. That’s because most of the time, plaintiffs supplement TCPA claims with common law analogues, which if the lab’s argument was accepted, would make the Information Exclusion rarely apply.

Here, the court found that because all of the dentist’s claims refer to the same underlying facts, and because that conduct allegedly violated the TCPA, the common law claims “arise out of” the lab’s alleged TCPA violation, triggering the Information Exclusion. That exclusion, also relieved the insurance company of any obligation to defend or indemnify the lab.

At the end, judgment on the pleadings was granted in favor of the insurer and the complaint was dismissed. No coverage for the TCPA settlement based on the two exclusions.

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