New Century Mortgage Corp. v. Great Northern Ins. Co., Civil Action No. 07-640-GMS/MPT, 2009 WL 3444759 (D. Del. Oct. 26, 2009)
Finding that Judge Coar’s decision that a blast fax sent without permission of the insured did not constitute property damage because “ ‘[l]oss of paper and toner is a normal, expected outcome that falls under the policy's exclusion for “expected or intended injury.” ’ . . . New Century Mortgage Corp. v. Great N. Ins. Co., No. 05-C-2370, 2006 WL 2088198, at * 4 (N.D. Ill. 2006).”
The court focused on the “advertising injury” coverage issue. Although Judge Coar reached a negative ruling on that matter, that pre-dated the Illinois Supreme
Court’s ruling in Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill.2d 352, 307 Ill.Dec. 653, 860 N.E.2d 307 (Ill.2006), which is inconsistent with the earlier Federal Court Order and superseded and controlled.
As the court explained,
To the extent that the federal courts' interpretation differs from that of the Illinois Supreme Court, the Illinois Supreme Court's ruling in Valley Forge controls. In the present matter, the only term in dispute is “right of privacy.” According to the analysis in Valley Forge, “ ‘right of privacy’ connotes both an interest in seclusion and an interest in the secrecy of personal information.” Since an unsolicited fax advertisement violates an individual's seclusion, TCPA claims fall within the “advertising injury” provision. Applying the present facts to the standard articulated in Valley Forge, plaintiff has satisfied its burden of proof that the Bernstein settlement comes within the “advertising injury” coverage. It is undisputed that the TCPA claim brought against plaintiff arose from an unsolicited fax advertisement. Although the complaint in the Bernstein action did not raise the issue of privacy, a violation of privacy is implicit in a TCPA fax-ad claim. Therefore, the Bernstein settlement comes within the “advertising injury” coverage in defendants' policies.
Id. at *5.
Thus, seeing an erroneous individual versus business exclusion raised by the insurer, the Court found it did not preclude reimbursement obligations for settlement.
Although defendants' policies specifically state that the “advertising injury” must arise from a violation of a “person's right of privacy,” the plain and ordinary meaning of the policies do not preclude coverage if the individual receives the unsolicited advertisement at his place of business. Since plaintiff has established that the TCPA action was filed by an individual, and because there is no evidence to suggest that any of the class members were business entities, plaintiff has met its burden. Therefore, plaintiff does not have to allocate between fax advertisements received on business faxes as opposed to residential faxes.
Id. at *5.
Relying on Judge Coar’s prior finding that “no presently admissible evidence in the record that claimants received faxes prior to the policy effective date” existed, it was of no moment that the settlement class was designated for a broader time frame, i.e., April 4, 1997 to December 8, 2004 whereas the policy period was February 3, 2002 to February 3, 2003. Id. at *6.
The court found no allocation necessary of the amount of settlement. With respect to an allocation between coverage types, the appellate court of Illinois recently concluded that
[An insured is] “not required to allocate [ ] liability within [a] settlement.” Relying on the reasoning formulated in U.S. Gypsum Co. v. Admiral Insurance Co. and Commonwealth Edison Co. v. National Union Fire Insurance Co., the court concluded that it was impossible to determine how much of the settlement was attributable to each claim without having a “mini-trial” and requiring the insured to “prove its own liability.” The court's finding in Binney & Smith can easily be applied to the facts in the instant matter. The underlying complaint against plaintiff alleged “property damage” and “advertising injury” through an unsolicited fax advertisement in violation of the TCPA. Neither the settlement agreement nor the complaint in that matter distinguished between the two claims.
Id. at *6.
The court determined that a sufficient showing was made. A settlement occurred in reasonable anticipation of liability for a coverage loss. It reasoned:
In the present matter, plaintiff notes that Bernstein's willingness to negotiate for $6 million, and eventually settle for $1.95 million, was reasonable in light of its potential exposure in excess of $300 million. Although plaintiff denies any wrongdoing, it points out that the “TCPA is essentially a strict liability statute” which suggests that it would have been difficult to prevail against the Bernstein class at trial. In addition, plaintiff's motion for summary judgment was denied by the Illinois state court on the TCPA claim. Finally, the third amended complaint in the Bernstein action appears to establish a prima facie case under the TCPA. In light of these facts, plaintiff has satisfied its burden of proof that it settled in reasonable anticipation of liability.
Id. at *8.
An award of damages of $1.95 million of which $1.085 million was distributed to charities as a cy pres award was still fully compensable is as the Illinois Supreme Court has defined the term “damages” as “money paid to make good an insured loss” and having a “remedial purpose.” Id. at *8.
The court left open the issue of whether the prior acts exclusion could bar the indemnification due to the production of three sales orders between facts Fax.com and plaintiff beginning on June 7, 2001 prior to the policy inception date. Although the documents’ authenticity was challenged as inadmissible hearsay, this arguably raised a genuine issue of material fact.
