Standard Mutual Insurance Company v. Lay, No. 114617, 989 N.E.2d 591 (Ill. May 23, 2013) [enhanced version available to lexis.com subscribers], is a Telephone Consumer Protection Act coverage case. TCPA is a do-do bird issue, or getting close to it, on account of the frequent lack of insurance dollars, to fund any damage award or settlement, because of the commercial general liability policy exclusion for Distribution of Material in Violation of Statute. If Lay had no applicability outside of the TCPA context it would not have been included as one of the year’s ten most significant coverage decisions. Not even close. But Lay’s legacy will not involve TCPA. It will go beyond it.
Specifically at issue in the case was whether damages available under the TCPA, for sending out unsolicited fax advertisements - $500 per occurrence – were meant to compensate for any harm. The lower court had ruled that the damages awarded were a penalty to the sender, in the nature of punitive damages, and, hence, uninsurable as a matter of Illinois law and public policy.
The Boyz from Illinois saw it differently. For several reasons the Illinois high court concluded that the TCPA is a remedial, and not penal, statute and that the TCPA damages of $500 per violation are compensatory and not penal or punitive damages. The court explained its decision as follows: “The harms identified by Congress, e.g., loss of paper and ink, annoyance and inconvenience, while small in reference to individual violations of the TCPA are nevertheless compensable and are represented by a liquidated sum of $500 per violation.” “Congress intended the $500 liquidated damages available under the TCPA to be, at least in part, an incentive for private parties to enforce the statute. This added incentive is necessary because the actual losses associated with individual violations of the TCPA are small.” “[T]he fact that Congress provided for treble damages separate from the $500 liquidated damages indicates that the liquidated damages serve additional goals than deterrence and punishment and were not designed to be punitive damages.”
Again, the impact of Lay is likely to be felt well outside the TCPA context. It is not unusual for a statute to allow for liquidated damages that are more than the amount of harm actually sustained by the aggrieved party. And the reasons for providing such remedy are likely to be similar to those outlined by the Lay court concerning the TCPA, such as liquidated damages being a necessary incentive for private parties to enforce the statute because the actual losses associated with individual violations are small.
I would expect to see Lay cited by policyholders in coverage cases involving such statutes, in support of their argument that the liquidated damages are not penal, and, therefore, not excluded from coverage in a state where punitive damages are considered uninsurable. And I’m not the only one that sees Lay’s impact this way. A Law360 article discussing Lay quoted both insurer and policyholder counsel seeing the decision as impactful in other types of coverage disputes surrounding statutory damages.
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy J. Maniloff is an attorney in the Philadelphia office of White and Williams, LLP. He concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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