image by Shutterstock licenseFor most people, robocalls, spam email, and junk faxes are an annoyance of daily life. In some circumstances, they are a compensable injury. In a victory for policyholders, the Illinois Supreme Court recently ruled that a business’s liability for those injuries may be covered by its commercial general liability policy. See Standard Mutual Insurance Co. v. Lay, 2013 IL 114617, — N.E.2d — (May 23, 2013). The court found that TCPA violations, which have a statutory award of $500 per violation, are not punitive, and are, therefore, insurable damages.

The Telephone Consumer Protection Act of 1991 (“TCPA”), prohibits unsolicited advertising via a variety of communication methods.[1] See 47 U.S.C. § 227 (2010). The TCPA is unique in that it creates a private right of action for citizens who receive unwanted communications. Statutory damages of $500 can be awarded for each violation. Although the stakes for each victim per violation are relatively minimal, the damages provision can significantly impact a business’s bottom line in the event of a class action lawsuit like the underlying litigation in Standard Mutual.

In Standard Mutual, the underlying defendant (Lay) hired a marketing firm that disseminated unwanted faxes on his behalf to nearly 3,500 recipients. Lay sought insurance coverage from his commercial general liability insurer. The insurer agreed to defend Lay but reserved its rights to deny coverage for indemnification. As the case wound its way through the Illinois court system, one issue gained prominence: the insurability of so-called “punitive damages.” A basic principle of insurance law is that some actions should not be “insurable” because it incentivizes bad behavior on the part of the insured. “Punitive damages” have often been treated as a category of uninsurable loss on the theory that juries usually award punitive damages when the insured has behaved reprehensibly, and the insurer should not have to pay for such behavior. But does the harm occasioned by junk faxes and unwelcome calls and texts rise to a level constituting “punitive damages”?

The Illinois appellate court wrestled with the distinction between statutes with a “remedial” or a “punitive” purpose. Citing the fact that the “actual” damages incurred by a violation of the TCPA are an “irksome nuisance,” the court found that “five hundred dollars then becomes a predetermined amount of damages and is clearly not meant to compensate for any actual harm,” leading it to classify the $500 award as “punitive.” Standard Mut. Ins. Co. v. Lay, 2012 IL App (4th) 110527, 975 N.E.2d 1099, 1106 (June 11, 2012). The Illinois Supreme Court disagreed, determining that “the manifest purpose of the TCPA is remedial and not penal . . . . [L]oss 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.” Id. at 2013 IL 114617 at ¶ 31.

In so holding, the Illinois Supreme Court joined jurisdictions, including Florida[2] and New Jersey,[3] in determining that TCPA statutory damages are not “punitive” and thus eligible for insurance coverage under commercial general liability policies.


[1] The most recent example is advertising via text message. See Satterfield v. Simon & Schuster, No. C 06-2893 CW, 2007 U.S. Dist. LEXIS 46325 (N.D. Cal. June 26, 2007).

[2] See Penzer v. Transp. Ins. Co., 545 F.3d 1303 (11th Cir. 2008) (applying Florida law).

[3] See Terra Nova Ins. Co. v. Fray-Witzer, 449 Mass. 406, 869 N.E.2d 565 (2007) (applying New Jersey law).