Margulis v. BCS Ins. Co.

23 N.E.3d 472

Scott MARGULIS, Individually and as the Representative of a Certified Class of Similarly Situated Persons, Plaintiff–Appellant

v.BCS INSURANCE COMPANY, Defendant–Appellee.

No. 1–14–0286.

Appellate Court of Illinois, First District, Fourth Division.

Nov. 26, 2014.

Brian J. Wanca, David M. Oppenheim, and Jeffrey A. Berman, all of Anderson & Wanca, of Rolling Meadows, and Phillip A. Bock and Robert M. Hatch, both of Bock & Hatch, LLC, of Chicago, for appellant.

Thomas A. Brusstar and Peter J. Preston, both of Hinkhouse Williams Walsh LLP, of Chicago, for appellee.

OPINION

Justice EPSTEIN delivered the judgment of the court, with opinion.

¶ 1 Scott Margulis, individually and on behalf of a class of similarly situated individuals, filed a class action petition in Missouri against “Bradford E. Dixon d/b/a Bradford & Associates a/k/a Bradford and Associates” (Bradford), an insurance agent and/or broker that had transmitted unsolicited, automated telephone calls advertising its services. The lawsuit alleged common law invasion of privacy and violation of a federal statute that restricts telephone solicitations. Bradford's professional liability insurer, BCS Insurance Company (BCS), declined coverage and did not defend Bradford in the action. With the approval of the Missouri court, Margulis and Bradford settled for $4,999,999, with such judgment amount to be satisfied exclusively from the proceeds of the insurance policies and claims against Bradford's insurer(s). Margulis then filed a declaratory judgment action in the circuit court of Cook County against BCS,¹ seeking an order declaring that BCS had a duty to defend Bradford in the underlying action and requiring BCS to pay the judgment amount. The circuit court granted BCS's motion for summary judgment and denied Margulis's motion for summary judgment. Margulis appeals.

¶ 2 We agree with the circuit court that the automated telephone calls at issue did not constitute negligent acts, errors or omissions by Bradford arising out of the conduct of Bradford's business in “rendering services for others” as a licensed insurance agent, general agent or broker, as required for coverage under the BCS policy. Because there was no potential for coverage of Margulis's claims, BCS had no duty to defend or indemnify. We thus affirm the judgment of the circuit court.

¶ 3 I. BACKGROUND

¶ 4 On February 14, 2008, Margulis, on behalf of himself and “all other persons similarly situated,” filed a class action petition in the circuit court of St. Louis County, Missouri, against Bradford, assigned case number 08SL–CC00670. Margulis alleged that Bradford engaged in a “practice of transmitting unsolicited pre-recorded telephone calls to residential telephone lines advertising its insurance services.”

¶ 5 Count I of the petition alleged violation of the Telephone Consumer Protection Act (the TCPA), a federal statute that makes it unlawful “to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party, unless the call is initiated for emergency purposes” or is exempted by rule or order by the Federal Communications Commission (FCC). 47 U.S.C. § 227(b)(1)(B) (2006). According to the petition, “[c]alls made for a commercial purpose which include or introduce an unsolicited advertisement or constitute a telephone solicitation are expressly excluded from the exemptions adopted by the FCC.” Margulis sought statutory damages of $500 per violation. 47 U.S.C. § 227(b)(3)(B) (2006). Count II of the petition alleged common law invasion of privacy; Margulis sought a “fair and reasonable amount of damages for each violation.”

¶ 6 BCS issued a “claims made” insurance policy to the “Agents of Blue Cross Blue Shield of Missouri and RightCHOICE Managed Care, Inc., d/b/a Alliance Blue Cross Blue Shield.” The parties agree that Bradford was an insured under the policy. The declarations page is entitled, “INSURANCE COMPANY COVERAGE FOR INSURANCE AGENTS AND BROKERS PROFESSIONAL LIABLITY.” Section I of the policy provides:

“COVERAGE. The Company does hereby agree to pay on behalf of the Insured such loss in excess of the applicable deductible and within the limit specified in the Declarations sustained by the Insured by reason of the liability imposed by law for damages caused by any negligent act, error or omission by the Insured arising out of the conduct of the business of the Insured in rendering services for others as a licensed Life, Accident and Health Insurance Agent, a licensed Life, Accident and Health Insurance General Agent or a licensed Life, Accident and Health Insurer Broker as respects claims first made against the Insured and reported to the Company during the policy period, while there is in effect a contract between the Plan and the Insured.”

“[I]njury to or destruction of any property, including loss of use thereof,” is one of the policy exclusions. The policy provided for a limit of $1 million per claim, with an annual aggregate limit of $1 million. The initial policy period was from April 1, 1999 to April 1, 2000 and was renewed; the parties agree that the policy was in effect between April 1, 2007 and April 1, 2008.

¶ 7 In a letter dated May 6, 2008, counsel to BCS stated that the company declined coverage. Specifically, the letter provided that “[o]ur analysis of the applicable law shows that the solicitation of business by advertising and marketing directed to members of the general public with whom one has no established business relationship does not involve the provision of services for others as licensed life, accident and health insurance agent.” BCS's counsel further stated that “the alleged transmission of unsolicited prerecorded telephone messages appears to involve actions that are intentional as opposed to negligent in nature and the policy limits coverage to actions that are negligent in nature.” The letter also referenced various policy exclusions “which may provide independent bases to bar or limit coverage.” BCS's counsel suggested that Bradford may wish to notify its comprehensive general liability (CGL) insurer “as the allegations in the Petition may fall within the express terms of the coverage provided by that policy as either advertising injury and/or as property damage (including the loss of use thereof), or both.”

¶ 8 On July 22, 2011, the Missouri court entered a “Final Approval of Settlement Agreement and Judgment,” approving a settlement between Margulis, on behalf of himself and the “Class,” and Bradford. The class was defined as the “end users of telephone numbers in the (314) and (636) area codes that were (1) identified in Defendant's prerecorded messaging call log record, (2) included in the Missouri No Call database and/or the National Do Not Call Registry, and (3) were sent a prerecorded telephone message advertising the insurance services of Bradford Dixon between November 15, 2006 and February 4, 2008.” Bradford transmitted 921,894 prerecorded calls to 186,711 unique telephone numbers.² The settlement order provided, among other things, that (a) Bradford did not “willfully, knowingly, or intentionally violate” the TCPA, (b) Bradford “tendered the defense of this suit to his insurer and his insurer declined to defend or indemnify,” and (c) judgment was entered against Bradford and in favor of Margulis and the other class members in the total amount of $4,999,999 on count I of the class action petition, “said judgment to be satisfied only from the proceeds of the insurance policies and claims against Defendant's insurer(s).”

¶ 9 On September 19, 2011, Margulis, on behalf of himself and the other class members, filed a declaratory judgment action in the circuit court of Cook County against BCS, seeking an order declaring that BCS had a duty to defend Bradford in the Missouri action and “[d]eclaring and ordering that BCS Insurance is required to indemnify and pay the judgment entered therein against Bradford.”

¶ 10 In its answer, BCS denied any duty to defend or indemnify Bradford. Bradford also asserted affirmative defenses, including that: (a) Bradford did not obtain the written agreement of BCS prior to entering the settlement agreement, in violation of the insurance policy, and thus Margulis lacked standing; (b) Bradford did not notify BCS of the claims prior to the end of the policy period; and (c) given that Bradford's acts as alleged in the Missouri class action petition were intentional and were not performed while Bradford was rendering services for others, “Bradford's claim for defense and indemnity resulting from the underlying suit is not covered because it does not fall within the Policy's insurance agreement.”

¶ 11 BCS and Margulis each filed motions for summary judgment pursuant to section 2–1005 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2–1005 (West 2010) ). At the time that the circuit court took the parties' cross-motions for summary judgment under advisement, the Illinois Supreme Court was reviewing an appellate court ruling that the statutory damages under the TCPA are punitive and uninsurable as a matter of law. Standard Mutual Insurance Co. v. Lay , 2012 IL App (4th) 110527, 363 Ill.Dec. 790, 975 N.E.2d 1099. After our supreme court reversed that portion of the appellate court's decision (Standard Mutual Insurance Co. v. Lay, 2013 IL 114617, ¶¶ 23–34, 371 Ill.Dec. 1, 989 N.E.2d 591), the circuit court directed BCS and Margulis to file renewed motions for summary judgment.

¶ 12 In support of his renewed motion for summary judgment, Margulis argued that BCS breached its duty to defend Bradford and that, based on such breach, BCS “is estopped from raising coverage defenses.” Margulis sought indemnification of the underlying judgment—which substantially exceeded the policy limits—plus postjudgment interest. BCS claimed that “nothing about the TCPA violations alleged against [Bradford] involved...