                              2014 IL App (2d) 130593
                                   No. 2-13-0593
                             Opinion filed May 2, 2014
                 Modified Upon Denial of Rehearing September 2, 2014
______________________________________________________________________________

                                            IN THE

                             APPELLATE COURT OF ILLINOIS

                              SECOND DISTRICT
______________________________________________________________________________

G.M. SIGN, INC., Individually and as the
                                       ) Appeal from the Circuit Court
Representative of a Certified Class,   ) of Lake County.
                                       )
      Plaintiff and Counterdefendant-  )
      Appellee and Cross-Appellant,    )
                                       )
v.                                     ) No. 11-MR-315
                                       )
STATE FARM FIRE AND CASUALTY           )
COMPANY,                               )
                                       ) Honorable
      Defendant and Counterplaintiff-  ) Diane E. Winter and David M. Hall,
      Appellant and Cross-Appellee.    ) Judges, Presiding.
______________________________________________________________________________

       JUSTICE ZENOFF delivered the judgment of the court, with opinion.
       Justices Jorgensen and Birkett concurred in the judgment and opinion.

                                           OPINION

¶1     This is a declaratory judgment action involving a dispute over insurance coverage for a

blast-fax case. The question is whether defendant State Farm Fire and Casualty Company’s

policy exclusion (hereinafter Endorsement FE-6655) applied to the amended complaint in the

underlying litigation. If Endorsement FE-6655 applied, then State Farm’s duty to defend was

never triggered. The circuit court of Lake County ruled that State Farm had a duty to defend and

to indemnify. After modifying our opinion upon denial of plaintiff G.M. Sign, Inc.’s petition for

rehearing, we reverse and remand with directions to enter judgment in State Farm’s favor.
2014 IL App (2d) 130593


¶2                                       I. BACKGROUND

¶3        The facts pertinent to this appeal are taken from the present record and from this court’s

opinion in G.M. Sign, Inc. v. Schane, 2013 IL App (2d) 120434. The appeal in Schane arose out

of the underlying blast-fax litigation, in which G.M. Sign pursued a class action against Michael

Schane and his company, Academy Engraving Company, for sending unsolicited fax

advertisements. Because Academy was dismissed from the underlying suit, we refer only to

Schane when discussing the underlying litigation.

¶4                        A. The Underlying Litigation (No. 10-CH-4480)

¶5        On August 12, 2010, G.M. Sign, individually and as the representative of a class of

similarly situated persons, filed suit against Schane. The complaint began: “This case challenges

[Schane’s] practice of faxing unsolicited advertisements.”           The complaint’s preliminary

allegations further alleged that G.M. Sign was seeking “an award of statutory damages for each

violation of the [Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C. § 227 et seq.

(2000))].” The TCPA makes it unlawful to fax an unsolicited advertisement unless the sender has

an established business relationship with the recipient, the recipient consents to such a

communication, and the advertisement contains an opt-out notice. 47 U.S.C. § 227(b)(1)(C)

(2000).

¶6        The complaint contained three counts: count I alleged a violation of the TCPA; count II

alleged conversion; and count III alleged violations of the Illinois Consumer Fraud and Deceptive

Business Practices Act (Act) (815 ILCS 505/1 et seq. (West 2010)). Each count incorporated the

same factual allegations: on or about September 6, 2007, Schane faxed to G.M. Sign an

advertisement, which was attached to the complaint as “Exhibit A”; G.M. Sign had not given

Schane permission to fax advertisements to it; and Schane faxed “the same or similar



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2014 IL App (2d) 130593


advertisements” to G.M. Sign and more than 39 other recipients without first receiving their

express permission.       All three counts incorporated allegations that the unsolicited fax

advertisements violated the TCPA.

¶7      Count I of the complaint proposed the following class:

                 “All persons who (1) on or after four years prior to the filing of this action, (2)

        were sent telephone facsimile messages of material advertising the commercial

        availability of any property, goods, or services by or on behalf of [Schane], (3) with

        respect to whom [Schane] did not have prior express permission or invitation for the

        sending of such faxes, and (4) with whom [Schane] did not have an established business

        relationship.”

The classes proposed in counts II and III were essentially the same except for the time periods

referenced. 1    The class for count II was composed of all persons who received faxes on or after

a date five years prior to the filing of the action, while the class for count III was composed of all

persons who received faxes on or after a date three years prior to the filing of the action.    As in

count I, the classes in counts II and III consisted of persons who received advertisements, who

had not given Schane permission to send them, and who did not have established business

relationships with Schane.

¶8      Schane tendered the suit to State Farm, his business insurer. On September 10, 2010,

State Farm, by letters to Schane and to G.M. Sign’s attorney, denied coverage based on

Endorsement FE-6655:



        1
            Presumably, the different time periods were meant to reflect the different statutes of

limitations applicable to the three counts.



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                “DISTRIBUTION OF MATERIAL IN VIOLATION OF STATUTES

       EXCLUSION ENDORSEMENT

                The following exclusion is added to BUSINESS LIABILITY EXCLUSIONS:

                Exclusions:

                This insurance does not apply to:

                Bodily injury, property damage, personal injury, or advertising injury arising

       directly or indirectly out of any action or omission that violates or is alleged to violate:

                        a. The Telephone Consumer Protection Act (TCPA), including any

                amendment of or addition to such law; or

                        b. The CAN-SPAM Act of 2003, including any amendment of or addition

                to such law; or

                        c. Any statute, ordinance or regulation, other than the TCPA or

                CAN-SPAM Act of 2003, that prohibits or limits the sending, transmitting,

                communicating or distribution of material or information.” (Emphasis added.)

Schane thereafter filed an answer to the complaint.

¶9     On October 1, 2010, G.M. Sign entered into a settlement agreement with Schane.           In the

agreement, the parties stipulated to a class consisting of “all persons to whom [Schane] sent

advertising facsimiles during the period of September 7, 2007 through June 17, 2008.” 2           The

settlement agreement noted that, during that period, Schane faxed a total of 49,825

advertisements to the class members without their prior express permission.         It further recited

       2
           It is unclear why the settlement agreement recited that the unsolicited fax advertisements

began on September 7, 2007, while the class action complaint alleged that G.M. Sign received a

fax advertisement from Schane on or about September 6, 2007.



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2014 IL App (2d) 130593


that “a finding of liability under the TCPA with statutory damages of $500 per unsolicited fax

would result in a damage award of $24,912,500.00 before trebling” and that “such a judgment

would bankrupt [Schane] and cause the dissolution of his business.” Schane agreed to have

judgment entered against him in the amount of $4.9 million, which settled “all disputes between

[Schane] and the class.” The agreement also provided that G.M. Sign and the class would not

execute on the judgment against Schane personally, but would satisfy the judgment only from his

State Farm insurance policy.

¶ 10   On October 5, 2010, G.M. Sign filed a motion for certification of the class and for

preliminary approval of the settlement. G.M. Sign reiterated the facts outlined in the settlement

and argued that class certification was appropriate because Schane’s conduct was “substantially

similar as to each class member.” G.M. Sign further contended in the motion that the following

questions could be “answered on a class-wide basis”: (1) “[w]hether [Schane] faxed

advertisements without obtaining the recipients’ prior express invitation or permission”; (2)

“[Schane’s] manner and method for compiling or obtaining the list of fax numbers to which it sent

Exhibit A to the Complaint”; and (3) “[w]hether [Schane] violated the provisions of [the TCPA] by

faxing the advertisements.”

¶ 11   On October 7, 2010, the trial court certified the proposed class and preliminarily approved

the settlement. The certified class consisted of “[a]ll persons to whom [Schane] sent advertising

facsimiles during the period of September 7, 2007 through June 17, 2008.” The court set

December 16, 2010, as the date for final approval of the settlement.

¶ 12   On November 12, 2010, G.M. Sign sought leave to file an amended complaint, the

admitted purpose of which was to “ ‘plead into possible insurance coverage available under

Schane’s insurance policies.’ ”   Schane, 2013 IL App (2d) 120434, ¶ 7.         The motion was



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2014 IL App (2d) 130593


granted, and G.M. Sign filed the amended complaint on November 18, 2010. It asserted largely

the same preliminary allegations as the original complaint. However, instead of alleging that

G.M. Sign had received a fax advertisement and that the class members had received “the same or

similar advertisements,” the amended complaint alleged that G.M. Sign had received an

“unsolicited facsimile” and that the class members had received “the same or similar unsolicited

facsimiles.” Furthermore, although count I of the amended complaint incorporated by reference

all of the preliminary factual allegations, counts II and III (alleging conversion and consumer

fraud) incorporated only those factual allegations that contained no reference to the TCPA.

¶ 13   Additionally, the proposed classes for counts II and III of the amended complaint had been

changed. The class for count II was “[a]ll persons who on or after five years prior to the filing of

this action, were sent telephone facsimile messages by or on behalf of [Schane].” The class for

count III was “[a]ll persons in Illinois who on or after a date three years prior to the filing of this

action were sent telephone facsimile messages by or on behalf of [Schane].” No longer did the

classes for counts II and III consist expressly and exclusively of persons who had received

advertisements, who had not given Schane permission to send them, and who did not have

established business relationships with Schane.

¶ 14   Schane’s attorney testified at his deposition that he tendered the amended complaint to

State Farm on December 10, 2010, but that he did not at that time inform State Farm that the case

had been settled. When asked why he tendered the amended complaint to State Farm even though

the case was settled, Schane’s attorney said that he did not know. He recalled that he did it upon

G.M. Sign’s attorney’s representation that he should. At oral argument in the Schane case, G.M.

Sign conceded that the tender of the amended complaint to State Farm did not include the




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2014 IL App (2d) 130593


settlement agreement, even though the settlement had been preliminarily approved. Schane, 2013

IL App (2d) 120434, ¶ 17 n.1. State Farm again denied coverage.

¶ 15   On December 16, 2010, the trial court entered an order of final approval of the settlement

agreement. Although the amended complaint proposed a different class for counts II and III than

the class the trial court had certified based upon the original complaint, the certified class and the

settlement agreement remained unchanged.

¶ 16                  B. The Declaratory Judgment Action (No. 11-MR-315)

¶ 17   On February 24, 2011, G.M. Sign filed the present declaratory judgment action against

State Farm. G.M. Sign claimed coverage under Schane’s insurance policy and argued that State

Farm was estopped from asserting policy defenses because it did not defend Schane under a

reservation of rights or file a suit seeking a declaration that no coverage was afforded. G.M. Sign

concluded that State Farm owed Schane a duty to defend him and to indemnify any judgment

entered on the amended complaint in No. 10-CH-4480. State Farm filed an answer, an amended

affirmative defense claiming that the settlement was unreasonable, and an amended counterclaim

seeking a declaratory judgment in its favor based on Endorsement FE-6655, as well as a

declaration of no coverage under other policy provisions.

¶ 18   State Farm moved for judgment on the pleadings, asserting that it had no duty to indemnify

the stipulated judgment, based on Endorsement FE-6655. G.M. Sign filed a cross-motion for

judgment on the pleadings, contending, inter alia, that the amended complaint in No.

10-CH-4480—particularly the conversion and consumer fraud counts—pleaded claims that were

potentially within coverage. The trial court denied State Farm’s motion and granted G.M. Sign’s

motion in part, finding that State Farm owed a duty to defend and to indemnify under the policy.

The court reasoned that counts II and III of G.M. Sign’s amended complaint in the underlying class



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2014 IL App (2d) 130593


action were broad enough to potentially include faxes that were not covered by Endorsement

FE-6655. On May 3, 2012, State Farm filed a second amended counterclaim, which, like its

amended counterclaim, sought a declaration of no duty to defend or to indemnify based on

Endorsement FE-6655.

¶ 19   State Farm then filed a motion for summary judgment regarding the extent of its duty to

indemnify.    G.M. Sign filed a cross-motion for summary judgment, asserting that State Farm

was liable to indemnify the entire judgment because it was estopped from raising policy

defenses.    On February 27, 2013, the trial court ruled in a written order.   It found that the

judgment was entered against Schane after State Farm denied coverage but before the filing of

the declaratory judgment action.    It further found that Judge David Hall, in ruling on the

cross-motions for judgment on the pleadings, had determined that State Farm had a duty to

defend Schane and breached that duty.       The court ruled that, “[a]ccordingly, State Farm is

estopped from raising arguments that stem from policy-based defenses to coverage.” However,

the court ruled that “estoppel in this context does not preclude determination of the extent of

coverage and the reasonableness of the settlement agreement that was reached.” The court then

held, inter alia, that the damages were the result of a single occurrence and that the settlement

was reasonable.

¶ 20   Both parties filed motions to reconsider, which the court denied on May 15, 2013.   In its

order, the court also granted State Farm’s motion to post an insurance policy to stay the

judgment and denied G.M. Sign’s motion for inclusion of postjudgment interest. State Farm

filed a notice of appeal on June 4, 2013.     With leave of court, G.M. Sign filed a notice of

cross-appeal on July 23, 2013.

¶ 21                                     II. ANALYSIS



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2014 IL App (2d) 130593


¶ 22   State Farm contends that the trial court erred in finding that it had a duty to defend

Schane against the underlying amended complaint, because (1) Endorsement FE-6655 applied to

the counts alleging conversion and consumer fraud (the alternative counts); (2) the alternative

counts failed to allege property damage caused by an occurrence as those terms are defined in the

policy; (3) State Farm’s duty to defend, if any, arose after the case was settled and Schane’s

liability was extinguished; and (4) the settlement was unreasonable.     In its cross-appeal, G.M.

Sign contends that (1) the trial court erred in limiting the judgment against State Farm to a single

occurrence; and (2) the court erred in ruling that State Farm need not indemnify postjudgment

interest that was actually awarded.

¶ 23   As to State Farm’s appeal, we find its first argument—that it owed no duty to defend

against the amended complaint, because Endorsement FE-6655 applied to the alternative

counts—dispositive.    Consequently, we need not address State Farm’s remaining arguments or

G.M. Sign’s arguments on cross-appeal.

¶ 24   The trial court determined that State Farm had a duty to defend Schane in the underlying

litigation in the context of ruling on the parties’ cross-motions for judgment on the pleadings.

A motion for judgment on the pleadings is limited to the pleadings. Pekin Insurance Co. v.

Wilson, 237 Ill. 2d 446, 455 (2010).    When ruling on such a motion, a court must consider as

admitted all well-pleaded facts set forth in the nonmoving party’s pleading and the fair

inferences drawn therefrom.    Wilson, 237 Ill. 2d at 455.   Judgment on the pleadings is proper

if the pleadings disclose no genuine issue of material fact and the movant is entitled to judgment

as a matter of law.   Wilson, 237 Ill. 2d at 455.    We review de novo a ruling on a motion for

judgment on the pleadings.    Wilson, 237 Ill. 2d at 455.




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2014 IL App (2d) 130593


¶ 25      Ordinarily, in a declaratory judgment action where the issue is an insurer’s duty to

defend, a court looks first to the allegations of the underlying complaint and compares them to

the insurance policy’s relevant provisions.          Outboard Marine Corp. v. Liberty Mutual

Insurance Co., 154 Ill. 2d 90, 108 (1992).       Refusal to defend is unjustifiable unless it is clear

from the face of the underlying complaint that the facts alleged do not potentially fall within the

policy’s coverage.     Outboard Marine, 154 Ill. 2d at 108.       In determining whether there is a

duty to defend, the allegations in the underlying complaint must be construed liberally, and any

doubts must be resolved in favor of coverage. Scudder v. Hanover Insurance Co., 201 Ill. App.

3d 921, 925 (1990).      An insurer cannot refuse to defend its insured once the duty is triggered.

Home Insurance Co. v. United States Fidelity & Guaranty Co., 324 Ill. App. 3d 981, 995 (2001).

Rather, the insurer must either defend under a reservation of rights or seek a declaratory

judgment that there is no coverage. Home, 324 Ill. App. 3d at 995-96.           If the insurer fails to

take either of these steps and is later determined to have wrongfully denied coverage, the insurer

will be estopped from raising policy defenses to coverage.       Employers Insurance of Wausau v.

Ehlco Liquidating Trust, 186 Ill. 2d 127, 150-51 (1999).           However, the estoppel doctrine

applies only if the insurer has wrongfully denied coverage.     Ehlco, 186 Ill. 2d at 150.

¶ 26      In construing an insurance policy, the court must ascertain the intent of the parties to the

contract.    Outboard Marine, 154 Ill. 2d at 108.    Courts construe the policy as a whole with due

regard to the risk undertaken, the subject matter that is insured, and the purpose of the entire

policy.     Outboard Marine, 154 Ill. 2d at 108.    If the words used in the policy are unambiguous,

courts afford them their plain, ordinary, and popular meaning.       Outboard Marine, 154 Ill. 2d at

108.




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2014 IL App (2d) 130593


¶ 27   We agree with State Farm that G.M. Sign’s amended complaint did not allege claims that

potentially fell within coverage.    In essence, G.M. Sign offers two arguments for why the

alternative counts of the amended complaint potentially fell within coverage: (1) the alternative

counts had different elements and sought different damages than the TCPA count, and (2) the

alternative counts were premised on different facts than the TCPA count and were broad enough

to include faxes that did not violate the TCPA.

¶ 28   Regarding G.M. Sign’s first argument, we disagree that, in construing Endorsement

FE-6655, the pertinent analysis requires comparing the elements of the alternative counts to the

elements of the TCPA count.     Endorsement FE-6655 excludes coverage for property damage or

advertising injury “arising directly or indirectly” out of any action or omission that violates or is

alleged to violate the TCPA or any other statute that prohibits or limits the sending, transmitting,

communicating, or distributing of material or information.      The phrase “arising out of” is both

broad and vague, requiring us to liberally construe it in favor of the insured.           Maryland

Casualty Co. v. Chicago & North Western Transportation Co., 126 Ill. App. 3d 150, 154 (1984).

“Arising out of” means “originating from,” “having its origin in,” “growing out of,” and

“flowing from.” (Internal quotation marks omitted.) Maryland Casualty, 126 Ill. App. 3d at

154.   The proper analysis of the “arising out of” language in Endorsement FE-6655 is a “but

for” analysis, not an elements analysis. Maryland Casualty, 126 Ill. App. 3d at 154 (“but for”

causation, not proximate causation, satisfies the “arising out of” language).

¶ 29   The operation of the “but for” analysis is illustrated in American Economy Insurance Co.

v. DePaul University, 383 Ill. App. 3d 172 (2008).      In American Economy, the plaintiff in the

underlying suit sued the defendants, including DePaul University, for personal injuries that she

alleged were caused by their negligent installation of fluorescent lights in the construction of a



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2014 IL App (2d) 130593


building where she worked. American Economy, 383 Ill. App. 3d at 173.             DePaul was an

additional insured on a policy issued by American Economy to the electrical subcontractor.

American Economy, 383 Ill. App. 3d at 182.         The additional-insured endorsement provided

coverage for DePaul’s liability “arising out of” the electrical subcontractor’s work for DePaul.

American Economy, 383 Ill. App. 3d at 182.        In determining that American Economy owed

DePaul coverage, the appellate court looked to the underlying complaint, which alleged that the

underlying plaintiff was injured because of the selection and installation of fluorescent lighting

without ultraviolet diffusers.   American Economy, 383 Ill. App. 3d at 182.   The court held that

there was potential for DePaul’s liability because, “but for” the electrical subcontractor’s

installation of the fluorescent lights without diffusers, the underlying plaintiff would not have

suffered injury.    American Economy, 383 Ill. App. 3d at 182.          Thus, here, rather than

comparing the elements of the various causes of action alleged in the amended complaint, we

look at whether, but for Schane’s alleged act of sending faxes that violated the TCPA, G.M. Sign

would have suffered injury.

¶ 30   This brings us to G.M. Sign’s second argument—that the alternative counts were

premised on different facts than the TCPA count and were broad enough to include faxes that did

not violate the TCPA.     We disagree.   Although the alternative counts selectively incorporated

only those factual allegations that contained no reference to the TCPA, to the faxes being

advertisements, or to the lack of any established business relationships between Schane and the

class members, they nevertheless were based on the same facts as the TCPA count.        All three

counts incorporated by reference the allegations that, on or about September 6, 2007, G.M. Sign

received an “unsolicited facsimile” and that the class members received “the same or similar

unsolicited facsimiles.” Other than these factual allegations—which were the very allegations



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2014 IL App (2d) 130593


that formed the basis for the TCPA count—the amended complaint contained no allegations

referencing any faxes sent by Schane.

¶ 31   G.M. Sign contends that it pleaded in both alternative counts that Schane sent faxes other

than those covered by the TCPA count. However, the allegations to which G.M. Sign refers

merely defined the classes of persons covered by the actions, not the events giving rise to the

actions. For example, paragraph 31 of the amended complaint alleged that count II was brought

on behalf of “[a]ll persons who on or after five years prior to the filing of this action, were sent

telephone facsimile messages by or on behalf of [Schane].” This allegation defined the class—all

persons who received faxes from Schane—but added no factual allegations of any specific events.

¶ 32   In essence, G.M. Sign maintains that the vagueness of its amended complaint is the very

virtue that triggered State Farm’s duty to defend.      According to G.M. Sign, “the fact that the

[amended] complaint does not say one way or the other whether all of the faxes were

advertisements or whether they all were sent to people without established business relationships

with Schane *** should establish State Farm’s duty to defend, not the lack thereof.”

¶ 33   G.M. Sign argues nothing more than that it should be allowed to avoid application of the

policy exclusion by deliberately and strategically leaving its complaint so bereft of factual

allegations that myriad unpleaded scenarios could fall within its scope.    This argument renders

meaningless a court’s duty to compare the “facts” alleged in the complaint to the relevant policy

language.   Illinois is a fact-pleading jurisdiction.   Connick v. Suzuki Motor Co., 174 Ill. 2d

482, 499 (1996).   Even under federal notice pleading, a plaintiff must allege a statement of the

claim showing that the pleader is entitled to relief (Fed. R. Civ. P. 8(a)(2)), which requires more

than “ ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557 (2007)).



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¶ 34      Under Outboard Marine, an insurer’s refusal to defend is unjustifiable unless it is clear

from the face of the underlying complaint that the “facts” alleged do not potentially fall within

the policy’s coverage.     Outboard Marine, 154 Ill. 2d at 108.    A court can rationally apply this

rule only if the underlying complaint contains sufficient factual allegations to constitute a valid

pleading.     Here, because it did not contain any factual allegations of faxes other than those that

violated the TCPA, G.M. Sign’s amended complaint did not trigger State Farm’s duty to defend.

¶ 35      In arguing that its amended complaint alleged claims that potentially fell within coverage,

G.M. Sign offers citations to a number of circuit court orders.      Stare decisis requires courts to

follow decisions of higher courts but does not require courts to follow decisions of equal or

inferior courts. O’Casek v. Children’s Home & Aid Society of Illinois, 229 Ill. 2d 421, 440

(2008).     The cited circuit court orders are either distinguishable from this case or unpersuasive,

and we decline to afford them any weight in our resolution of this appeal.       In none of the cited

circuit court orders (two of which actually are transcripts of trial courts’ oral rulings) does the

court construe the phrase “arising out of” in accordance with Maryland Casualty.          Nor do the

courts address the common factual allegations underlying the various counts of the complaints at

issue.    Instead, the courts conclude that, because the elements of conversion and consumer

fraud differ from the elements of violation of the TCPA, the complaints potentially trigger

coverage.     This is an argument we have rejected for the reasons previously explained.

¶ 36      The only other case that G.M. Sign cites is Nationwide Mutual Insurance Co. v. Harris

Medical Associates, LLC, 973 F. Supp. 2d 1045 (E.D. Mo. 2013).          There, the district court had

before it a policy exclusion similar to the one in our case.              However, Nationwide is

inapplicable, because (1) the district court was bound to apply either Georgia or Missouri law;

(2) the court specifically rejected Illinois law; and (3) the parties had not furnished the court with



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facts relevant to a choice-of-law analysis. Nationwide, 973 F. Supp. 2d at 1055-56.         Under

those circumstances, the district court concluded that, “[f]or now,” “plaintiffs have not

established that there is no potential for coverage for the underlying [conversion] claim based on

the Violation of Statutes exclusion.” Nationwide, 973 F. Supp. 2d at 1056.       The district court

engaged in no reasoning or analysis. Nationwide, 973 F. Supp. 2d at 1056.

¶ 37   State Farm relies on an unpublished decision of the Michigan Court of Appeals.           In

G.M. Sign, Inc. v. Auto-Owners Insurance Co., No. 301742, 2012 WL 4840592 (Mich. Ct. App.

Oct. 11, 2012), the court construed the language of an exclusion similar to the one here.      The

court applied Illinois law—specifically, Maryland Casualty—and concluded that the plaintiff’s

alternative counts, which alleged common-law conversion and a violation of the Act, arose from

the same acts as the alleged violation of the TCPA. Auto-Owners, 2012 WL 4840592, at *4

(“The faxing of the ads constitutes the ‘acts’ that allegedly violated the TCPA.”).    Relying on

Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 364-65

(2006)—where our supreme court said that “[t]he essence of a TCPA fax-ad claim is that one

party sends another an unsolicited fax advertisement”—the court found that the underlying

defendant’s acts of faxing unsolicited advertisements to unwilling recipients were identical to the

acts at the heart of the conversion and consumer fraud claims.          Auto-Owners, 2012 WL

4840592, at *4.

¶ 38   We find Auto-Owners’s reasoning persuasive.        See Nulle v. Krewer, 374 Ill. App. 3d

802, 806 n.2 (2007) (this court is free to use the reasoning in an unpublished opinion from

another state).   Thus, we hold that the alternative counts of G.M. Sign’s amended complaint

arose from the same conduct that was the basis for its TCPA claim.     Accordingly, Endorsement

FE-6655 applied, and State Farm had no duty to defend or to indemnify Schane in the underlying



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suit.   It follows that State Farm is not estopped from raising policy defenses, because its denial

of coverage was not wrongful.       See Ehlco, 186 Ill. 2d at 150 (the estoppel doctrine applies only

if the insurer wrongfully denied coverage).

¶ 39     Furthermore, we reject G.M. Sign’s assertion that in Schane we determined that the

amended complaint alleged claims that potentially fell within coverage.             In the underlying

litigation, after the trial court approved the settlement and entered judgment against Schane,

State Farm filed a petition to vacate or modify the judgment pursuant to section 2-1401 of the

Code of Civil Procedure (735 ILCS 5/2-1401 (West 2010)).           Schane, 2013 IL App (2d) 120434,

¶ 1.    The trial court dismissed the petition, finding that State Farm was not diligent in light of its

decision not to accept the defense tender. Schane, 2013 IL App (2d) 120434, ¶ 1.            State Farm

appealed, arguing that it was diligent in defending the underlying suit and in bringing the section

2-1401 petition. Schane, 2013 IL App (2d) 120434, ¶ 2.

¶ 40     On appeal, we pointed out that two types of diligence must be shown: diligence with

respect to the original action and with respect to the section 2-1401 petition itself. Schane, 2013

IL App (2d) 120434, ¶ 40. In discussing State Farm’s diligence with respect to the original

action, we set forth the chronology of events:

                 “Here, the trial court specifically found a lack of due diligence in presenting the

         defense or claim in the original action. However, the trial court did not focus on when

         State Farm became aware of the facts prompting its decision to file the section 2-1401

         petition. State Farm had refused the tender of defense by relying on the explicit TCPA

         exclusion in Schane’s insurance policy. G.M. Sign filed an amended complaint, which

         potentially brought the claims within the insurance policy.          However, the amended

         complaint was filed after a settlement had been reached. Furthermore, when State Farm



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       received the amended complaint, G.M. Sign did not attach a copy of the settlement

       agreement. Given these facts, there was no lack of diligence in State Farm’s failure to

       defend under a reservation of rights, where a settlement had already been reached.

       Therefore, there could be no finding of a lack of due diligence in the original proceedings.”

       (Emphasis in original.) Schane, 2013 IL App (2d) 120434, ¶ 41.

Thus, we assumed, without deciding, that for the purpose of demonstrating State Farm’s due

diligence with respect to the original action, the amended complaint potentially brought the claims

stated therein within coverage. We said, in other words, that, even if the amended complaint

stated claims that potentially would trigger coverage, State Farm’s refusal to defend did not

indicate a lack of due diligence, because the amended complaint was filed only after the case was

settled. Nothing in the present opinion conflicts with Schane.

¶ 41   Although we already have rejected G.M. Sign’s argument that the alternative counts in its

amended complaint were broad enough to include faxes that did not violate the TCPA, we must

also point out that, in pursuing this argument, G.M. Sign contradicts the position that it

successfully advanced in the underlying litigation.

¶ 42   A review of the record is useful.   All three counts of G.M. Sign’s original complaint in

the underlying litigation incorporated the same factual allegations: on or about September 6,

2007, Schane faxed to G.M. Sign an advertisement; G.M. Sign had not given Schane permission to

fax advertisements to it; and Schane faxed “the same or similar advertisements” to G.M. Sign and

more than 39 other recipients without first receiving their express permission.   Each count also

proposed a virtually identical class: all persons who received fax advertisements, who had not

given Schane permission to send the faxes, and who did not have established business

relationships with Schane.    Although the alternative counts of the original complaint alleged



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different theories of recovery than the TCPA count, all three counts incorporated identical facts

alleging the sending of fax advertisements in violation of the TCPA.

¶ 43   Based on the allegations of its original complaint, G.M. Sign negotiated a $4.9 million

settlement with Schane.    The settlement agreement defined the class as “all persons to whom

[Schane] sent advertising facsimiles during the period of September 7, 2007 through June 17,

2008.” (Emphasis added.) The agreement further provided that, during that period, Schane

faxed a total of 49,825 advertisements to the class members without their prior express

permission.   Moreover, the amount of the settlement was based on the potentially bankrupting

TCPA damages.      Specifically, the agreement recited that “a finding of liability under the TCPA

with statutory damages of $500 per unsolicited fax would result in a damage award of

$24,912,500.00 before trebling” and that “such a judgment would bankrupt [Schane] and cause

the dissolution of his business.” G.M. Sign reiterated these facts in its motion for certification

of the class and for preliminary approval of the settlement.   It emphasized that class certification

was appropriate because Schane’s conduct was “substantially similar as to each class member”

and because common questions regarding Schane’s violation of the TCPA could be “answered on

a class-wide basis.” Based on these representations, the trial court certified the class and

approved the settlement.

¶ 44   Having obtained the benefit of its settlement agreement in the underlying litigation by

taking the position that Schane sent unsolicited fax advertisements in violation of the TCPA,

G.M. Sign should not now be permitted to argue that State Farm owed a duty to defend Schane

because its amended complaint potentially included faxes that fell outside of the TCPA.          See

American Country Insurance Co. v. Chicago Carriage Cab Corp., 2012 IL App (1st) 110761,

¶¶ 35-36 (holding that, where a party had obtained relief against an insured based on one



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2014 IL App (2d) 130593


position, it was judicially estopped from adopting a contrary position in an insurance coverage

dispute involving the insurer).   Nothing in the settlement agreement, the original complaint on

which it was based, or the motion for class certification and preliminary approval of the

settlement referenced any faxes that did not violate the TCPA.     Although G.M. Sign amended

its complaint shortly before receiving final approval of the settlement—deliberately excluding

from the alternative counts any reference to the TCPA, to the faxes being advertisements, or to

the lack of any established business relationships between Schane and the class members—the

settlement agreement was not amended and the certified class remained unchanged.              The

settlement agreement, which resolved “all disputes between [Schane] and the Class” (emphasis

added), recited that all 49,825 faxes that Schane sent to the class were advertisements.   Having

benefited from that position, G.M. Sign cannot now take a contrary position in this declaratory

judgment action in an attempt to obtain insurance coverage for the settlement.     See American

Country Insurance, 2012 IL App (1st) 110761, ¶¶ 35-36.

¶ 45   We cannot rest our discussion here.    G.M. Sign’s attempt to pursue a contrary position

in this declaratory judgment action thrusts into the forefront the larger issue of the role of its

amended complaint in the underlying litigation.   When G.M. Sign filed the amended complaint,

it had already negotiated a settlement with Schane based on its original complaint, and the trial

court had already certified the class and preliminarily approved the settlement.      G.M. Sign

nevertheless filed the amended complaint, significantly altering the counts that the settlement

agreement purported to resolve, for the admitted purpose of “ ‘plead[ing] into possible insurance

coverage.’ ” Schane, 2013 IL App (2d) 120434, ¶ 7.

¶ 46   We doubt whether, under these circumstances, any amended complaint could have

triggered State Farm’s duty to defend. In essence, G.M. Sign was attempting to recharacterize, at



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2014 IL App (2d) 130593


the eleventh hour, the class action that it had already litigated and negotiated to settlement, for

purposes of obtaining insurance coverage. This is not a strategy that courts should condone. See

James River Insurance Co. v. Fortress Systems, LLC, 899 F. Supp. 2d 1331, 1335 (S.D. Fla. 2012)

(rejecting an insured’s attempt to “reverse course” and “change the factual basis” of a settlement

reached in the underlying litigation in order to get “a second bite at the apple to plead into

coverage” in an insurance coverage dispute). Moreover, G.M. Sign was attempting to trigger

State Farm’s duty to defend even though, under the terms of the settlement agreement, Schane was

guaranteed not to be personally responsible for paying the judgment. Thus, when G.M. Sign filed

the amended complaint, State Farm’s duty to defend was moot. See Aetna Casualty & Surety Co.

v. Coronet Insurance Co., 44 Ill. App. 3d 744, 751 (1976) (“The purpose of a duty to defend an

insured is to protect the insured from the expenses of the litigation as well as the liabilities for

which he could be held.”). Perhaps this explains why Schane’s attorney tendered the amended

complaint to State Farm at G.M. Sign’s suggestion only six days before final approval of the

settlement, conspicuously neglecting to attach a copy of the settlement agreement.

¶ 47                                   III. CONCLUSION

¶ 48   For the foregoing reasons, we reverse the judgment of the circuit court of Lake County and

remand with directions to enter judgment in favor of State Farm and against G.M. Sign on G.M.

Sign’s declaratory judgment complaint and to enter judgment in favor of State Farm and against

G.M. Sign on State Farm’s second amended counterclaim for declaratory judgment.

¶ 49   Reversed and remanded with directions.




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