                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




           Pekin Insurance Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769




Appellate Court            PEKIN INSURANCE COMPANY, Plaintiff-Appellant, v. XDATA
Caption                    SOLUTIONS, INC., an Indiana Corporation, and TARGIN SIGN
                           SYSTEMS, INC., an Illinois Corporation, Defendants-Appellees.



District & No.             First District, First Division
                           Docket No. 1-10-2769


Filed                      September 30, 2011


Held                       Plaintiff insurer had duty to defend and indemnify defendant in
(Note: This syllabus       underlying class action alleging violations of Telephone Consumer
constitutes no part of     Protection Act based on the transmission of unsolicited facsimile
the opinion of the court   advertisements where the allegations in the underlying complaint
but has been prepared      potentially fell within the coverage of the “advertising injury” provision,
by the Reporter of         or the “property damage” and “occurrence” provisions, and defendant did
Decisions for the          not violate the “voluntary payment” provision by settling the claim after
convenience of the         receiving plaintiff’s denial of coverage.
reader.)


Decision Under             Appeal from the Circuit Court of Cook County, No. 09-CH-15303; the
Review                     Hon. Stuart E. Palmer, Judge, presiding.



Judgment                   Affirmed.
Counsel on                  Pretzel & Stouffer, Chtrd., of Chicago (Robert Marc Chemers, Darryl L.
Appeal                      Awick, and Scott L. Howie, of counsel), for appellant.

                            Anderson + Wanca (Brian J. Wanca and David M. Oppenheim, of
                            counsel), and Bock & Hatch LLC (Phillip A. Bock and Robert M. Hatch,
                            of counsel), both of Chicago, for appellees.


Panel                       JUSTICE KARNEZIS delivered the judgment of the court, with opinion.
                            Presiding Justice Hoffman and Justice Hall concurred in the judgment
                            and opinion.



                                              OPINION

¶1          Plaintiff-appellant Pekin Insurance Company appeals from an order of the circuit court
        in favor of defendants-appellees XData Solutions, Inc., and Targin Sign Systems, Inc.,
        finding that Pekin had a duty to defend and indemnify XData in an underlying class action
        lawsuit filed by Targin. On appeal, Pekin contends: (1) it had no duty to defend XData in the
        underlying lawsuit because the “advertising injury” provision in the insurance policy did not
        apply to alleged violations of the Telephone Consumer Protection Act (TCPA) (47 U.S.C.
        § 227 (2006)); (2) it had no duty to defend XData because the “property damage” and
        “occurrence” provisions in the insurance policy did not apply to intentional acts; and (3) it
        had no duty to indemnify XData for the settlement amount because XData violated the
        insurance policy’s “voluntary payments” provision.

¶2                                            Background
¶3           On December 19, 2005, XData sent an unsolicited fax to Targin advertising its
        “Integrated Business Solutions” with “Software Systems for All Your Needs.” The
        unsolicited and apparently unappreciated fax caused Targin to file a class action lawsuit
        against XData for violating the TCPA. The TCPA prohibits the sending of an unsolicited
        advertisement to a telephone facsimile machine without the receiver’s consent. 47 U.S.C.
        § 227(b)(1)(C). The TCPA also provides for a private right of action, brought by a person or
        an entity, to recover monetary losses from a violation, or to receive $500 in damages for each
        violation, whichever is greater. 47 U.S.C. § 227(b)(3)(B). The TCPA further provides that
        if the violation is willful or knowing, the court may in its discretion triple the damage award.
        47 USC § 227(b)(3).
¶4           Targin filed the class action complaint in January 2009 in the circuit court of Cook




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     County against XData.1 The three-count complaint alleged violations of the TCPA (count I),
     conversion (count II), and violations of the Illinois Consumer Fraud and Deceptive Business
     Practices Act (815 ILCS 505/2 (West 2008)) (count III). XData tendered defense of the class
     action to Pekin in February 2009. Pekin declined coverage to XData in March 2009, finding
     that the allegations in the complaint against XData were not covered under the insurance
     policy issued to XData. Targin and XData subsequently entered into a settlement agreement,
     without any input from Pekin, and agreed to settle the class action for $1,975,000. The
     judgment was to be satisfied solely from the proceeds of XData’s insurance policy with
     Pekin covering the period including December 1, 2005 through December 31, 2005. On June
     3, 2009, the court approved the settlement agreement and entered a “Final Approval of
     Settlement Agreement and Judgment” against XData. The court’s order specifically found
     that XData had sent 4,673 unauthorized fax advertisements to recipients during 2005, but
     believed that it had their consent when it sent the faxes. The order also specifically found that
     XData had not intended to injure the recipients when it sent the faxes.
¶5       While the underlying action was pending, Pekin filed a complaint for declaratory
     judgment in the circuit court of Cook County against XData and Targin in April 2009,
     alleging that it did not have a duty to defend XData in the underlying action. Subsequently,
     Targin filed a motion for summary judgment and Pekin responded with a cross-motion for
     summary judgment. The circuit court granted Targin’s motion and denied Pekin’s motion,
     finding that Pekin had both a duty to defend and indemnify XData in the underlying action.
     Pekin now appeals from the court’s order.

¶6                                           Analysis
¶7        On appeal, Pekin first contends that it had no duty to defend XData in the underlying
     action. To determine whether an insurer has a duty to defend its insured from a lawsuit, a
     court must compare the facts alleged in the underlying complaint to the relevant provisions
     of the insurance policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d
     90, 107-08 (1992). If the facts alleged in the underlying complaint fall within or potentially
     within the policy’s coverage, the insurer is obligated to defend its insured. Valley Forge
     Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 363 (2006). The allegations in
     the underlying complaint must be liberally construed in favor of the insured. United States
     Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73 (1991). This is true even
     if the allegations are groundless, false, or fraudulent, and even if only one of several theories
     of recovery alleged in the complaint falls within the potential coverage of the policy. United
     States Fidelity & Guaranty Co., 144 Ill. 2d at 73.
¶8        A court’s primary objective in construing the language of an insurance policy is to
     ascertain and give effect to the intentions of the parties as expressed by the language of the
     policy. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391


             1
              Targin, an Illinois corporation, first filed the class action complaint in the circuit court of
     Cook County against XData, an Indiana corporation. The action was removed to federal court, but
     was later dismissed and refiled in the circuit court of Cook County.

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       (1993). Similar to a contract, an insurance policy is to be construed as a whole, giving effect
       to every provision, if possible, because it must be assumed that every provision was intended
       to serve a purpose. Valley Forge, 223 Ill. 2d at 362. If the words used in the policy, given
       their plain and ordinary meaning, are unambiguous, they must be applied as written. Crum
       & Forster, 223 Ill. 2d at 391.
¶9         The construction of an insurance policy and a determination of the rights and obligations
       thereunder are questions of law for the court that are appropriate for disposition by summary
       judgment. Insurance Corp. of Hanover v. Shelborne Associates, 389 Ill. App. 3d 795, 798
       (2009). Summary judgment is appropriate where the pleadings, depositions, and admissions
       on file, together with any affidavits and exhibits, when viewed in the light most favorable to
       the nonmoving party, indicate that there is no genuine issue of material fact and the moving
       party is entitled to judgment as a matter of law. Shelborne Associates, 389 Ill. App. 3d at
       798. Appellate review of an order granting or denying a motion for summary judgment is de
       novo. Outboard Marine Corp., 154 Ill. 2d at 102.

¶ 10                     Duty to Defend–“Advertising Injury” Provision
¶ 11       We now address Pekin’s contention that it had no duty to defend XData in the underlying
       lawsuit. Pekin first argues that it had no duty to defend because the underlying complaint’s
       claim under the TCPA did not fall within the policy’s coverage for an “advertising injury.”
       Pekin admits that Illinois law has held that “advertising injury” coverage can include a TCPA
       claim; however, it argues that this is only true for a “natural person” rather than for a
       corporation, as is the case here. Pekin primarily relies on Valley Forge Insurance Co. v.
       Swiderski Electronics, Inc., 223 Ill. 2d 352, 364-66 (2006), for support.
¶ 12       Here, the complaint alleged that XData violated the TCPA by sending advertising faxes
       to Targin and other members of the class without first obtaining their express invitation or
       permission, as required by the TCPA. The complaint further alleged that the faxes unlawfully
       interrupted Targin and the other class members’ privacy interests in being left alone.
¶ 13       The insurance policy issued to XData by Pekin provided that it applied to an:
               “ ‘[a]dvertising injury’ caused by an offense committed in the course of advertising
               your goods, products or services.”
¶ 14       The insurance policy defined “[a]dvertising injury” as an “injury arising out of one or
       more of the following offenses”:
               “Oral or written publication of material that violates a person’s right of privacy.”
¶ 15       Comparing the allegations in the underlying complaint with the provisions in the
       insurance policy, we find that the complaint’s claim pursuant to the TCPA falls within or
       potentially within the coverage of the policy’s “advertising injury” provision. The complaint
       specifically alleged that the unsolicited fax violated the TCPA and was an invasion into
       Targin’s and the other class members’ privacy interests. The insurance policy provided
       coverage for the written publication of material that violated a person’s right of privacy.
       Therefore, the allegations in the underlying complaint triggered Pekin’s duty to defend
       XData in the underlying lawsuit.


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¶ 16       Our conclusion is supported by our supreme court’s decision in Valley Forge, though for
       different reasons than Pekin argues. In Valley Forge, the court determined that the insured’s
       violation of the TCPA constituted an “advertising injury” under the insurance policy and the
       insurer had a duty to defend the insured. The complaint had alleged that the insured violated
       the TCPA by sending unsolicited fax advertisements. The insurance policy provided that an
       “advertising injury” included injury from “[o]ral or written publication, in any manner, of
       material that violates a person’s right of privacy.” The court specifically found that the
       allegation in the complaint fell within or potentially within the insurance policy, so the
       insurer had a duty to defend the insured. Valley Forge, 223 Ill. 2d at 368.
¶ 17       Here, similarly, the “advertising injury” provision in XData’s insurance policy covered
       the “publication of material that violates a person’s right of privacy.” The underlying
       complaint alleged that XData sent the faxes without the recipients’ prior consent and its
       actions violated their privacy interests in being left alone. Notably, the allegations in the
       underlying complaint were more specific than the allegations in the complaint in Valley
       Forge. If the general allegation in Valley Forge that the insured violated the TCPA was
       sufficient to bring the claim within or potentially within the policy’s coverage for an
       “advertising injury,” then the more specific allegations in the underlying complaint in the
       case at bar should also compel the same result (i.e., the allegations are sufficient to bring the
       claim within or potentially within the policy’s coverage for an “advertising injury”).
¶ 18       Contrary to Pekin’s assertion, we do not agree that Valley Forge stands for the
       proposition that coverage for an “advertising injury” in an insurance policy for a violation
       of the TCPA only applies to “natural” persons rather than to corporations. While the
       underlying class action complaint in Valley Forge was filed by an individual, on behalf of
       himself and on behalf of the class, our supreme court in Valley Forge did not distinguish
       between a person’s right to privacy or that of a corporation.
¶ 19       Additionally, Valley Forge declined to follow the Seventh Circuit’s analysis of privacy
       issues in American States Insurance Co. v. Capital Associates of Jackson County, Inc., 392
       F.3d 939, 942 (7th Cir. 2004), in which the Seventh Circuit distinguished between secrecy
       rights and seclusion rights, finding that corporations lacked seclusion rights. American
       States, 392 F.3d at 942. The court in Valley Forge specifically noted the Seventh Circuit’s
       distinction in American States, but found that the distinction, which was based on the
       foundations of privacy law, was inconsistent with the court’s approach to interpreting
       insurance policy provisions by giving policy terms their plain, ordinary and popularly
       understood meanings. Valley Forge, 223 Ill. 2d at 378-79. Since the court in Valley Forge
       specifically rejected the privacy distinctions between secrecy and seclusion and their effect
       on persons versus corporations, had the court intended for its holding to apply only to
       “natural” persons rather than to corporations, it would have so stated. The court made no
       such limitation to its holding. We decline to interpret such a distinction, as urged by Pekin,
       where we find no evidence of any intention by the court to make a distinction. Further,
       despite the class action complaint in Valley Forge being filed by an individual, the court did
       not specify whether the class members were comprised of individuals or corporations or
       both. Again, had the court intended for there to be a distinction between individuals and
       corporations, it would have discussed that distinction, specifically noting the makeup of class

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       members. Moreover, we note that American States was decided prior to any Illinois state
       court having considered the scope of privacy coverage under an “advertising injury” clause,
       so the court did not have any guidance as to how an Illinois state court would have analyzed
       the issue. Therefore, pursuant to our supreme court’s holding in Valley Forge, we conclude
       that the allegations in the underlying complaint triggered Pekin’s duty to defend XData and
       Pekin breached the contract by declining coverage.
¶ 20       Furthermore, it is clear that the TCPA applies to both individuals and to other entities
       such as corporations. Section (b)(3) of the TCPA specifically provides a right of action for
       “[a] person or entity.” 47 U.S.C. § 227(b)(3). Accordingly, we find no support for Pekin’s
       contention that only natural persons rather than individuals can recover for claimed
       violations of the TCPA.
¶ 21       Pekin further argues that we should not apply Illinois law, and instead should apply
       Indiana law, which does not extend insurance coverage for an “advertising injury” to TCPA
       claims. See Ace Mortgage Funding, Inc. v. Travelers Indemnity Co. of America, No. 1:05-cv-
       1631-DFH-TAB, 2008 WL 686953 (S.D. Ind. Mar. 10, 2008); Erie Insurance Exchange v.
       Kevin T. Watts, Inc., No. 1:05-cv-867-JDT-TAB, 2006 WL 1547109 (S.D. Ind. May 30,
       2006). Pekin maintains that Illinois and Indiana law are in conflict and, because Indiana has
       the most significant contacts to this case, we should apply Indiana law.
¶ 22       A choice of law determination is only necessary when “a difference in law will make a
       difference in the outcome.” Townsend v. Sears, Roebuck & Co., 227 Ill. 2d 147, 155 (2007).
       Choice of law considerations are not implicated unless there is an actual conflict in the law
       of the two states. Sterling Finance Management, L.P. v. UBS PaineWebber, Inc., 336 Ill.
       App. 3d 442, 447 (2002). Pekin also raised this contention before the circuit court in its
       motion for summary judgment. Finding that there were only two federal court decisions on
       the issue, and no state law, the court determined that a choice of law analysis was not
       necessary because there was no Indiana state law with which to conflict. Pekin disagrees,
       arguing on appeal that the federal court sitting in the state of Indiana is an accurate predictor
       of what law an Indiana state court would follow.
¶ 23       Here, we agree with the circuit court that there is no Indiana state law on the issue before
       us, so there can be no conflict with Illinois law. The two federal cases upon which Pekin
       relies merely acknowledge that they can only attempt to “predict” Indiana law because there
       has been no state court decision on the issue. See Ace Mortgage Funding, 2008 WL 686953,
       at *3. Accordingly, we cannot conclude that the federal cases represent Indiana state law for
       the purposes of engaging in a choice of law analysis. Therefore, since there is no Indiana
       state law on the issue of whether there can be coverage for a TCPA claim under an
       “advertising injury” provision in an insurance policy, there can be no conflict with Illinois
       law, and Illinois law applies here.

¶ 24          Duty to Defend–“Property Damage” and “Occurrence” Provisions
¶ 25      Next, Pekin contends that it had no duty to defend XData in the underlying lawsuit
       because the underlying complaint’s claim for conversion did not fall within the policy’s
       coverage for “property damage.” Pekin argues that there was no coverage pursuant to the

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       “property damage” provision in the policy because the underlying complaint did not allege
       an “occurrence” as defined in the Pekin policy. Pekin maintains that an “occurrence” as
       defined in the policy applies to accidental acts, not intentional acts such as sending faxes.
       Pekin acknowledges that the circuit court’s order, in which it determined that Pekin owed
       a duty to defend XData pursuant to the policy’s “property damage” provision, relying on
       Shelborne Associates, was “accurate in its account of Illinois law on this issue.” However,
       Pekin argues that the court erred in refusing to apply Indiana state law to this issue, which
       would resolve the issue in Pekin’s favor.
¶ 26       Here, as we found above, because there is no Indiana state law interpreting claims based
       on the TCPA, there is no conflict with Illinois law, and we will follow Illinois law.
       Therefore, Pekin had a duty to defend XData in the underlying lawsuit pursuant to the
       “property damage” and “occurrence” provisions in the insurance policy.

¶ 27                    Duty to Indemnify–“Voluntary Payments” Provision
¶ 28       Lastly, Pekin contends that it did not have a duty to indemnify XData for the settlement
       amount because XData violated the policy’s “voluntary payments” provision. Pekin argues
       that when XData settled the underlying lawsuit without Pekin’s consent, XData breached a
       material condition of the policy, relieving Pekin of any obligation to indemnify XData.
¶ 29       An insurer’s duty to indemnify is narrower than its duty to defend. Westchester Fire
       Insurance Co. v. G. Heileman Brewing Co., 321 Ill. App. 3d 622, 636 (2000). A “voluntary
       payment” provision provides that an insurer will not be held liable for expenses voluntarily
       incurred by an insured before tendering defense of a suit to the insurer. Westchester Fire
       Insurance Co., 321 Ill. App. 3d at 637. Also, “in the absence of a breach of the duty to
       defend, an insured must obtain the consent of the insurer before settling with an injured
       plaintiff.” Guillen v. Potomac Insurance Co. of Illinois, 203 Ill. 2d 141, 149 (2003). The
       purpose of the “voluntary payment” provision is to prevent collusion between the insured and
       the injured party. Westchester Fire Insurance Co., 321 Ill. App. 3d at 637; Myoda Computer
       Center, Inc. v. American Family Mutual Insurance Co., 389 Ill. App. 3d 419, 422 (2009). An
       insurer seeking to avoid responsibility because of a breach of this clause must show
       prejudice. Westchester Fire Insurance Co., 321 Ill. App. 3d at 637.
¶ 30       The “voluntary payment” provision in Pekin’s policy to XData provided: “[n]o insureds
       will, except at their own cost, voluntarily make a payment, assume any obligation, or incur
       any expense, other than for first aid, without our consent.”
¶ 31       Here, we conclude that XData did not breach the “voluntary payment” provision in the
       insurance policy. First, XData settled with Targin and the class members after tendering
       defense of the underlying lawsuit to Pekin and after receiving Pekin’s denial of coverage.
       The underlying class action complaint was filed in January 2009. XData tendered its defense
       to Pekin in February 2009, and Pekin declined coverage in March 2009. Having been
       abandoned by its insurer, XData entered into a settlement agreement in the underlying
       lawsuit in June 2009. Since the settlement agreement was entered into subsequent to
       tendering defense of the action to Pekin, XData did not breach the “voluntary payment”
       provision. Second, because we have determined that Pekin breached its duty to defend XData

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       by denying coverage, XData did not need Pekin’s consent before entering into the settlement
       agreement.
¶ 32       We are mindful that the above principles have been put in place to prevent collusion
       between the insured and the injured party. Here, however, we find no evidence of collusion.
       Pekin characterizes the settlement agreement as “substantial” and argues that had it not been
       for the settlement, Pekin could have undertaken the defense and successfully defeated the
       class action or litigated it to a nominal judgment. We remind Pekin that when Pekin declined
       coverage to XData, it chose to not undertake the defense. Pekin charted its own course and
       cannot now complain that it would have had a better finish had XData not been in charge.
¶ 33       Further, although we need not assess whether the settlement amount was reasonable, we
       note the circuit court found that XData had sent 4,673 unauthorized fax advertisements to
       recipients during 2005. The TCPA provides recovery for the greater of: monetary losses from
       a violation or $500 in damages for each violation. 47 U.S.C. § 227(b)(3)(B). A possible
       recovery of $500 for each violation would amount to $2,336,500. Section 227(b)(3) of the
       TCPA further provides that if the violation is willful or knowing, a court may triple the
       damage award. 47 U.S.C. § 227(b)(3). As a result of the underlying lawsuit, XData was
       potentially facing several million dollars in liability. The settlement agreement for just under
       $2 million is far less than XData’s potential liability.
¶ 34       Accordingly, we affirm the judgment of the circuit court.

¶ 35      Affirmed.




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