G.M. Sign, Inc. v. State Farm Fire & Cas. Co.

• Decision Date: 02 May 2014
• Docket Number: No. 2–13–0593.,2–13–0593.
• Citation: 18 N.E.3d 70
• Parties: G.M. SIGN, INC., Individually and as the Representative of a Certified Class, Plaintiff and Counterdefendant–Appellee and Cross–Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Counterplaintiff–Appellant and Cross–Appellee.
• Court: United States Appellate Court of Illinois

18 N.E.3d 70

G.M. SIGN, INC., Individually and as the Representative of a Certified Class, Plaintiff and Counterdefendant–Appellee and Cross–Appellant

v.STATE FARM FIRE AND CASUALTY COMPANY, Defendant and Counterplaintiff–Appellant and Cross–Appellee.

No. 2–13–0593.

Appellate Court of Illinois, Second District.

Opinion filed May 2, 2014.

Modified Upon Denial of Rehearing Sept. 2, 2014.

Michael C. Borders and Rosa M. Tumialan, both of Dykema Gossett PLLC, of Chicago, for appellant.

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 appellee.

OPINION

Justice ZENOFF delivered the judgment of the court, with 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.

¶ 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, 368 Ill.Dec. 878, 985 N.E.2d 685. 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 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:

“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 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, 368 Ill.Dec. 878, 985 N.E.2d 685. The motion was 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...