Mesa Labs., Inc. v. Fed. Ins. Co.

• Decision Date: 28 January 2020
• Docket Number: 19 C 2340
• Citation: 436 F.Supp.3d 1092
• Parties: MESA LABORATORIES, INC., Plaintiffs, v. FEDERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Illinois

436 F.Supp.3d 1092

MESA LABORATORIES, INC., Plaintiffs,

v.FEDERAL INSURANCE COMPANY, Defendant.

19 C 2340

United States District Court, N.D. Illinois, Eastern Division.

Signed January 28, 2020

Daniel I. Schlessinger, Margaret Marcia Schuchardt, Jaszczuk P.C., Chicago, IL, for Plaintiffs.

Daniel J. Cunningham, Lindsey D. Dean, Tressler LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

JOHN Z. LEE, United States District Judge

Plaintiff Mesa Laboratories, Inc. ("Mesa") sterilizes medical devices. To promote its services, Mesa faxed unsolicited ads to dozens of dentists and their assistants. When one of those dentists initiated a class action lawsuit, Mesa turned to its liability insurer, Federal Insurance Company ("Federal"), for help. But Federal declined. Having spent millions of dollars to resolve the dentists' action, Mesa has sued Federal for breach of contract, bad faith, and improper denial of claims, see Colo. Rev. Stat. Ann. §§ 10-3-1115 ; 10-3-1116. Convinced that it owed no duty to defend or indemnify Mesa, Federal urges the Court to enter judgment on the pleadings in its favor [16]. See Fed. R. Civ. P. 12(c). For the reasons that follow, that motion is granted.

Background ¹

I. The Orrington Action

Hoping to attract new customers, Mesa dispatched unsolicited ads to dozens of dental professionals. But, rather than getting new customers, Mesa's plan backfired. Acting on behalf of a putative class, a dentist named James L. Orrington filed a complaint alleging that Mesa's faxes violated the Telephone Consumer Protection Act, see 47 U.S.C. § 227 ("TCPA") and the Illinois Consumer Fraud Act, see 815 ILCS 505/2 ("ICFA"). Ex. A, Orrington Compl., ECF No. 1-1. And, because the faxes consumed ink and toner, Orrington also accused Mesa of common law conversion, nuisance, and trespass to chattels. Id.

About a year after Orrington submitted his complaint, the parties entered into a settlement agreement. Compl. ¶¶7–8, ECF No. 1. To resolve the dentists' claims, Mesa agreed to pay $3.3 million. Id. By that time, Mesa had accumulated more than $75,000 in legal fees. Id. ¶ 8.

II. Mesa's Insurance Policy

At the time Orrington filed suit, Mesa held several insurance policies issued by Federal. Id. ¶ 9. The policy at the center of this case, no. 3602-70-77, specifies that Federal "will pay damages and claimant costs that the insured becomes legally obligated to pay." Id. ¶ 10; see Exhibit D, Liability Insurance Policy ("Policy"), ECF No. 1-4. As relevant here, that policy includes two exceptions:

1. The Intended or Expected Exclusion

Mesa's liability insurance policy provides that the it "does not apply to bodily injury or property damages arising out of any act or failure to act:

• intended by the insured; or

• that would be expected from the standpoint of a reasonable person in the circumstances of the insured to cause injury or damage, even if the actual injury or damage is of a different degree or type than expected or intended."

Policy at 56.

Consistent with this limitation, the Policy only covers property damages that stem from an "occurrence," which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 56–57.

2. The Information Exclusion

The Policy also "does not apply to any damages, loss, cost or expense arising out of any actual or alleged or threatened violation of: ...

• the United States of America Telephone Consumer Protection Act (TCPA) of 1991 (or any law amendatory thereof) or any similar regulatory or statutory law in any other jurisdiction.... [or]

• any other regulatory or statutory law in any jurisdiction that addresses, limits or prohibits the collecting, communicating, disposal, dissemination, distribution, monitoring, printing, publication, recording, sending or transmitting of content, information or material."

Policy at 94.

III. This Litigation

Soon after Orrington filed suit, Mesa notified Federal and requested coverage. Compl. ¶13. Federal declined. Id. ¶14. The Information Exclusion, Federal said, "applies to TCPA claims and claims under similar statutory and regulatory laws." Id. Also, Federal added, Orrington's common law claims "did not meet the [policy's] definition of ‘occurrence’ because the conduct at issue was not an accident, i.e. , the fax transmitter(s) intended for the faxes to be printed by the recipients' fax machines." Id. Believing that neither exception applies, Mesa brought this action. Compl. ¶19.

Legal Standard

Rule 12(c) permits a party to move for judgment after the complaint and answer have been filed. See Fed. R. Civ. P. 12(c). A Rule 12(c) motion tests the sufficiency of claims based on the pleadings. Hayes v. City of Chi. , 670 F.3d 810, 813 (7th Cir. 2012). When reviewing such a motion, the Court takes all facts pleaded in the complaint as true and draws "all reasonable inferences and facts in favor of the nonmovant." Wagner v. Teva Pharm. USA, Inc. , 840 F.3d 355, 358 (7th Cir. 2016). "The pleadings include the complaint, the answer, and any written instruments attached as exhibits." N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend , 163 F.3d 449, 452 (7th Cir. 1998). A court will grant a motion for judgment on the pleadings when it is clear that the non-moving party cannot prove any set of facts sufficient to support its claim. Hayes, 670 F.3d at 813.

Analysis

Federal advances two reasons for this Court to enter judgment in its favor. First, Federal submits that, because Mesa knew that its fax-blast would consume the recipients' paper and toner, the Intended or Expected Exclusion applies. Second, Federal suggests that because Orrington's claims arise out of an alleged TVPA violation, they fall within the scope of the Information Exclusion. Before addressing those arguments, the Court must decide whether Colorado or Illinois law governs this suit which invokes the Court's diversity jurisdiction.

I. Choice of Law

In general, the party seeking a choice-of-law determination bears the burden of showing that a conflict exists. See Spitz v. Proven Winners N. Am., LLC , 759 F.3d 724, 729 (7th Cir. 2014). "Where the parties have not identified a conflict between the two bodies of law that might apply to the dispute ... courts apply the law of the forum state." Gould v. Artisoft, Inc. , 1 F.3d 544, 549 n.7 (7th Cir. 1993). Here, Mesa argues that Illinois and Colorado law are at odds, and thus invites the Court to perform a choice-of-law analysis.

The primary conflict that Mesa highlights centers on the term "occurrence." See Pl.'s Resp. Mot. J. ("Pl.'s Resp.") at 3, ECF No. 22. In Mesa's telling, Illinois law defines an "occurrence" to exclude any harm that stems from the insured's intentional acts. Id. at 10 (citing Am. States Ins. Co. v. Capital Assoc. of Jackson Cnty., Inc., 392 F.3d 939, 943 (7th Cir. 2004) ). Under Colorado law, however, the question is not whether the insured acted intentionally, but whether it expected the resulting harm. Id. at 11 (citing KF 103-CV, LLC v. Am. Family Mut. Ins. Co. , 630 Fed. App'x 826, 831–32 (10th Cir. 2015) (unpublished opinion) (clarifying that a trespass may count as an occurrence since "it is not necessarily expected or intended that harm would result")); see also Colard v. Am. Family Mut. Ins. Co. , 709 P.2d 11, 13 (Colo. App. 1985) (categorizing "the damage ... at issue" as "an occurrence" because it was "neither expected nor intended") (quotation marks omitted).

But this purported conflict rests on a misreading of Illinois law. In truth, Colorado and Illinois courts understand "occurrence" the same way. In American States , for example, the Seventh Circuit analyzed an insured's request for help defending a fax-blast lawsuit. See 392 F.3d at 940 (applying Illinois law). Because the insured "expected or intended" to "use up the recipients' paper and ink," the court refused to classify the fax-blast as an "occurrence." Id. at 943 ; see also Addision Automatics, Inc. v. Hartford Cas. Ins. Co. , 13-cv-1922, 2015 WL 1543216, at *9–10 (N.D. Ill. Mar. 31, 2015) ("The allegations of the underlying complaint do not trigger coverage because the use of the paper and ink was an expected, not unplanned, result."). The upshot is that, under both Illinois and Colorado law, an event or action that results in a harm that the insured does not expect or intend counts as an "occurrence."

As a last resort, Mesa cautions that, "Colorado and Illinois take different approaches to dealing with insurance companies that act in bad faith, as Plaintiff has alleged Defendant did here." Pl.'s Resp. at 3 n.2. But any conflict between Colorado and Illinois law as to Mesa's bad faith claim makes no difference to the issues raised in Federal's Rule 12(c) motion. See Fed. Ins. Co. v. J.K. Mfg. Co. , 933 F. Supp. 2d 1065, 1070 (N.D. Ill. 2013) ("A choice-of-law determination is required only when a difference in law will make a difference in the outcome.") (citation omitted). In the end, since Mesa has failed to pinpoint any relevant conflicts of law, this Court will apply the law of Illinois, the forum state. See Thornton v. M7 Aerospace, LP , 796 F.3d 757, 766 (7th Cir. 2015).

II. Merits

It is well-established that "[t]he construction of an insurance policy's provisions is a question of law." Outboard Marine Corp. v. Liberty Mut. Ins. Corp. , 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992). "To determine whether the insurance company owes its insured a defense, the court must simply compare the allegations of the underlying complaint against the insured to the pertinent provisions of the insurance policy." Roman Catholic Diocese of Springfield in Ill. v. Maryland Cas. Co., 139 F.3d 561, 565 (7th Cir. 1998). Along the same lines, "if the insurance policy does not cover what is alleged in the claim, the insurer will not have a duty to indemnify based on that claim." Keystone Consol. Indus., Inc. v. Employers Ins. Co. of Wausau, 456 F.3d 758, 762 (7th Cir. 2006).

Here,...