Universal Underwriters v. Lou Fusz Automotive

• Decision Date: 21 March 2005
• Docket Number: No. 04-1497.,04-1497.
• Citation: 401 F.3d 876
• Parties: UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Kansas corporation, Plaintiff-Appellant, v. LOU FUSZ AUTOMOTIVE NETWORK, INC., a Missouri corporation; Onsite Computer Consulting Services, Inc., a Missouri corporation, Defendants-Appellees, West Brothers Chrysler, Inc.; Stephenson Electric Company, Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

401 F.3d 876

UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a Kansas corporation, Plaintiff-Appellant, v. LOU FUSZ AUTOMOTIVE NETWORK, INC., a Missouri corporation; Onsite Computer Consulting Services, Inc., a Missouri corporation, Defendants-Appellees, West Brothers Chrysler, Inc.; Stephenson Electric Company, Defendants.

No. 04-1497.

United States Court of Appeals, Eighth Circuit.

Submitted: January 13, 2005.

Filed: March 21, 2005.

Max H. Stern (argued), San Francisco, CA, for appellant.

Karl W. Dickhaus (argued), St. Louis, MO, for appellee, Onsite Computer.

Jay L. Kanzler (argued), St. Louis, MO, for appellee, Lou Fusz Automotive, etc.

Before MELLOY, SMITH, and COLLOTON, Circuit Judges.

MELLOY, Circuit Judge.

Onsite Computer Consulting Services ("Onsite") brought a class action lawsuit against Lou Fusz Automotive Network, Inc. ("Lou Fusz") in state court under the Telephone Consumer Protection Act, 47 U.S.C. § 227 (the "Act"), a federal statute that prohibits unsolicited fax advertisements. Lou Fusz tendered the claim to its insurer, Universal Underwriters Insurance Company ("Universal"). Universal agreed to provide a defense under a complete reservation of rights and subsequently instituted this action to seek declaratory judgment regarding its duty to defend and indemnify Lou Fusz. The district court¹ determined that Universal owed Lou Fusz a defense. The district court also determined that it could not resolve the issue of indemnification until after resolution of the state court action. We affirm.

I. Background

Onsite brought its state court, class-action petition on behalf of all persons harmed by Lou Fusz's alleged transmission of unsolicited fax advertisements. Onsite sought class certification, injunctive relief, and "[a]n award of the full amount of statutory damages allowed under 47 U.S.C. § 227(b)(3), including treble damages, sustained by Onsite and the Class...." The Act provides for damages in the amount of actual monetary loss or $500 per violation, whichever is greater. 47 U.S.C. § 227(b)(3)(B). The Act also permits up to treble damages for knowing and willful violations. Id. at § 227(b)(3). In its answer to the state court complaint, Lou Fusz denied that it sent unsolicited advertisements or authorized anyone to send unsolicited advertisements on its behalf. Lou Fusz also alleged that it had permission to send all challenged faxes.

In response to the present declaratory judgment action, Onsite and Lou Fusz joined forces to argue in favor of coverage under the policy. Universal presented numerous arguments against coverage that depended upon the policy's definitions of the terms "INJURY" and "DAMAGES."² Universal argued that Onsite sought only fixed damages of $500 per violation as permitted under the Act and that the fixed damages were "civil penalties, fines or assessments" excluded from the policy's definition of DAMAGES. Universal also argued that the alleged violations of the Act did not qualify for coverage under any of the policy's definitions of INJURY. Finally, Universal argued that violations of the Act were intentional and therefore excluded from coverage.

Lou Fusz moved for summary judgment, which the district court granted. The district court concluded that Onsite sought all available damages, not merely fixed damages. The district court also concluded that even if Onsite had sought only fixed damages, such damages were not "civil penalties" that would be excluded from coverage under the policy, but rather, were at least in part a liquidated sum representing uncertain and hard-to-quantify actual damages. The district court determined that an alleged violation of the Act qualified as a private nuisance, and therefore a Group 3 INJURY under the policy, but the district court did not address whether a violation of the Act satisfied any of the other definitions of INJURY. The district court found that the issue of intent was unresolved and therefore Universal could not be relieved of its duty to defend based on the allegedly intentional nature of Lou Fusz's actions. Finally, the district court found Universal's claim regarding a duty to indemnify Lou Fusz premature and dismissed that claim without prejudice.

II. Discussion

Under Missouri law, the interpretation of an insurance policy is a question of law. Standard Artificial Limb, Inc. v. Allianz Ins. Co., 895 S.W.2d 205, 209 (Mo.Ct.App.1995). Accordingly, our review is de novo. In addition, this case comes to us following a grant of summary judgment, which we review de novo. Royal Ins. Co. of America v. Kirksville Coll. of Osteopathic Med., Inc., 304 F.3d 804, 806 (8th Cir.2002).

"The duty to defend is broader than the duty to indemnify." McCormack Baron Mgmt. Servs. Inc. v. American Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 170 (Mo.1999) (en banc). The duty to defend exists where there is a potential liability. Id.; Royal Ins. Co. of America, 304 F.3d at 807 ("[Under Missouri law] the insurer's duty to defend arises when there is merely the potential for coverage."). In assessing whether there is a duty to defend, we must compare "the language of the policy with the allegations in the petition." Auto Club Family Ins. Co. v. Jacobsen, 19 S.W.3d 178, 182 (Mo.Ct.App.2000). In construing the policy, we must give each term its ordinary, lay meaning unless the policy expressly defines a term in a technical manner. Farmland Inds., Inc. v. Republic Ins. Co., 941 S.W.2d 505, 508 (Mo.1997) (en bane). Finally, we must resolve any ambiguities in favor of coverage. Aetna Cas. & Sur. Co. v. Haas, 422 S.W.2d 316, 321 (Mo.1968) ("[T]he language must be construed so as to give the insured the protection which he reasonably had a right to expect; and to that end any doubts, ambiguities and uncertainties arising out of the language used in the policy must be resolved in his favor.") (internal quotation omitted).

For there to be a potentially covered liability, the complaint must allege DAMAGES as defined in the policy. The policy's definition of DAMAGES excludes "civil penalties, fines or assessments" but includes punitive damages (where punitive damages are insurable as a matter of law). Universal argues that Onsite requested only the fixed damages available under the Act and that these fixed damages are "civil penalties" under the policy.

Onsite sought "[a]n award of the full amount of statutory damages allowed under 47 U.S.C. § 227(b)(3), including treble damages...." We believe that Onsite's reference to the "full amount of statutory damages" is a broad request for all forms of available relief or for the most favorable among the alternative forms of available relief. Although, in general, the phrase "statutory damages" may be understood as a limited reference only to fixed damages available under a statute, such a construction fails in the present case. If we adopt a limited interpretation of the wording "statutory damages" as set forth in the complaint, the complaint's following phrase "including treble damages" makes no sense. If the full amount of statutory damages includes treble damages, then the term "statutory damages" as used in the complaint cannot be limited only to the fixed $500 amount. Because Onsite sought the "full amount of statutory damages" we believe it is clear that Onsite requested exactly what the Act provides: the greater of actual monetary loss or a fixed sum of $500 per violation, plus treble damages if appropriate.

Universal also argues that Onsite failed to allege any harm, and therefore only stated a claim for fixed damages. The facts as alleged, however, plainly identify harm to Onsite. Onsite alleged that it received an unsolicited fax. Although the monetary impact of a single unsolicited fax is minor, it is nevertheless a cost borne by the recipient and recognized by Congress as a compensable harm. See, e.g., Missouri ex rel. Nixon v. American Blast Fax, Inc., 323 F.3d 649, 654-55 (8th Cir.2003) (listing the various harms caused by the receipt of unsolicited faxes).

Even if Onsite had sought only fixed damages under the Act, we would still construe the complaint as having alleged DAMAGES under the policy. Universal elected not to define the term "civil penalties" when it drafted the policy. Because the policy does not contain a technical definition for the phrase "civil penalty," we must use the term's lay meaning. If we find that the lay meaning is ambiguous, or that there is more than one reasonable lay meaning for the term, we must adopt the meaning that supports a finding of coverage. Aetna Cas. & Sur. Co., 422 S.W.2d at 321. According to Universal, the lay meaning of the term "civil penalty" is any award that exceeds dollar for dollar compensation for actual loss and has a punitive or deterrent effect. Lou Fusz and Onsite, on the other hand, argue that a lay person would understand a "civil penalty" to be an amount awarded to a public or governmental body. We disagree with the former interpretation and need not adopt the latter.

Initially, we note that Universal's proffered interpretation is unworkable when read "in the context of the policy as a whole." Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74, 77 (Mo.1998) (en banc). The policy's definition of DAMAGES includes amounts awarded as punitive damages. Accordingly, we cannot accept a definition for "civil penalty" that excludes from the definition of DAMAGES all awards with a punitive or deterrent effect. Such an interpretation would create an internal inconsistency in the policy in which one section would authorize the coverage of punitive awards and another would specifically exclude such awards from coverage.

Further, even if Universal's proffered definition did not create an internal inconsistency, a duty to defend would exist because a portion of the fixed amount represents a liquidated sum for uncertain and hard-to-quantify actual damages. We noted in Nixon, 323 F.3d at 654-55, that Congress identified the loss of use of...