Valley Forge Ins. v. Swiderski Electronics

• Citation: 834 N.E.2d 562
• Decision Date: 17 August 2005
• Docket Number: No. 2-04-0910.,2-04-0910.
• Parties: VALLEY FORGE INSURANCE COMPANY and Continental Casualty Corporation, Plaintiffs and Counterdefendants-Appellants, v. SWIDERSKI ELECTRONICS, INC., Defendant and Counterplaintiff and Third-Party Plaintiff-Appellee (Ernie Rizzo, d/b/a Illinois Special Investigations, Third-Party Defendant-Appellee).
• Court: Supreme Court of Illinois

834 N.E.2d 562

VALLEY FORGE INSURANCE COMPANY and Continental Casualty Corporation, Plaintiffs and Counterdefendants-Appellants, v. SWIDERSKI ELECTRONICS, INC., Defendant and Counterplaintiff and Third-Party Plaintiff-Appellee (Ernie Rizzo, d/b/a Illinois Special Investigations, Third-Party Defendant-Appellee).

No. 2-04-0910.

Appellate Court of Illinois, Second District.

August 17, 2005.

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Justice BOWMAN delivered the opinion of the court:

In this case, we are called upon to decide the scope of the Telephone Consumer Protection Act (Act) (47 U.S.C. § 227 et seq. (2000)) in relation to insurance coverage under a commercial general liability policy (policy). Based on the receipt of unsolicited facsimile advertisements, Ernie Rizzo, d/b/a Illinois Special Investigations (Rizzo), brought a class action lawsuit under the Act against Swiderski Electronics, Inc. (Swiderski). Pursuant to a policy purchased from Valley Forge Insurance Company and Continental Casualty Corp. (Insurers), Swiderski tendered the defense of the underlying action to Insurers. Insurers, however, sought a declaratory judgment that the policy does not call for either defense or indemnity. The parties filed cross-motions for partial summary judgment regarding Insurers' duty to defend, and the court granted summary judgment in favor of Swiderski. Insurers appeal, arguing that there is no duty to defend Swiderski under the policy's (1) advertising injury provision or (2) property damage provision. We affirm.

I. BACKGROUND

On June 19, 2003, Rizzo, who operates a private investigation business, filed a class action lawsuit on behalf of all recipients of Swiderski's unsolicited facsimile (fax) advertisements. In his three-count complaint, Rizzo alleged that Swiderski (1) violated the Act by sending unsolicited faxes to fax machines throughout Illinois without obtaining prior consent; (2) improperly and unlawfully converted recipients' fax machine toner and paper to its own use; and (3) violated the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 2002)).¹ Among other relief, Rizzo sought monetary damages and attorney fees.

When Swiderski tendered the defense to Insurers, they disclaimed coverage and filed a complaint for a declaratory judgment. Specifically, Insurers claimed that they had no duty to defend or indemnify Swiderski under the "personal and advertising injury" provision or the "property damage" provision of the policy. Swiderski filed a counterclaim, arguing that Rizzo's complaint alleged claims for "property damage" and "personal and advertising injury," and that Insurers' refusal to defend Swiderski constituted a breach of their duty to defend. The relevant portions of the policy are set forth below.

A. "Personal and Advertising Injury" Provision

Under the policy, Insurers have the duty to defend any suit against Swiderski seeking damages caused by "personal and advertising injury." The policy defines "Personal and advertising injury" as injury arising out of one or more of the following offenses:

"d. Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

f. The use of another's advertising idea in your `advertisement'; or

g. Infringing upon another's copyright, trade dress or slogan in your `advertisement'." (Emphasis added.)

"Advertisement" is defined under the policy as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters." The policy does not define the words "publication" or "privacy." In addition, the policy excludes "`Personal and advertising injury' caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict `personal and advertising injury.'"

B. "Property Damage" Provision

Under the policy, Insurers also have the duty to defend any suit against Swiderski seeking damages caused by "property damage." The policy defines "Property damage" as:

"a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the `occurrence' that caused it."

The policy applies to "property damage" only if the property damage is caused by an "occurrence." "Occurrence" is defined under the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy does not define the word "accident." Coverage for "property damage" does not apply to property damage "expected or intended from the standpoint of the insured."

The parties filed cross-motions for partial summary judgment on the issue of Insurers' duty to defend. After briefing and oral argument, the trial court granted Swiderski's motion for partial summary judgment on July 23, 2004. In making its ruling, the trial court found only that Insurers had a duty to defend under the advertising injury provision; it did not decide whether there was coverage under the property damage provision of the policy.

Thereafter, in an order dated September 9, 2004, the trial court entered a declaratory judgment that Insurers had a duty to defend Swiderski. Insurers were ordered to pay the defense costs already incurred in the underlying suit ($25,242.22), which is still pending, and to advance future defense costs pending resolution of any appeal. In addition, the trial court certified the duty-to-defend issue for immediate appeal under Supreme Court Rule 304(a) (155 Ill.2d R. 304(a)). Insurers' timely notice of appeal followed.

II. ANALYSIS

Our standard of review on appeal from the entry of summary judgment is de novo. American Family Mutual Insurance Co. v. Enright, 334 Ill.App.3d 1026, 1029, 269 Ill.Dec. 597, 781 N.E.2d 394 (2002). The construction of an insurance policy and a determination of the rights and obligations under it are questions of law for the court and appropriate subjects for disposition by summary judgment. Central Illinois Light Co. v. Home Insurance Co., 213 Ill.2d 141, 153, 290 Ill.Dec. 155, 821 N.E.2d 206 (2004); American Family Mutual Insurance Co., 334 Ill.App.3d at 1029, 269 Ill.Dec. 597, 781 N.E.2d 394. Although summary judgment is a drastic means of disposing of litigation, it is appropriate if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992). We will reverse the entry of summary judgment if we determine that the prevailing party was not entitled to judgment as a matter of law or that a material question of fact exists. Chatham Corp. v. Dann Insurance, 351 Ill.App.3d 353, 357, 285 Ill.Dec. 663, 812 N.E.2d 483 (2004).

At issue here is whether Insurers are required to defend, under the policy's personal and advertising injury provision or property damage provision, a claim against Swiderski under the Act, based on unsolicited fax advertisements. As the trial court found that such a duty to defend exists under the personal and advertising injury provision, we analyze this portion of the policy first.

A. Personal and Advertising Injury

As stated, the policy's "personal and advertising injury" coverage includes injury from "[o]ral or written publication of material that violates a person's right of privacy." (Emphasis added.) The underlying lawsuit alleges that Swiderski violated the Act by sending unauthorized facsimiles to various recipients. For purposes of denying coverage, Insurers contend that the allegations in Rizzo's complaint implicate neither "publication" nor "material that violates a person's right of privacy." We set forth the relevant provisions of the Act.

The Act, enacted in 1991, provides that "[i]t shall be unlawful for any person within the United States * * * to use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine." 47 U.S.C. § 227(b)(1), (c) (2000). The Act defines "unsolicited advertisement" as "any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person's prior express invitation or permission." 47 U.S.C. § 227(a)(4) (2000). A person or entity may bring an action for a fax-advertising violation under the Act. 47 U.S.C. § 227(b)(3) (2000).²

Insurers first assert that the portion of the Act that governs commercial fax advertising does not protect privacy interests. Rather than protecting privacy interests, Insurers assert, the purpose of the Act's fax-advertising prohibitions is to regulate an economic nuisance by protecting individuals and business entities from misuse of their fax machines and supplies. Because the Act's fax-advertising prohibitions protect business entities, which do not have privacy rights, as well as individuals, who do have privacy rights, Insurers argue that a claim under the Act cannot possibly be a violation of privacy. According to Insurers, the legislative history shows that the only privacy interests protected under the Act relate to residential telephone subscribers who are intruded upon in the home by receiving calls from telemarketers. See 47 U.S.C. § 227(c) (2000) (entitled "Protection of subscriber privacy rights"); 47 U.S.C. § 227(c)(5) (2000) (a person who has received more than one telephone call within any 12-month period by or on behalf of...