Valley Forge Ins. v. Swiderski Electronics

• Decision Date: 30 November 2006
• Docket Number: No. 101261.,101261.
• Parties: VALLEY FORGE INSURANCE COMPANY et al., Appellants, v. SWIDERSKI ELECTRONICS, INC., et al., Appellees.
• Court: Illinois Supreme Court

860 N.E.2d 307

223 Ill.2d 352

307 Ill.Dec. 653

VALLEY FORGE INSURANCE COMPANY et al., Appellants, v. SWIDERSKI ELECTRONICS, INC., et al., Appellees.

No. 101261.

Supreme Court of Illinois.

November 30, 2006.

COPYRIGHT MATERIAL OMITTED

Hugh C. Griffin, Arthur J. McColgan, Adam L. Frankel, of Lord, Bissell & Brook, L.L.P., Chicago, Andrew Butz, Joseph S. Crociata and William H. White, Jr., of Bonner Kieurnan Trebach & Crociata, Washington, D.C., for appellants.

Anthony C. Valiulis, Joanne Sarasin, of Much Shelist Freed Denenberg Ament & Rubenstein, P.C., Chicago, for appellee Swiderski Electronics, Inc.

Phillip A. Bock, Robert M. Hatch, of Diab & Bock, L.L.C., Chicago, Brian J. Wanca and Steven A. Smith, of Anderson & Wanca, Rolling Meadows, for appellee Ernie Rizzo, d/b/a Illinois Special Investigations.

Perry M. Shorris, of Bollinger, Ruberry & Garvey, Chicago, for amici curiae American Economy Insurance Company and American States Insurance Company.

Justice GARMAN delivered the judgment of the court, with opinion:

Ernie Rizzo, doing business as Illinois Special Investigations, filed suit individually and on behalf of a class of those similarly situated against Swiderski Electronics, Inc., based on Swiderski's alleged sending of unsolicited facsimile advertisements. Swiderski tendered the defense of the suit to Valley Forge Insurance Company and Continental Casualty Corporation pursuant to insurance policies Swiderski had purchased from them. Subsequently, the insurers sought a declaratory judgment that they had no duty to defend Swiderski against Rizzo's lawsuit (735 ILCS 5/2-701 (West 2002)). The parties filed cross-motions for summary judgment regarding the insurers' duty to defend (735 ILCS 5/2-1005 (West 2002)), and the circuit court of McHenry County granted summary judgment in favor of Swiderski. The appellate court affirmed. 359 Ill.App.3d 872, 296 Ill.Dec. 5, 834 N.E.2d 562. The issue before us is whether the insurers have a duty to defend Swiderski against Rizzo's lawsuit under the insurance policies. We hold that they do and affirm the judgment of the appellate court.

BACKGROUND

Ernie Rizzo operates a private investigation business known as Illinois Special Investigations. On June 19, 2003, Rizzo filed a three-count complaint in the McHenry County circuit court against Swiderski Electronics, Inc. According to the complaint, Swiderski sent Rizzo and numerous other individuals a fax advertisement with information on the sale, rental, and service of various types of electronic equipment. The complaint alleges that, by faxing copies of the advertisement without first obtaining the recipients' permission to do so, Swiderski (1) violated section 227 of the Telephone Consumer Protection Act (TCPA) (47 U.S.C. § 227 (2000)), (2) unlawfully converted the fax machine toner and paper of those who received the faxes, and (3) violated section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2 (West 2002)).¹ The complaint seeks damages, attorney fees, and injunctive relief on behalf of all individuals who received an unsolicited fax advertisement from Swiderski within the four-year period preceding the filing of the complaint. As yet, no class has been certified.

Swiderski tendered the defense of Rizzo's lawsuit to its primary insurer, Valley Forge Insurance Company, and its excess insurer, Continental Casualty Corporation. Under the Valley Forge policy, Valley Forge has a duty to defend Swiderski against any suit seeking damages caused by "personal and advertising injury." "Personal and advertising injury" includes injury that arises out of one or more of the following offenses:

"a. False arrest, detention or imprisonment b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

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.)

The policy defines "advertisement" 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." It does not define "publication," "material," or "privacy." The policy excludes coverage for "`[p]ersonal 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.'"

The Valley Forge policy also obligates Valley Forge to defend Swiderski against any suit 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 damage is caused by an "occurrence," which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy does not define "accident." Coverage for "property damage" does not apply to "`property damage' expected or intended from the standpoint of the insured."

The relevant provisions of the policy Continental issued to Swiderski are essentially the same as the provisions of the Valley Forge policy discussed above.² Like the Valley Forge policy, the Continental policy covers "advertising injury," which is defined as:

"a. Oral, written, televised or videotaped publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

b. Oral, written, televised or videotaped publication of material that violates a person's right of privacy;

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

d. Infringement upon another's copyright, trade dress or slogan in your advertisement." (Emphasis added.)

The Continental policy also covers "property damage" with provisions nearly identical to those contained in the Valley Forge policy.

On October 29, 2003, Valley Forge and Continental informed Swiderski that the claims set forth in Rizzo's complaint were not covered by the policies they issued to Swiderski. Subsequently, on January 9, 2004, the insurers sought a declaration from the McHenry County circuit court that they had no duty to defend or indemnify Swiderski with regard to Rizzo's lawsuit. Thereafter, Swiderski filed a counterclaim against the insurers and a third-party claim against Rizzo, asserting that Rizzo's TCPA claim and conversion claim were covered by the policies.

The parties filed cross-motions for partial summary judgment on the issue of the insurers' duty to defend. On July 23, 2004, after oral argument, the circuit court granted Swiderski's motion on the ground that the insurers had a duty to defend Swiderski under the policies' "advertising injury" provision. Because the court found a duty to defend under the "advertising injury" provision, the court did not rule on whether a duty to defend existed on the basis of the policies' "property damage" provision. The court was not asked to rule on whether the insurers had a duty to indemnify Swiderski.

Subsequently, in an order dated September 9, 2004, the circuit court entered judgment in favor of Swiderski. The order required the insurers to pay the defense costs already incurred in the underlying action, which amounted to $25,222.22. The order also required the insurers to advance future defense costs to Swiderski pending resolution of any appeal. In addition, the circuit court certified the duty-to-defend issue for immediate appeal pursuant to Supreme Court Rule 304(a) (210 Ill.2d R. 304(a)).

The appellate court affirmed the judgment of the circuit court. 359 Ill.App.3d at 891, 296 Ill.Dec. 5, 834 N.E.2d 562. The court observed that almost all prior litigation regarding insurance coverage for TCPA claims has proceeded in federal court, and that the federal courts are divided as to whether insurance provisions like the provision at issue in this case provide coverage for fax advertising claims under the Act. 359 Ill.App.3d at 879-80, 296 Ill.Dec. 5, 834 N.E.2d 562. After evaluating the federal case law, the appellate court concluded that, pursuant to Illinois' rules of insurance-policy construction, the insurers had a duty to defend Swiderski against Rizzo's lawsuit. 359 Ill.App.3d at 883, 296 Ill.Dec. 5, 834 N.E.2d 562. Specifically, the court held that the insurers owed Swiderski a duty to defend pursuant to the "advertising injury" provision of their policies. 359 Ill.App.3d at 889, 296 Ill.Dec. 5, 834 N.E.2d 562.

Comparing the allegations in Rizzo's complaint with the language of the "advertising injury" provision, the appellate court determined that an average person would reasonably interpret that provision as affording coverage. 359 Ill.App.3d at 885, 296 Ill.Dec. 5, 834 N.E.2d 562. The court rejected the insurers' argument that, in the context of the insurance policies, "publication" requires injurious communication to a third party. 359 Ill.App.3d at 885-86, 296 Ill.Dec. 5, 834 N.E.2d 562. The court reasoned that, given its plain and ordinary meaning, the term "publication" does not convey to a reasonable person an...