TCPA Damages Ruled to be Remedial in Illinois

Adam J Krohn
June 20, 2013

The Telephone Consumer Protection Act (“TCPA”) prohibits several telemarketing practices (such as sending spam faxes). Under the TCPA there is a private right of action, along with the ability to seek $500 in damages for every violation (for every unsolicited fax) or the possibility of treble damages (when unsolicited faxes are sent willfully and knowingly). The Illinois Supreme Court has recently ruled that these statutory damages under the TCPA are not punitive but rather remedial in nature. This makes them insurable.

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Companies that are facing lawsuits because the violated this statue used to have to fight not just the plaintiff who was asserting liability in the lawsuit, but also for coverage by their insurer. This lawsuit has alleviated the fight for insurance coverage, by allowing them to seek insurance coverage under Illinois law.

In the original lawsuit, a small real estate agency called Locklear Electric, Inc. (“Locklear”) sued Ted Lay Real Estate Agency (“Lay”) alleging that it had received an unsolicited fax from Lay, which violated the TCPA. Lay settled with Locklear when it allowed a judgment of $1,737,500 to be entered against it provided that Locklear would seek satisfaction of the judgment from Lay’s insurance proceeds. Locklear agreed even if there was a determination that Lay’s insurance policy would not cover the damages.

Lay’s insurer was Standard Mutual Insurance Company (“Standard”) sought relief in Illinois state court. It wanted a declaration that the TCPA damages were punitive and therefore not insurable under Illinois law. The trial court and Appellate Court decided in favor of Standard. However, the Illinois Supreme Court disagreed.

The Illinois Supreme Court’s opinion in Standard Mutual Insurance Company v. Lay, filed on May 23, 2013 found that the intent of Congress was for the statutory damages compensate individuals who received unwanted telemarketing communications. Furthermore, the statutory damages of $500 per violation was intended by Congress to give private parties an incentive to enforce the statute.

The possibility of the imposition of treble damages under the TCPA did not make the statute penal since it was intended as supplemental aid to enforce. Therefore the $500 fixed amount serves a greater purpose than just punitive or deterrent. Since the TCPA was not considered to be penal by the Illinois Supreme Court the settlement was insurable under Illinois law. This opinion has diverged from the opinions of other state courts on this issue. This decision clears away one obstacle that companies face when defending TCPA class action lawsuits.

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