Illinois Court Holds Junk Fax Claim Not Within Products Coverage

In its recent decision in Windmill Nursing Pavilion v. Cincinnati Ins. Co., 2013 IL. App. (1st) 122431, the Appellate Court of Illinois, First District, had occasion to consider the scope of products-completed operations coverage as it relates to a Telephone Consumer Protection Act violation.

In an underlying lawsuit, Windmill Nursing Pavilion (“Windmill”) brought a class action against Unitherm, Inc. for sending unsolicited faxed advertisements to Windmill and the class members. Cincinnati Insurance Company insured Unitherm under consecutive commercial general liability and umbrella liability policies.  The renewal policies contained a modification that barred coverage for “bodily injury,” “property damage,” or “personal and advertising injury” arising out of “any action or omission” that violated the Telephone Consumer Protection Act of 1991 (“TCPA”).

Windmill, Unitherm, and Cincinnati eventually settled the class action lawsuit for $7 million. Cincinnati agreed to provide a $3 million settlement fund (the combined general aggregate and umbrella limits under the first general liability and umbrella policies issued to Unitherm), but denied coverage under its renewal policies with the TCPA exclusion.  Windmill brought a declaratory judgment action against Cincinnati seeking recovery of the remaining amount. Windmill argued that the TCPA exclusion in the renewal policies was invalid, as Cincinnati failed to provide proper notice at the time of renewal.  Windmill argued that in the alternative, it was entitled to coverage under the initial policies’ products/completed operations aggregate limits, in addition to the general aggregate limits, as its faxes should be considered its “work” or “product.”

Cincinnati countered that the “products-completed operations hazard” did not apply because fax advertisements did not constitute Unitherm’s “work” or “product.” Cincinnati further took the position that the “products-completed operations hazard” was not an independent and supplemental limit of the available coverage for Windmill’s claims because the general limit of the policy meant the “sum total” of available coverage. The circuit court granted judgment in favor of Cincinnati and Windmill appealed.

On appeal, the court first analyzed whether the TCPA exclusion in the renewal policy was valid. The court applied Ohio law, stating that modifications in the terms of a renewal policy are valid only if the insurer provided adequate notice of the modifications to the insured. The court found that Cincinnati indeed provided sufficient notice to Unitherm since forms containing the exclusion were separately attached in the quote and binder materials, on individual pages, and the exclusion was clearly worded in large, bold, capital letters. Thus, the court agreed that there was no coverage under the renewal policies.

 The court next analyzed whether there was separate coverage available under the original policies pursuant to the “products-completed operations hazard” coverage.  The court agreed with the circuit court’s determination, concluding that the faxed advertisements did not constitute Unitherm’s “products,” “goods,” or “work” under the policy because Unitherm was not in the business of selling the advertisements themselves.  Among other things, the court agreed that the faxes did not pertain to any representations or warranties made by Unitherm with respect to its products. Thus, the court held that the faxed advertisements did not come within the products-completed operations hazard coverage such that additional policy limits were triggered.