Class Action Lawsuit Defense

Class Action Lawsuit Defense

Class Action Defense News, Developments and Commentary

Supreme Court To Decide CAFA Pleading Standard

Posted in Class Action Fairness Act, Standing

On April 7th, the Supreme Court granted certiorari in Dart Cherokee Basin Operating Company, LLC v. Owens, a case originating from the Tenth Circuit. In that case, the Court will resolve a circuit split over the pleading standard applicable to determining CAFA removal jurisdiction. The question presented is:

Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required “short and plain statement of the grounds for removal” enough?

In Dart Cherokee, the lower courts held that the defendant did not satisfy its burden to establish removal jurisdiction under CAFA because, while it alleged the amount in controversy exceeded CAFA’s $5 million dollar floor, it did not attach evidence to its notice of removal to support the allegation.

Our own Paul Karlsgodt described the impact of this case to Law360 this way:  ”This case will provide another opportunity for the Supreme Court to evaluate barriers to CAFA removal jurisdiction that defendants continue to face in the lower courts, and whether those barriers are reasonable in light of the purposes and plain language of the statute.” We will continue to follow this important case.

Ninth Circuit Says Cellphone Calls Do Not Have To Be Confidential To Violate the California Invasion of Privacy Act

Posted in Class Actions Privacy, Consumer Class Action

The Ninth Circuit recently issued a divided and unpublished opinion in Young v. Hilton Worldwide Inc. et al, which plaintiffs may attempt to use in class action lawsuits against call centers for violations of the California Invasion of Privacy Act (“CIPA”).  We previously reported that in Faulkner v. ADT Security Services Inc., the Ninth Circuit may have foreclosed class actions like the one presented in Young because of the court’s holding that CIPA violations, at least in the call center context, require an individualized, fact-intensive inquiry regarding, among other things, the relationship between the parties and the particular circumstances of the call.  Arguably, such an inquiry would impose a substantial obstacle for any plaintiff seeking class certification for a CIPA claim.

In Young, however, the Ninth Circuit came to a different conclusion based on its understanding of the distinction between CIPA’s Section 632 (at issue in Faulkner) and Section 632.7 (at issue in Young).  Section 632.7 states, in relevant part, that “[e]very person who, without . . . consent . . . intercepts or receives and intentionally records . . . a communication transmitted between two cellular radio telephones . . . shall be punished by a fine not exceeding . . . $2,500.”  Missing from this statutory language is Section 632’s limitation that the intercepted or received call be a “confidential communication.”  Relying on this distinction, the Ninth Circuit held that, in order to state a viable claim pursuant to Section 632.7, a plaintiff need not allege that the recorded communications were intended to be confidential.  In other words, the viability of CIPA class actions may now turn on whether plaintiffs allege use of a cell phone, rather than a landline phone.  Though an unfortunate decision, there are several reasons to believe the import of Young will be relatively limited.

First and foremost, Young is a 2/1/4-paged, unpublished opinion, with a somewhat strange history.  The Ninth Circuit was tasked with reviewing a district court order that dismissed plaintiff’s Section 632 and Section 632.7 claims but, for reasons unknown, the order only discussed and formally ruled upon plaintiff’s Section 632 claim.  Consequently, the Ninth Circuit was reviewing a relatively limited record, and did not have the benefit of the district court’s analysis (nor did it have the benefit of Hilton’s analysis) with respect to the plaintiff’s Section 632.7 claim.

Second, while Hilton raised several statutory construction arguments in its appellate briefing, the Ninth Circuit declined to address them because it determined that the arguments were waived by Hilton.  Accordingly, it is unclear whether or not such arguments would have traction in a future case.

Third, in a dissenting opinion in Young, Judge Motz, a Senior District Judge for the United States District Court for the District of Maryland (sitting by designation), raised several compelling arguments that, given a proper record, may succeed in future cases.  Specifically, the dissent argued:

  • The California Supreme Court case Flanagan v. Flanagan, upon which the majority heavily relied, determined the proper definition of the word “confidential” as it is used in Section 632.  Flanagan was not reviewing a Section 632.7 claim.
  • There is no principled reason why the “service-observing” exception (an exception that applies to businesses which record phone calls for the purposes of monitoring their employees) applicable to Section 632 should not also apply to Section 632.7.  A contrary reading would arguably destroy the exception because most customers use cell phones, and because employers cannot determine with any degree of efficiency or certainty whether a customer is calling from a cell phone or a landline phone.
  • CIPA’s use of the terms “receive” and “intercept” may suggest that the statute was not meant to reach intended parties to a communication, but rather parties who received the communication by some means short of “intercepting” it.  A contrary reading arguably renders “intercept” superfluous because one who intercepts a call also receives the call.
  • Since CIPA is a criminal statute, the majority’s view that recording a call is either criminal or innocent based on the conduct of the caller (i.e., whether or not he/she uses a cell phone) is fraught with problems, some of them potentially constitutional in nature.

It is possible we will be able to evaluate the impact of Young sooner, rather than later.  There have been numerous cases brought in federal district court, as well as in California state court, wherein plaintiffs have alleged virtually identical class action claims.  See, e.g., Simpson v. Vagabond Franchise System Inc., Case No. 2012-00126259-CV, Super. Ct. Sacramento; Simpson v. Vantage Hospitality Group, Inc., Case No. RG 12637277, Super. Ct. Alameda; Simpson v. Doubletree Management LLC, et al., Case No. C12-016033, Super. Ct. Contra Costa; McCabe v. Intercontinental Hotels Group Resources, Inc., Case No. RG12637671, Super. Ct. Alameda; Simpson v. Ramada Worldwide, Inc., Case No. CV174549, Super Ct. Santa Cruz; McMachon v. Embassy Suites Management, Case No. CGC-12-522496, Super. Ct. San Francisco; Roberts v. Wyndham International Inc., Case No. RG 12639819, Super. Ct. Alameda; Simpson v. Best Western International, Inc., Case No. 12-cv-04672-JCS, 2012 U.S. Dist. LEXIS 162181 (N.D. Cal. Nov. 13, 2012).  It is possible that the statutory arguments waived by Hilton, and discussed by Judge Motz in Young, will make their way up to the Ninth Circuit before long.

Hopefully the dissent in Young will prove to be the stronger position.  Suffice it to say for now that companies, regardless of the industry they are in, should make absolutely sure that that they immediately implement policies designed to obtain prior consent before recording calls from their customers.

Collignon & Benda On the Tea Party vs. IRS

Posted in Uncategorized

On March 19th, Law360 published an article by our colleagues Casie Collignon and Jennifer Benda titled ”Tea Party v. IRS: Tax Trouble or Class Action Nightmare?” The article addresses growing litigation by tea party groups arising out of the alleged additional scrutiny the IRS applied to the groups’ petitions for tax-exempt status as 501(c)(4) social welfare organizations. While the press has covered these stories as being about campaign finance, the litigation raises significant class action, tax, and privacy questions that every practitioner should be following. We will continue to follow this important story here.

Seventh Circuit Holds Attorney is Bound to $3.54m Class Settlement Fee Agreement He Did Not Sign

Posted in Settlements

On February 14, 2014, the Seventh Circuit ruled that a plaintiff’s attorney was bound by the terms of a class action settlement involving alleged malfeasance in the laying of fiber-optic cables by telecommunications companies on certain landowners’ property even though the attorney never signed the final settlement agreement. The Seventh Circuit affirmed the Illinois federal court judge’s decision that Arthur Susman’s failure to promptly object to the terms of the settlement constituted his assent to the written agreement.

The Illinois class action, just one example of similar cases fought in numerous states throughout the country, challenged the installation of fiber-optic cable by telecommunications companies including Qwest Communications, Co., LLC and Level 3 Communications LLC, among others, on over 4,500 parcels of land in the state without the landowners’ permission.

Under the terms of the settlement of the Illinois class action, attorneys were to be awarded $3.54 million in fees and expenses.  A protracted dispute ensued in which the attorneys disagreed as to the allocation of the award among themselves.  Mediators, engaged to resolve the dispute, set forth a proposal by which 87 percent of fees would go to a coalition of 48 law firms, 8.5 percent would go to a former collaborator of Susman’s, William Gotfryd and Susman would receive 4.5 percent. The attorneys, including Susman, unanimously accepted the proposal.

A formal agreement memorializing the agreed-upon fee allocation was circulated.  In addition to setting out each attorney’ s share of the fees, the settlement agreement contained a hold harmless clause and an enforcement mechanism to prevent additional litigation, which required arbitration of future disputes and required the forfeiture of the fees of attorneys who did not cooperate in implementing the final agreement. Susman suggested several minor revisions to the final agreement, which were promptly made, and raised no other objections or concerns.  Within days of the initial circulation of the final agreement, all of the other lawyers had signed except for Susman, who, after several weeks had passed, argued Gotfryd should not have gotten a larger slice of the pie and refused to sign.

On appeal, Susman argued that although he had accepted the fee allocation, he objected to the obligations in the written agreement related to the hold harmless provision and the enforcement mechanism. In upholding the district court’s ruling, the Seventh Circuit looked to the lengthy history of prior dealings between the parties, in which Susman had a practice of promptly speaking up when he had an objection.  In light of this, the court held that Susman’s failure to promptly object to the hold harmless provision and the enforcement mechanism implied his assent to the final agreement.

According to the court, Susman’s eventual refusal to sign was only a “case of buyer’s remorse” and his objection to the enforcement provisions was a “last-ditch effort” to “escape from a fee distribution to which he [was] admittedly bound.”

No Supreme Court Review of Moldy Washer Cases

Posted in Class Action Trends, Class Certification, Issue Certification

Earlier today, the Supreme Court denied certiorari in two highly anticipated appeals of decisions by the Sixth and Seventh Circuit Courts of Appeals to grant class certification over breach of warranty claims involving allegedly defective washing machines.  The denial of cert in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.) and In re Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013) was a surprise to many commentators who had seen the moldy washer cases as providing the perfect opportunity for the Court to continue its trend clarifying the boundaries of class certification in cases like Wal-Mart Stores, Inc. v. DukesAmgen Inc. v. Connecticut Retirement Plans and Trust Funds, and Comcast Corp. v. Behrend.  The denial of cert means that the Court will not be addressing the question of whether it is appropriate for a federal court to order class certification of discrete, common issues in a case without analyzing whether those issues predominate more generally over the individualized questions, like injury or damages.  That question will be left to the lower courts for the time being.

This blog entry has been re-posted with permission from BakerHostetler’s Paul Karlsgodt’s personal class action blog located at

Removal Evidence Need Not Be Perfect and Declaratory Relief Alone May Satisfy CAFA Amount-in-Controversy Requirement, says the Eleventh Circuit

Posted in Class Action Fairness Act, Insurance, Rule 23(b)(2) Class Actions

Answering a question left undecided in other circuits, the Eleventh Circuit held in South Florida Wellness, Inc. v. Allstate Insurance Co., No. 14-10001 (Feb. 14, 2014) that a complaint seeking only declaratory relief “can be up to the task” of satisfying the Class Action Fairness Act’s $5 million amount-in-controversy requirement.

In an alleged class action filed in Florida state court, South Florida Wellness claimed that Allstate underpaid it for treatment provided to a patient who Allstate insured under a personal injury protection (PIP) policy.  Rather than paying 80% of the total amount billed, as Florida law generally requires of PIP payments, Allstate allegedly paid 80% of only certain amounts set forth in a statutory fee schedule.  South Florida Wellness argued that this was impermissible because Allstate failed to “clearly and unambiguously indicate in the insurance policy” that it was opting out of the general requirement in favor of the statutory fee schedule.  South Florida Wellness did not seek money damages, but rather “only a declaration that the form language Allstate used in the class members’ PIP insurance policies did not clearly and unambiguously indicate that payments would be limited to the levels provided for” in the statutory fee schedule.

Allstate removed the case to federal court under the CAFA.  In support of removal, Allstate submitted an employee affidavit asserting an amount in controversy of over $68 million.  Allstate arrived at this number by calculating the difference between 80% of the total amounts billed under the relevant policies (approximately $195 million) and 80% of the total amounts actually paid based on Florida’s statutory fee schedule (approximately $126 million).  This difference represented “the additional amount of benefits the putative class would be eligible to recover in the event that they received the declaratory judgment.”  But the district court found the CAFA’s amount-in-controversy requirement unsatisfied, and remanded the case to state court.  In the district court’s view, the value of the declaratory relief was “too speculative” because Allstate had not shown that a declaratory judgment would “necessarily trigger a flow of money to [the] plaintiffs.”

The Eleventh Circuit reversed, finding that South Florida Wellness failed to “provide any evidence to rebut Allstate’s . . . affidavit or to controvert its calculations.”  And it rejected South Florida Wellness’ argument that, because “a party seeking to file a suit to recover PIP benefits must first submit a pre-suit demand letter to the insurer” and then prove three elements at trial, the amount in controversy was too speculative.  The court found this argument “contrary to human nature and the nature of lawyers,” expressing skepticism that “most insureds and medical care providers, who may be collectively owed [over $68 million], would leave the vast majority of that money on the table if a federal court declared that they were entitled to it.”  Accordingly, the presence of an “extra step or two” to obtaining recovery did not render the amount in controversy too speculative.

South Florida Wellness shows that class action defendants’ amount-in-controversy calculations need not be perfect.  “Estimating the amount in controversy,” the Eleventh Circuit explained, “is not nuclear science; it does not demand decimal-point precision.”  Even the estimated value of a declaratory judgment may suffice.

IRS Fighting Hard to Avoid Tea Party Class Action Claims

Posted in Class Actions Privacy, Rule 12 Motions to Dismiss, Standing

The IRS recently filed a motion to dismiss class action claims brought by Tea Party groups.  In NorCal Tea Party Patriots, et. al. v. IRS, et. al., S.D. Ohio, Case No. 1:13-cv-00341, Tea Party groups asserted that the IRS singled out their organizations when those organizations sought exemption from taxation pursuant to Section 501(c)(4) of the Internal Revenue Code, which would allow those groups to avoid paying duplicative tax on contributions made for expressive activities.  The Tea Party groups assert that the IRS targeted their organizations for excessive scrutiny which caused delay and expense, violated the Privacy Act of 1974 and violated the groups’ First and Fifth Amendment rights.  The groups seek damages for the privacy violation, expense of complying with unlawful information requests, loss of donations, membership fees and grants, and increased tax burdens.

The IRS motion to dismiss argues that the case should be dismissed because organizations do not have standing to bring Privacy Act claims, which are only available to individuals.  The IRS also argues that the Tea Party groups’ claims for damages are barred by the Declaratory Judgment Act and the Anti-Injunction Act.  Lastly, the IRS argues that new claims for damages brought  pursuant to Sections 6103 and 7431 of the Internal Revenue Code, which allow damages for unauthorized disclosure or inspection of confidential tax return information, are barred because the inspections occurred as a result of the plaintiffs’ own requests for tax-exempt treatment.

This blog is a joint post with our BakerHostetler Global Tax Enforcement Blog available at

No Need To Try the Individual Claim After Class Cert Denial – Ninth Circuit Asserts Jurisdiction over Voluntary Stipulated Dismissal and Upholds Denial of Class Certification

Posted in Class Certification, Consumer Class Action, Predominance, Rule 23 Requirements

The Ninth Circuit recently affirmed the United States District Court for the Central District of California’s denial of class certification of a Plaintiff’s California consumer law claims based primarily based on the predominance of individualized issues. Case No. 11-55592 (9th Cir. Feb. 3, 2014). Notably, the Ninth Circuit also determined that it had jurisdiction to consider the appeal despite the recent trend among other circuit appellate courts, which have held that voluntary dismissal of a case by stipulation destroys the adversity necessary for appellate jurisdiction.

Plaintiff Benjamin Berger rented a tool from a California Home Depot in April 2004.  The store charged him a ten percent surcharge as a damage waiver, which absolved him of liability if the tool was damaged during the rental period.  Plaintiff alleged that the store automatically imposed this ten percent surcharge and, although that fee was to be optional, the store failed to inform customers of their ability to decline.  Plaintiff filed a class action suit against the store alleging violations of California’s Unfair Competition Law (“UCL”); the California Consumer Legal Remedies Act (“CLRA”); and common-law theories of unjust enrichment.

The district court denied Plaintiff’s motion for class certification, concluding that Plaintiff’s proposed class and subclasses were not ascertainable and that Plaintiff did not meet the commonality, typicality, and adequacy of representation requirements of F.R.C.P. 23(a).  The district court also found that Plaintiff failed to satisfy the requirements of F.R.C.P. 23(b)(3) because independent issues predominated over common questions and because it was not clear that a class action was a superior means of adjudication.  Following the district court’s ruling, Plaintiff filed a stipulation with the store agreeing to voluntarily dismiss the action with prejudice.  Plaintiff also stated his intent to appeal the denial of class certification.  The store contested Plaintiff’s ability to appeal, arguing that the appellate court lacked jurisdiction to hear the appeal because the stipulation negated the adversity necessary to support appellate jurisdiction.  The district court dismissed the action under Rule 41(a)(2).  Plaintiff filed a timely notice of appeal.

As a preliminary matter, the Ninth Circuit held that it had jurisdiction over the appeal, even though the final judgment in the district court resulted from a stipulated dismissal of the action with prejudice.  The court reasoned, “We have jurisdiction under 28 U.S.C. § 1291 because a dismissal of an action with prejudice, even when such dismissal is the product of a stipulation, is a sufficiently adverse – and thus appealable – final decision.”  The court also noted that a different result might have happened if the dismissal was the product of a settlement, rather than a stipulation.

Next, the panel observed that the store had altered the rental agreement several times during the relevant period.  In light of the variation among the contracts, Plaintiff proposed the use of several subclasses based on the differing language of the rental agreement.  The first of those classes included individuals who rented tools from July 2002 to February 2005 (including the Plaintiff), the second from March 2005 to June 2006, and the third from June 2006 to the present.  The panel affirmed the district court denial of class certification for subclasses two and three because Plaintiff only alleged that he took part in one transaction in April 2004.  Therefore, according to the court, he was not a member of those subclasses and could not prosecute claims on their behalf.

Finally, the court reasoned that, although the contracts each customer signed were similar, the posted signs, which varied from store to store, and employees’ oral representations, which likely varied employee to employee, were a fundamental part of the store’s alleged misrepresentations and inequitable conduct.  Thus, the panel decided, the district court reasonably found that these variances over time and among different store locations necessitated individualized determinations of the nature of those statements rather than class-wide adjudication.

This case is an important piece of precedent for defeating class certification, especially when plaintiff’s suggest that the certification of sub-classes can alleviate the variations in the factual basis for their claims. Additionally, this case may lead to more and more stipulated and voluntary dismissals so that parties are able to get an appellate ruling on the denial of class certification without first proceeding to trial on the individual claim that survived the denial of the class claims.

Once Again, Clapper Defeats Data Breach Class Action

Posted in Class Actions Privacy, Class Certification, Consumer Fraud, Data Breach, Rule 12 Motions to Dismiss, Standing

Article III standing has once again proved to be an insurmountable hurdle for data breach class action plaintiffs whose personal information hasn’t been misused.  In Galaria v. Nationwide Mutual Insurance Co., an Ohio federal court relied on the United States Supreme Court’s decision in Clapper v. Amnesty Intern. USA, 133 S.Ct. 1138 (2013), and held that the plaintiffs did not sustain an injury sufficient to confer standing to sue Nationwide following a 2012 hacking incident during which their personally identifying information (PII) was stolen.

The plaintiffs alleged that as a result of the breach, they incurred and will continue to incur damages consisting of (1) the imminent, immediate, and continuing increased risk of identity theft, identity fraud and/or medical fraud; (2) out-of-pocket expenses to purchase credit monitoring, internet monitoring, identity theft insurance and/or data breach risk mitigation products; (3) out-of-pocket expenses incurred to mitigate the increased risk of identity theft, identity fraud and/or medical fraud, including the costs of placing and removing credit freezes; (4) the value of time spent mitigating the increased risk of identity theft, identity fraud and/or medical fraud; (5) the substantially increased risk of being victimized by phishing; (6) loss of privacy; and (7) deprivation of the value of their PII.  The court grouped those alleged damages into three categories: (1) increased risk of harm/cost to mitigate increased risk; (2) loss of privacy; and (3) deprivation of value of PII.  The plaintiffs asserted claims for violation of the Fair Credit Reporting Act (FCRA), negligence, invasion of privacy and bailment, but they did not allege that their PII was misused or that their identity was stolen.  Nationwide moved to dismiss the complaint based on lack of standing and failure to state a claim.

FRCA Claim

Even though Nationwide agreed with the plaintiffs that they had statutory standing to bring their FCPA claim, the court exercised its independent duty to examine standing and ruled that it was lacking because the plaintiffs failed to allege a specific requirement under the FCRA that Nationwide failed to perform or a specific prohibition that Nationwide ignored.  The plaintiffs’ “vague” allegations that Nationwide violated the FCRA’s statement of purpose was “insufficient to confer statutory standing.”

Increased Risk of Harm/Failure to Mitigate Increased Risk

Nationwide alleged that this grouping of injuries was speculative because plaintiffs did not allege that their PII was misused, that they suffered identity theft, that they actually incurred any out-of-pocket costs or spent time to mitigate any potential risks.  The court noted that the plaintiffs “have not alleged any adverse consequences from the theft or dissemination as they do not allege their PII has been misused.”  Following Clapper, the court held that the plaintiffs’ alleged harm was not “certainly impending.”  “Even though Plaintiffs alleged they are 9.5 times more likely than the general public to become victims of theft or fraud, that factual allegation sheds no light as to whether theft or fraud meets the ‘certainly impending’ standard.”  Noting that the Supreme Court is reluctant to find standing where the injury-in-fact depends on the actions of independent decision makers, the court held that “[t]he speculative nature of the injuries is further evidenced by the fact that it’s occurrence will depend on the decisions of independent actors.  … [W]hether Named Plaintiffs will become victims of theft or fraud or phishing is entirely contingent on what, if anything, the third party criminals do withdraw information.”

Cost to Mitigate Increased Risk

Again citing Clapper, the court held that the costs incurred by the plaintiffs in connection with credit monitoring and other measures did not constitute injury sufficient to confer standing.  The plaintiffs “cannot create standing by choosing to make expenditures in order to mitigate a purely speculative harm.”

Loss of Privacy

The plaintiffs alleged that the dissemination of their PII to unauthorized persons constituted an injury-in-fact in the form of loss of privacy.  The court agreed with the plaintiffs that their loss of privacy was not speculative, conjectural or hypothetical – because it was stolen and disseminated to criminals – but held that it was too abstract to constitute injury-in-fact absent any allegation that the loss of privacy resulted in any adverse consequences.

Deprivation of Value of PII

Alleging that their stolen PII had value if sold on the cyber black market, the plaintiff claimed that they suffered an injury-in-fact in the form of deprivation of value of their PII.  The court disagreed, stating, “Regardless of whether Named Plaintiffs argue the value of their PII has merely diminished or whether they allege complete deprivation of value, they have failed to allege any facts explaining how their PII became less valuable to them (or lost all value) by the data breach.”

Invasion of Privacy

With regard to the plaintiffs’ invasion of privacy claim, the court held that for standing purposes, the injury was fairly traceable to Nationwide’s actions, but the plaintiffs failed to state a claim. They failed to allege that their PII had been disclosed by Nationwide or that Nationwide “publicized” their PII to the public at large or to so many people that it should be regarded as substantially certain to become public knowledge.


With the exception of the recent Sony Playstation case in California, in the aftermath of Clapper, courts that have considered the issue have held that the breach of personal information without allegations of misuse does not constitute injury-in-fact sufficient to confer Article III standing. See our related blog posts on Omnicell and Barnes and Noble. Going forward, we can expect to see plaintiff lawyers assert more creative injury allegations in an attempt to circumvent the holding of Clapper and its progeny.

Those Blasted Exclusions! Court Rules that Notice of TCPA Exclusion in Renewal Policy was Valid

Posted in Class Action Trends, Insurance, Ohio, Settlements

Last week, the Illinois Court of Appeals released an opinion ruling that Cincinnati Insurance Company has no obligation to contribute an additional $4 million to a settlement of a class action claim brought under the Telephone Consumer Protection Act (TCPA).  Windmill Nursing Pavilion Ltd. v. Cincinnati Insurance Co. et al., 2013 IL App (1st) 122431 (Ill. App. 2013) (Available here:

In 2009, a class led by Windmill Nursing Pavilions Ltd. sued Unitherm, Inc. for allegedly sending blast faxes in violation of the TCPA.  Unitherm held two policies with Cincinnati, one which ran from April 7, 2003 to April 7, 2006, and a renewal policy which ran April 7, 2006 to April 7, 2007.  Both policies had a $1 million general aggregate limit, a $1 million products-completed operations aggregate limit, a $1 million personal and advertising injury aggregate limit, and a $2 million commercial umbrella liability coverage limit.  Unlike the first policy, the renewal policy contained a modification excluding coverage for “bodily injury,” “property damage,” or “personal and advertising injury” which arose out of “any action or omission” that violated the TCPA.

In the underlying class action, Unitherm, along with Cincinnati, agreed to a settlement with the class.  A $7 million consent judgment would be entered against Unitherm, but the class could only collect from Cincinnati to the extent coverage was available under Unitherm’s insurance policies.  Cincinnati agreed to pay $3 million, representing the general aggregate limit and the umbrella limit under the first policy, and agreed that its obligation to pay the remaining $4 million would depend on the outcome of litigation over the following two carved out issues: (1) whether the notice of reduction in coverage regarding the TCPA exclusion added to the renewal policy was sufficient, and thus whether the TCPA exclusion is valid; and (2) whether the products-completed operations limit in either policy provides an additional $1 million in coverage.

As stipulated by the parties, the only notice Cincinnati provided to Unitherm of the TCPA exclusion was the notice of change that the endorsement was being added to the primary policy and the endorsements themselves for both the primary and the umbrella policy.  Cincinnati mailed the renewal policy, which contained all of these, on or about April 7, 2006, the day the renewal policy took effect.   Under Illinois law, when an insurer renews a policy but makes “changes in deductibles or coverage that materially alter the policy,” the insurer has to provide written notice “at least 60 days prior to the renewal or anniversary date.” Illinois Insurance Code § 143.17a.  Cincinnati conceded it did not meet this requirement, but claimed Ohio law, not Illinois law, applied, and the court agreed.

Under Ohio law, “an insured is entitled to adequate notice of a material change in the terms of an insurance contract; absent this notice, the insured is entitled to assume that the renewal policy contains the same terms as an original policy.”  An insured is imputed with knowledge of the material change if actual notice is provided through a “separately attached and clearly worked letter describing the modifications.”

Windmill claimed that Cincinnati’s Notice of Change form contained within the policy was deficient under Ohio law because it was late, not “separately attached,” and did not apply to the umbrella policy.  The court disagreed.  Since Cincinnati only modified coverage but did not terminate it, Ohio’s 30 day notice requirement for non-renewal did not apply and no advance notice was required.  The court further held that the endorsements and the Notice of Change form were indeed “separately attached” because they were on separate pages attached to the renewal policy.  Finally, the endorsements and Notice of Change form specified that they related to both the commercial general liability coverage and the umbrella coverage.  Therefore, the court held, no coverage for TCPA violations was available under the renewal policy.

Windmill next sought an additional $1 million in coverage under the first policy’s “Products-Completed Operation Hazard” coverage.  However, the Court held that since the faxed advertisements were meant to solicit orders for Unitherm’s products and Unitherm was not in the business of selling advertisements, the faxed advertisements did not constitute Unitherm’s “goods,” “products,” or “work” and were therefore not covered under the policy’s “Products-Completed Operations Hazard.”

Another Illinois Appellate Court recently used the same logic to resolve a different issue in Standard Mutual Ins. Co. v. Lay, 2014 IL App (4th) 110527-B (Ill. App. 2014) (Available here:  In that case, the court ruled that a professional services exclusion did not apply to a TCPA claim against a real estate company.  Although the insured was a real estate broker and therefore a professional service provider, the TCPA claim arose out of the insured’s advertisements, not its professional real estate services and the professional services exclusion was therefore inapplicable.  (For more on this decision, see our previous post “Three, Two, One, Blast Off! Illinois Court Finds Coverage for Blast Fax TCPA Violations,” available here:

As TCPA exclusions become more prevalent, it will be interesting to see whether insureds increasingly challenge the application of the exclusion based on defective notice of the change to the policy.