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On November 26, 2014, an Illinois appellate court held that a professional liability insurer had no duty to defend or indemnify its insured for a class action brought under the Telephone Consumer Protection Act (TCPA) because the insured’s robocalls did not constitute conduct of the insured’s business “in rendering services for others,” as required by the policy.  <a href="http://www.state.il.us/court/Opinions/AppellateCourt/2014/1stDistrict/1140286.pdf">Margulis v. BCS Ins. Co., 2014 IL App (1st) 140286</a> (Nov. 26, 2014).

In 2008, a class led by Scott Margulis filed a class action suit in Missouri against Bradford, an insurance broker, for making unsolicited and prerecorded telephone calls to residential lines in violation of the TCPA.  Bradford tendered the claim to its professional liability insurer, BCS Insurance Company, but BCS denied coverage.  In a July 2011 settlement, Margulis and Bradford agreed to a judgment of $4,999,999, to be satisfied solely from the proceeds of Bradford’s insurance policies and claims against Bradford’s insurers. 

Margulis then filed a declaratory judgment action against BCS in September 2011.  Bradford’s professional liability policy provided coverage “for damages caused by any negligent act, error or omission by the Insured arising out of the conduct of the business of the Insured in rendering services for others as a licensed Life, Accident and Health Insurance Agent, a licensed Life, Accident and Health Insurance General Agent or a licensed Life, Accident and Health Insurer Broker ….”  The parties filed cross motions for summary judgment, and the trial court held that BCS had no duty to defend or indemnify because the underlying TCPA claims did not fall within this coverage.

The Illinois appellate court agreed that the TCPA claims were not covered by the policy because making automated, unsolicited telephone calls advertising Bradford’s services did not arise out of the conduct of Bradford’s business in rendering services for others as an insurance agent, general agent, or broker.  Margulis argued that Bradford’s calls provided information that it believed would be useful to insurance clients.  However, the petition in the underlying class action alleged that there was no established business relationship between Bradford and the members of the proposed class.  Therefore, the court found that the recipients of Bradford’s phone calls were not insurance clients of Bradford and that Bradford was not rendering services for the call recipients as an agent or broker.

In support of its decision, the appellate court cited Westport Insurance Corp. v. Jackson National Life Insurance Co., 387 Ill. App. 3d 408 (2008), in which the Illinois appellate court came to the same conclusion in a similar case involving a similar coverage provision.  In that case, the court noted that “Even if the [class representative] is correct that the delivery of this general information was an ‘act of assistance’ and thus, in very broad terms, ‘a service,’ it did not amount to rendering a service as an insurance professional within the contemplation of the policy.  No expertise was employed to help a particular customer purchase a particular product.  The mere offer to perform a professional service is not a professional service in its own right.” (Emphasis in original.)

Margulis urged the court to rely on Landmark American Insurance Co. v. NIP Group, Inc., 2011 IL App (1st) 101155 (Dec. 5, 2011), in which the Illinois appellate court held that an insured was covered under its professional liability policy for a TCPA violation.  However, the court easily distinguished the case based on the relevant policy language. As the Landmark and Westport courts both noted, “it is the actual language of a policy that ultimately controls the determination of what risks are covered.”  Unlike Bradford’s policy, the policy in Landmark covered damages and expenses “arising out of a negligent act, error or omission” but contained no limitation that such an act, error, or omission had to arise out of the conduct of the insured in rendering services for others as an agent or broker.  Since Bradford’s policy, like the policy at issue in Westport, had that limitation, Landmark was not applicable and Bradford was not covered.

As these cases demonstrate, while TCPA violations can sometimes be covered under a professional liability policy, the outcome will depend on the specific facts and policy language at issue.

Unprofessional Marketing: Illinois Appellate Court Denies Professional Liability Coverage for TCPA Violation