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American Home Assurance Co. v. McLeod USA

February 2, 2007

AMERICAN HOME ASSURANCE CO. AND NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PENNSYLVANIA, PLAINTIFFS,
v.
MCLEOD USA, INC.; TELECOMMUNICATIONS NETWORK ) DESIGN, INC.; AND JEROLD RAWSON, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

In this diversity suit, American Home Assurance Co. and National Union Fire Insurance Co. (collectively, the Insurers) seek a judgment declaring that McLeod USA Inc.' s general liability insurance policies do not require the Insurers to defend McLeod against two class action lawsuits brought under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227 (Count 1). The Insurers also seek a judgment declaring that McLeod is obliged to reimburse them for the fees and expenses they incurred defending McLeod in the TCPA lawsuits (Count 2). In response, McLeod has filed a three-count counterclaim. In Count 1, McLeod seeks a judgment declaring that its insurance policies require the Insurers to defend it against the TCPA lawsuits. In Count 2, McLeod alleges that the Insurers breached the terms of the insurance policy, and in Count 3, McLeod seeks damages for the Insurers'"vexatious and unreasonable conduct" pursuant to 215 ILCS 5/155.

For reasons explained below, McLeod has filed a renewed motion for partial summary judgment on Count 1 of the Insurers' amended complaint and Counts 1 and 2 of its counterclaim amended complaint (reimbursement of defense costs). The Insurers have cross-moved for partial summary judgment on Count 2 of their amended complaint. For the foregoing reasons, the Court grants McLeod' s motion and denies the Insurers' motion.

(Insurers' duty to defend) and on Count 2 of the Insurers'

Facts

Because there is no reason to reinvent the wheel, the Court quotes from its July 5, 2006 Order in this case:

The facts of this case are nearly identical to the facts in a number of other cases filed around the country. In a nutshell, the dispute concerns whether two insurance companies are required to defend lawsuits alleging that McLeod violated the TCPA by sending junk-faxes. In May 2003, Telecommunications Network Design, Inc. and Jerold Rawson filed class action lawsuits seeking $500 for each fax sent to thousands of class plaintiffs, who had no prior business relationship with McLeod. After initially defending the lawsuits, the Insurers changed course and refused to continue the defense, claiming that McLeod' s general liability insurance policies did not cover the lawsuit.

The insurance policies at issue contain two clauses that McLeod contends require the Insurers to defend the lawsuits. The first clause requires the Insurers to defend any lawsuit seeking damages for advertising injuries. Advertising injuries are defined as "oral or written publication of material that violates a person' s right to privacy." The second clause requires the Insurers to defend any lawsuit seeking "property damages," unless the insured "expected or intended" the property damage to occur.

Am. Home Assurance Co. et al. v. McLeodUSA, Inc., et al., No. 05 C 5173, 2006 WL 1895704 (N.D. Ill. July 5, 2006).

Procedural Background

This is the second time the parties are before the Court on motions for summary judgment. On July 5, 2006, the Court granted in part the Insurers' motion for summary judgment, finding that they did not have an obligation to defend McLeod in the TCPA lawsuits. See Am. Home Assurance Co., 2006 WL 1895704. The Court based its decision on then-controlling Seventh Circuit precedent, Am. States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004).

In American States, the Seventh Circuit considered whether an insurer had a duty to defend a junk-fax lawsuit, in a case in which the insurance policy required the insurer to defend suits seeking damages resulting from an "advertising injury." Id. at 940. As in this case, advertising injury was defined in the policy to include "[o]ral or written publication of material that violates a person' s right of privacy." Id. The court first noted that under the common law of tort, privacy has two principal meanings: secrecy and seclusion. Id. at 941. The court said that a person asserts secrecy interests when he seeks to conceal private information and asserts seclusion interests when he seeks to prevent people from (for example) ringing his doorbell late at night.

Id. The court then examined the relevant definition of "advertising injury" and, recognizing that the language reads like coverage of the tort of invasion of privacy, concluded that it covers only alleged violations of secrecy interests. Id. The court held that the insurer had no duty to defend, because a junk-fax lawsuit only alleges violations of seclusion interests. Id. at 942-43.

The Court was bound to follow American States to decide the Insurers' previous motion for summary judgment because Seventh Circuit rulings on state law are authoritative until a state' s highest court rules otherwise. See Reiser v. Residential Funding Corp., 380 F.3d 1027, 1029 (7th Cir. 2004). Consistent with American States, the Court found no duty to defend. Having been relieved of their duty to defend, the Insurers then filed a ...


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