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Pietras v. Sentry Insurance Co.

March 6, 2007


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


Nancy Pietras brings this insurance coverage action against Sentry Insurance Company seeking a declaration that Sentry violated its duty to defend Curfin in a suit arising out of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (FCRA). To settle the underlying FCRA lawsuit, Curfin assigned certain rights under its Sentry policy to Pietras, including the right to seek a declaration that the Sentry policy provided coverage for the FCRA suit. Sentry has moved for summary judgment, and Pietras has cross-moved for partial summary judgment. For the following reasons, the Court denies Sentry's motion and grants Pietras' motion.


The parties do not dispute the material facts. On August 12, 2005, Pietras filed a class action suit against Curfin alleging violations of the FCRA. Pietras alleged that she received a mailed solicitation from Curfin, stating that she had been "pre-approved for an auto loan." Def. R. 56.1 Stat. ¶ 9. The solicitation stated that Curfin had obtained Pietras' credit information and relied on it in making its offer of credit. Pietras claimed that Curfin accessed Pietras' and other class members' credit information without authorization or a permissible purpose under the FCRA. The FCRA provides that any person who fails to comply is liable to the consumer for actual damages or $1000, whichever is greater. 15 U.S.C. § 1681(n).

Sentry had previously issued Curfin a policy that includes coverage for damages sustained due to "personal and advertising injury caused by an offense arising out of your business." Def. R. 56.1 Stat. ¶ 21 (internal quotation marks omitted). The policy defined "personal and advertising injury" as "oral or written publication of material that violates a person's right of privacy." Id. Curfin tendered its defense of the FCRA claim to Sentry pursuant to the policy. On November 9, 2005, Sentry disclaimed coverage, contending that none of the alleged acts fell within the scope of coverage afforded by the Policy. Sentry based its refusal to defend and indemnify on, among other things, its assertion that Curfin's alleged acts did not involve Pietras' private information or "publication" of such information.

Pietras and Curfin settled the FCRA suit in February 2006, and Judge Suzanne B. Conlon entered a final order approving the class action settlement and dismissing the case on May 31, 2006. Among other things, the settlement required Curfin to pay Pietras and the other class members $420,000. Of the $420,000 settlement, Curfin paid $20,000 in cash. The remaining $400,000 is enforceable only against the proceeds of the Sentry insurance policy issued to Curfin, which Curfin assigned to Pietras and the class.Pietras has effectively stepped into Curfin's shoes as the policyholder and brings this coverage action to enforce Curfin's rights.


On cross motions for summary judgment, the Court construes facts and draws inferences "in favor of the party against whom the motion under consideration is made." In re United Air Lines, Inc., 453 F.3d 463, 468 (7th Cir. 2006) (citation and internal quotation omitted). Entry of summary judgment is appropriate only when the pleadings, depositions, answers to interrogatories, admissions, and affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). When a district court exercises diversity jurisdiction, it must apply state law as the highest court of that state would apply it. See AAR Aircraft & Engine Group, Inc. v. Edwards, 272 F.3d 468, 470 (7th Cir. 2001). In this case, Illinois law applies.

1. Right of Privacy

Under Illinois law, "[i]n determining whether an insurer owes its insured a duty to defend, a court looks to the allegations in the underlying complaint against the insured and compares those allegations to the relevant coverage provisions of the insurance policy . . . . If the facts alleged in the underlying complaint fall within or potentially fall within the coverage of the policy, the insurers's duty to defend is triggered." Guillen v. Potomac Ins. Co., 203 Ill. 2d 141, 150, 785 N.E.2d 1, 7 (2003). Policies are liberally construed in favor of the insured, and any ambiguities or conflicts are resolved in favor of coverage. Canadium Radium & Uranium Corp. v. Indem. Ins. Co., 411 Ill. 325, 332, 104 N.E.2d 250, 254 (1952). Because the duty to defend is broader than the duty to indemnify, if an insurer breaches its duty to defend it is estopped from arguing that it has no duty to indemnify and from raising policy defenses. Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150, 708 N.E.2d 1122, 1135 (1999).

The only policy coverage provision at issue is the provision covering "personal and advertising injury." As stated above, "personal and advertising injury" is defined to include "oral or written publication of material that violates a person's right of privacy." Def. R. 56.1 Stat. ¶ 21. Sentry contends that the policies do not provide coverage for the underlying complaint because Curfin's mailed solicitation did not violate the class member's privacy rights or constitute publication. Neither of these arguments have merit.

Sentry claims that the solicitations did not implicate privacy rights because they did not contain any personal credit information about the class members. The FCRA, however, expressly states that it is intended to protect "the consumer's right to privacy." 15 U.S.C. § 1681(a)(4). The FCRA protects the consumer's right of privacy by prohibiting the disclosure of consumer credit information unless obtained for a permissible purpose. A requestor, such as Curfin, must certify to the consumer credit reporting agency that a permissible purpose exists before it can obtain credit information. A permissible purpose includes making a "firm offer of credit" to the consumer. Id. at § 1681(b). The class action complaint alleges that Curfin obtained the class members' credit information without a permissible purpose because the solicitations did not make firm offers of credit within the meaning of the FCRA. Moreover, the class action complaint alleges that the FCRA gives consumers the right "to prevent further invasions of privacy . . . ." Aff. of Robert Johnson Ex. 1, ¶ 27(b). Based on the FCRA (upon which the class action complaint is based) and the allegations in the class action complaint, it is difficult to see how the complaint does not allege invasions of privacy that triggered the insurer's duty to defend Curfin. The allegations in the complaint, after all, determine whether coverage is triggered. See Guillen, 203 Ill. 2d at 150, 785 N.E.2d at 7.

Sentry cites American States Ins. Co. v. Capital Ass'n of Jackson Cty., Inc., 392 F.3d 939, 943 (7th Cir. 2004), for several propositions regarding whether the "advertising injury" provision provides coverage, including the proposition that privacy rights are implicated only if a claimant's personal information is disseminated. American States is not good law. In November 2006, the Illinois Supreme Court issued its decision in Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 860 N.E.2d 307 (2006).*fn1 Valley Forge holds that a policy providing coverage for "advertising injury" requires an insurer to defend junk-fax suits brought under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. ยง 227. The policies in Valley Forge, like the Sentry policy, define "advertising injury" as "written . . . publication . . . of material that violates a person's right of privacy." The Valley Forge court concluded, based on standard dictionary definitions, that the plain meaning of "right of privacy" connotes both an interest in seclusion and an interest in secrecy of personal information. Valley Forge, 223 Ill. 2d at __, 860 N.E.2d at 317. The court specifically rejected the Seventh Circuit's analysis in American States as inconsistent with ...

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