No Coverage for Conversion, Nuisance, and Trespass

The United States Court of Appeals for the Seventh Circuit, in an opinion written by Judge Kanne, applying Illinois law, affirmed the grant of judgment on the pleadings in favor of the insurer finding that the insurer had no duty to defend common law claims arising out of TCPA-violating conduct. The insured, Mesa Laboratories, Inc. (“Mesa”), sent unsolicited faxes promoting its dental-industry-related services. A Chicago-area dentist filed a class action lawsuit against Mesa alleging violations of the Telephone Consumer Protection Act (“TCPA”), the Illinois Consumer Fraud and Deceptive Businesses Act, and common law conversion, nuisance, and trespass (for Mesa’s appropriation of the recipients’ fax equipment, paper, ink, and toner). Mesa notified its insurer, Federal Insurance Company (“Federal”), of the litigation and asked Federal to defend it. Federal declined, stating that the suit fell outside of the policy coverage. After settling the initial litigation, Mesa filed suit against Federal, alleging breach of contract, bad faith, and improper delay and denial of claims.

In deciding against Mesa, the Seventh Circuit considered a single policy exclusion—the “Information Laws Exclusion”—which provides that the policy “does not apply to any damages, loss, cost or expense arising out of any actual or alleged or threatened violation of” the TCPA. The parties did not dispute that this exclusion covers the statutory claims, but they did dispute whether it covers the common law claims.

Citing Illinois precedent, the Court stated that the “arising out of” language subjects common law claims to the exclusion as well. The common law claims arise out of the same underlying conduct, in this case the unsolicited sending of faxes. As such, the Seventh Circuit, like the District Court, found that the Information Laws Exclusion comprehends both statutory and common law claims arising out of the TCPA violation, and Federal had no duty to defend Mesa against them. Mesa Labs., Inc. v. Fed. Ins. Co., 994 F.3d 865 (7th Cir. Apr. 20, 2021).