The Illinois Supreme Court issued an opinion this past Thursday affirming that damages under the Telephone Consumer Protection Act (“TCPA”) are insurable.  In the case of Standard Mutual Ins. Co. v. Lay, 2013 IL 114617 (2013), a small business brought a class action lawsuit against a real estate agency for violating the TCPA’s prohibition against unsolicited fax advertisements.

The parties reached an approved settlement of $1,737,500 plus costs, affording each of the 3,475 class members who were sent a junk fax the $500 minimum statutory damages provided under the TCPA.  See 47 U.S.C. § 227(b)(3).  As part of the settlement, the parties agreed that the plaintiff would only seek this amount from the defendant’s insurer.  However, the defendant’s insurer subsequently filed a complaint for declaratory relief, seeking a finding that the lawsuit and settlement were not covered under the defendant’s policy.  The circuit and appellate courts both ruled in favor of the insurer, with the appellate court ultimately concluding that the TCPA-prescribed damages of $500 per violation were punitive and thus not insurable as a matter of Illinois law and public policy.

The Illinois Supreme Court disagreed, holding that “[t]he manifest purpose of the TCPA is remedial and not penal.”  Lay, 2013 IL 114617, ¶ 30.  The Court discussed the underlying reasons for the enactment of the TCPA in the first place—that unrestricted telemarketing was regarded as an intrusive invasion of privacy, and that many consumers were outraged by the proliferation of intrusive, nuisance telemarketing calls.  Id. at ¶ 27.  In the case of junk faxes, the Court noted that “Congress clearly identified the animating purpose of the TCPA: to prevent advertisers from unfairly shifting the cost of their advertisements to consumers while simultaneously preventing the use of their fax machines for legitimate purposes.”  Id. at ¶ 31.  Not only are the harms resulting from unsolicited telemarketing and faxing compensable (i.e., for annoyance, inconvenience, loss of paper and ink, etc.), but “Congress intended the $500 liquidated damages available under the TCPA to be, at least in part, an incentive for private parties to enforce the statute.”  Id. at ¶ 32.  The Court held that the treble damages available to consumers of up to $1,500 per violation where the defendant “willfully or knowingly” violates the TCPA was simply “part of the regulatory scheme, intended as a supplemental aid to enforcement rather than as a punitive measure.”  Id. at ¶ 33.  

Punitive damages are generally uninsurable as a matter of Illinois public policy.  However, because the $500 (or up to $1,500) statutory damages afforded to consumers under the TCPA were held by the Illinois Supreme Court to be remedial and not punitive, they can be insurable.  This ruling is particularly beneficial to consumers in cases where unsolicited telemarketing is done by a business that, absent an applicable insurance policy, may not otherwise be able to provide sufficient compensation for violating the Telephone Consumer Protection Act.

Read the full opinion here.

Many businesses use third parties to advertise their goods and services through telemarketing.  But what happens when a third-party telemarketer or lead generator fails to comply with federal telemarketing law?  Is the business off the hook for the illegal calls made on its behalf, simply because it chose to use an independent contractor instead of directly placing the calls, itself? 

In a long-awaited declaratory ruling, the FCC has affirmed that businesses can be vicariously liable for the actions of their third-party telemarketers that violate the Telephone Consumer Protection Act ("TCPA"), a federal statute that protects consumers from unsolicited text messages and autodialed or prerecorded voice calls, junk faxes, and do-not-call violations, and provides for injunctive relief and statutory damages of up to $1,500 per violation.  The FCC clarified that a business can be liable for violations by its representatives under a broad range of agency principles, including not only formal agency, but also based on principles of apparent authority or where the business ratifies the third party's illegal conduct by knowingly accepting its benefits.

The ruling recognizes the reality that legitimate businesses frequently use telemarketers that are judgment-proof, located outside the United States, or simply unable to be identified by the called party, and that the inability to hold a business liable for the illegal calls made on its behalf would, therefore, largely leave consumers without any real means to enforce their rights under the TCPA.  Additionally, as the telemarketing industry itself acknowledges, businesses are in the best position to monitor and police TCPA compliance by their own third-party telemarketers.  Thus, the fact that a business can be liable for the illegal calls of its third-party telemarketer will incentivize companies to ensure that their telemarketers actually comply with federal telemarketing laws, rather than reap the benefits of do-not-call violations or unlawful robocalls.

Read the FCC ruling here.