Indiana Insurance Company v. CE Design Ltd.
Filing
51
ENTER MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 12/20/2013:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
INDIANA INSURANCE COMPANY, an
Indiana Corporation,
Case No. 12 C 8839
Plaintiff,
Hon. Harry D. Leinenweber
v.
CE DESIGN LTD.,
Defendant.
MEMORANDUM OPINION AND ORDER
Before the Court are the parties’ Cross-Motions for Summary
Judgment.
For the reasons stated herein, Plaintiff Indiana
Insurance Company’s Motion for Summary Judgment is granted in
part and denied in part, and Defendant CE Design Ltd.’s Motion
for Summary Judgment is granted in part and denied in part.
I.
Plaintiff
Indiana
BACKGROUND
Insurance
Company
(“Indiana”)
is
an
Indiana corporation with its principal place of business in
Boston, Massachusetts. Defendant CE Design Ltd. (“CE Design”) is
an Illinois limited liability company.
They dispute several
coverage issues related to an insurance policy purchased from
Indiana by non-party Matrix LS Inc. (“Matrix”).
On September 29, 2004, Matrix applied for business insurance
from Indiana, with a combined single limit of $1,000,000. In its
application, Matrix described its business as “lead generating
office for mortgage brokers.”
Facts ¶ 14.
Pl.’s. Rule 56.1 Statement of
Indiana sold Matrix Commercial Protector Policy
No. BOP9894530 (the “Policy”), which had an effective date of
September 28, 2004 and a termination date of September 28, 2005.
The total policy premium charged by Indiana for the Policy was
$501.00.
The Policy has several provisions that are relevant to this
litigation.
Under
Section
A
for
“COVERAGES,”
the
provides:
1.
Business Liability
a.
We will pay those sums that the insured
becomes legally obligated to pay as
damages because of “bodily injury,”
“property damage,” “personal injury” or
“advertising injury” to which this
insurance applies.
We will have the
right and duty to defend the insured
against
any
“suit”
seeking
those
damages. However, we will have no duty
to defend the insured against any
“suit” seeking damages for “bodily
injury,” “property damage,” “personal
injury” or “advertising injury” to
which this insurance does not apply. .
. .
b.
This insurance applies:
(1)
To “bodily injury” and “property
damage” only if:
(a)
The
“bodily
injury”
or
“property damage” is caused
by an “occurrence” that takes
place
in
the
“coverage
territory”; and
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Policy
(b)
(2)
The
“bodily
injury”
or
“property
damage”
occurs
during the policy period.
To:
. . .
(b)
“Advertising injury” caused
by an offense committed in
the course of advertising
your
goods,
products
or
services;
but only if the offense was
committed
in
the
“coverage
territory”
during
the
policy
period.
Id. ¶ 38.
Section F of the Policy provides various definitions
with respect to several key terms related to “Liability and
Medical Expenses,” including:
1.
“Advertising injury” means injury rising out
of one or more of the following offenses:
. . .
b.
Oral or written publication of
material that violates a person’s
right of privacy;
. . . .
Id. ¶ 30.
The declarations page of the Policy provides coverage
with limits of $1 million in liability and medical expenses and
aggregate limits of $2 million for all non-product injury or
damage.
Id. ¶ 27.
CE Design initiated a class action lawsuit against Matrix in
Lake County, Illinois on March 14, 2006 captioned CE Design Ltd.
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v. Matrix, Case No. 05 L 269 (the “Underlying Action”).
In the
Complaint filed in that action (the “Underlying Complaint”), CE
Design
alleges
that
Matrix
violated
the
Telephone
Consumer
Protection Act, 47 U.S.C. § 227 (the “TCPA”), engaged in common
law conversion and violated the Illinois Consumer Fraud and
Deceptive Practices Act, 815 Ill. Comp. Stat. 505/2, by sending
unsolicited junk fax advertisements to Plaintiff and hundreds of
others.
It alleges that Matrix is responsible for sending more
than 9.36 million unauthorized fax advertisements, including two
specific faxes to CE Design without its permission on February
16, 2005 and February 24, 2005.
On
April
16,
2010,
the
Circuit
Court
of
Lake County,
Illinois, certified a class in the Underlying Action consisting
of all persons who, on or after July 22, 2004, “were sent
telephone
facsimile
messages
of
material
advertising
the
commercial availability of any property, goods, or services by or
on behalf of [Matrix].”
Pl.’s L.R. 56.1 Statement of Facts ¶ 43.
CE Design has moved for summary judgment in the Underlying Action
for damages of more than $318 million.
Indiana filed the present action seeking a declaration that
it has no duty to defend or indemnify Matrix with respect to the
Underlying Action.
Before the Court are the parties’ Cross-
Motions for Summary Judgment.
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II.
LEGAL STANDARD
Federal Rule of Civil Procedure 56 requires this Court to
enter summary judgment “if the pleadings, depositions, answers to
interrogatories,
and
admissions
on
file,
together
with
the
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.”
(1986).
The
Celotex Corp. v. Catrett, 477 U.S. 317, 322
inquiry
is
“whether
the
evidence
presents
a
sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a
matter of law.”
252 (1986).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
The court must review the record and draw all
inferences from it in the light most favorable to the non-moving
party.
Sharer v. Atchison, T.& S.F.R. Co., No. 91 C 3585, 1992
U.S. Dist. LEXIS 7224 at *14 (N.D. Ill. May 14, 1992).
III.
ANALYSIS
The parties agree that, with the exception of CE Design’s
estoppel argument, Michigan law should apply to this dispute.
With respect to the estoppel argument, the parties both analyze
the issue under Illinois law.
Courts in this Circuit honor
reasonable choice-of-law stipulations in contract cases, and do
not worry about conflict of laws unless the parties disagree on
which state’s law’s apply. See, Lloyd v. Loeffler, 694 F.2d 489,
495 (7th Cir. 1982); Wood v. Mid-Valley Inc., 942 F.2d 425, 427
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(7th Cir. 1991).
As such, the Court will apply the law of the
states chosen by the parties.
A.
CE Design’s Estoppel Argument
CE Design claims that Indiana failed to disclose to Matrix
conflicts of interest prior to appointing counsel to represent
Matrix in the Underlying Action.
Under Illinois law, failure to
disclose such conflicts can lead to an insurer being estopped
from contesting coverage.
See, Royal Ins. Co. v. Process Design
Assocs., 582 N.E.2d 1234, 1242 (Ill. App. Ct. 1991).
CE Design filed the Underlying Action on July 12, 2005.
Indiana
sent
Matrix
a
reservation
of
rights
letter
dated
December 17, 2005 in which it reserved the right to contest
coverage based on several grounds.
CE Design contends that
nowhere in this letter did Indiana acknowledge that a conflict
existed because Matrix would be in a better position if there was
a finding of negligent conduct and Indiana would be in a better
position
conduct.
if there
was
a
finding
of
willful
or
intentional
In addition, the letter did not offer Matrix the
opportunity to have independent counsel paid for by Indiana,
instead stating that Indiana had retained the firm of Judge,
James & Kujawa, Ltd., to represent Matrix.
As such, CE Design
argues that Indiana cannot contest coverage now, and summary
judgment should be awarded in its favor.
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Indiana contests CE Design’s estoppel argument for several
reasons.
First, it directs the Court to an amended reservation
of rights letter to Matrix where it identified conflicts of
interest expressly and notified Matrix that it could hire its own
counsel to defend it in the Underlying Action.
That would be
compelling, except for the fact that the amended letter was sent
on January 19, 2012, more than six years after the Underlying
Action commenced.
Upon learning of a possible conflict of
interest between the insurer and the insured, it is the duty of
the attorneys to notify the insured immediately of that fact.
See, Allstate Ins. Co. v. Keller, 149 N.E.2d 482, 486 (Ill. App.
Ct. 1958).
Otherwise, the failure to do so could be attributed
to the insurer’s desire to strengthen its position in preparation
for filing a declaratory judgment action contesting coverage,
such as the present case.
See, id.
Indiana gives no explanation
for the six-year delay in identifying the potential conflict of
interest, and the Court fails to see the cause for such a delay.
As such, the Court finds Indiana’s reliance on its amended
reservation of rights letter unpersuasive.
However,
better.
Indiana’s
other
arguments
on
this
issue
fare
The Court agrees with Indiana that CE Design is not the
proper party to assert an estoppel argument on behalf of Matrix.
Indiana owed no duty to defend to CE Design, and CE Design is not
a representative of Matrix.
Any problem with Indiana’s late
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conflict disclosure should have come from the insured party
subject to the conflict, Matrix.
The Court is unaware of any
complaint by Matrix as to the representation it received.
In
addition,
an
insurer
is
not
estopped
from
raising
coverage defenses unless the insured (Matrix) has been prejudiced
by the conflict of interest or appointed counsel.
Utica Mut.
Ins. Co. v. David Agency Ins., Inc., 327 F.Supp.2d 922, 928 (N.D.
Ill. 2004); Maryland Cas. Co. v. Peppers, 355 N.E.2d 24, 29 (Ill.
1976).
The Court sees no evidence that Matrix suffered such
prejudice.
As stated previously, there is no indication that
Matrix was dissatisfied by the representation it received.
Nor
does CE Design even argue that Matrix suffered any prejudice as
a result of that representation.
because
the
original
It simply concludes that
reservation
of
rights
letter
did
not
describe any conflicts of interest or offer independent counsel,
Indiana cannot now contest coverage.
That is incorrect.
For these reasons, CE Design’s Motion for Summary Judgment
based on Indiana’s conflicts of interest with Matrix is denied.
B.
Indiana’s Duty to Defend
The parties then turn their discussion to whether Matrix’s
sending of unsolicited fax advertisements resulted in either
“property damage” or “advertising injury” under the Policy.
Indiana claims that such activity is not covered under the
Policy, while
CE
Design
claims
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that
the
faxes
caused
both
“property damage” and “advertising injury.”
Determining which
party is correct requires an analysis of the Policy’s language.
As stated previously, the parties agree that this contract
dispute should be governed by Michigan law.
Under Michigan law,
an insurance policy must be enforced in accordance with its
terms.
Nabozny v. Burkhardt, 606 N.W.2d 639, 642 n.8 (Mich.
2000). Michigan courts will not hold an insurance company liable
for a risk that it did not assume.
Id.
Ambiguous terms are
construed in favor of the insured; however, where the terms of
the contract are clear, courts will enforce the terms of the
contract as written. Id. Furthermore, Michigan courts interpret
the terms of an insurance contract in accordance with their
“commonly used meaning.”
Id.
The determination of whether there is a duty to defend is
“wholly dependent on the allegations set forth in the underlying
complaint.”
Auto-Owners Ins. Co. v. Tax Connection Worldwide,
No. 306860, 2012 Mich. App. LEXIS 2432 at *21 (Mich. Ct. App.
Dec. 4, 2002).
To resolve whether Indiana owes Matrix a duty to
defend in the Underlying Action, the Court must decide whether
the result of Matrix’s unsolicited faxing activities constitutes
an “advertising injury” or “property damage.”
Indiana owes
Matrix such a duty if the allegations in the Underlying Complaint
“even arguably come within the policy coverage.”
Protective
Nat’l Ins. Co. v. Woodhaven, 476 N.W.2d 374, 375-76 (Mich. 1991).
- 9 -
The Court will thus start with an analysis of whether the alleged
consequences of Matrix’s unsolicited faxing activities qualify as
“advertising injury” under the Policy.
As one judge in this
Circuit recognized, “[c]ourts have already spilled a great deal
of ink over this issue.”
Ace Mortg. Funding, Inc. v. Travelers
Indem. Co. of Am., No. 1:05-cv-1631-DFH-TAB, 2008 U.S. Dist.
LEXIS 18696 at *7 (S.D. Ind. Mar. 10, 2008).
Unfortunately, the
one court whose opinion would be determinative of this issue –
the Michigan Supreme Court – is not among those that have spoken
on the topic.
In the absence of a ruling from the Michigan Supreme Court,
the Court must thus predict how that court would decide this
issue. Research Sys. Corp. v. IPSOS Publicite, 276 F.3d 914, 925
(7th Cir. 2002). “Where the state supreme court has not ruled on
an issue, decisions of the state appellate courts control, unless
there are persuasive indications that the state supreme court
would decide the issue differently.” Id. (quoting Lexington Ins.
Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir. 1999)).
In the absence of Michigan authority, the Court could consider
decisions from other jurisdictions.
Lexington Insurance, 165
F.3d at 1090.
Turning to the numerous courts that have addressed this
issue previously, the Court is faced with a split in authority.
See, e.g., Penzer v. Transportation Ins. Co., 545 F.3d 1303, 1308
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(11th Cir. 2008) (collecting cases); Terra Nova Ins. Co. v. FrayWitzer, 869 N.E.2d 565, 573 (Mass. 2007) (“It is fair to say that
even the most sophisticated and informed insurance consumer would
be confused as to the boundaries of advertising injury coverage
in light of the deep difference of opinion symbolized in these
cases.”)
courts,
A number of courts, including two lower Michigan
conclude
that
the
unsolicited
sending
of
faxes
in
violation of the TCPA does fall under “advertising injury”
coverage. Other courts, including the Seventh Circuit, hold that
such faxing activities do not constitute “advertising injury.”
A brief explanation of each stance follows.
Indiana asks the Court to follow the rationale expressed
twice by the Seventh Circuit in trying to predict how two other
states’ supreme courts would decide the issue.
In American
States Ins. Co. v. Capital Associates of Jackson County, Inc.,
392 F.3d 939 (7th Cir. 2004), the Seventh Circuit faced a nearly
identical
question
Illinois law.
under
similar
circumstances,
but
under
In that case, the defendant was sued in state
court for sending unsolicited fax advertisements in violation of
the TCPA.
Id. at 940.
Its insurer filed a second action in
federal district court seeking a declaratory judgment that the
policy did not require a duty to defend or indemnify.
Id.
The
policy at issue there included the same definition of advertising
injury –
an
“oral
or
written
publication
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of
material
that
violates a person’s right of privacy.”
Id.
The district judge
held that the unsolicited faxes invaded the recipients’ privacy,
and that the insurer had to defend its insured under the policy.
Id.
The Seventh Circuit reversed.
It noted that no Illinois
court, trial or appellate, had issued any decision interpreting
the scope of “privacy” under an “advertising injury” clause. Id.
at 943.
The court reasoned that the two principal meanings of
“privacy” are secrecy and seclusion.
Id. at 941.
Someone who
wishes to conceal something asserts a claim to privacy in the
sense of secrecy, whereas someone who wants to stop people from
bothering
seclusion.
him
Id.
asserts
a
claim
to
privacy
in
the
sense
of
The court explained that the structure of the
policy (particularly the requirement that such injury be caused
by the “publication” of material in violation of a privacy
interest) implied strongly that the coverage was limited only to
secrecy interests, not seclusion interests.
Id. at 942-43.
The
court thus found that an “advertising injury clause” of the type
at issue here does not cover the normal consequences of junk
advertising faxes.
Id. at 943.
As such, the Court ruled that
the insurer owed no duty to defend.
Id.
The Illinois Supreme Court tackled the same question two
years later, but rejected the Seventh Circuit’s analysis. Valley
Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill.
2006).
The Illinois Supreme Court disagreed with the Seventh
- 12 -
Circuit’s conclusion that the provision was limited only to
secrecy interests, and decided that the conclusion reached in
American States was contrary to Illinois’s policy of giving
undefined contract terms (such as “publication” and “material”)
their plain and ordinary meanings.
Id. at 378-79.
Instead, in
an effort to afford the relevant undefined contract terms their
ordinary meanings, the Illinois Supreme Court turned to their
dictionary definitions and concluded that under Illinois law,
“advertising injury” policy provisions cover TCPA claims. Id. at
366-67.
That decision, however, did not deter the Seventh Circuit
from standing by the rationale it employed in American States
three years later, when it was tasked with answering the same
question under Iowa law in Auto-Owners Insurance Co. v. Websolv
Computing, Inc., 580 F.3d 543 (7th Cir. 2009).
Again, as it had
in American States, the Seventh Circuit noted that Iowa had no
case law on point.
Id. at 549.
The court acknowledged that the
Illinois Supreme Court disagreed with its decision in American
States,
but
concluded
that
despite
the
Illinois
court’s
rejection, Iowa would follow the rationale it announced in
American States because the most natural reading of the policy
terms in the context of related language was to exclude coverage
for
seclusion
violations.
Id.
at
550.
Courts
in
other
jurisdictions have employed rationale similar to that used by the
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Seventh Circuit when faced with similar policy language.
See,
e.g., Resource Bank Shares Corp. v. St. Paul Mercury Ins. Co.,
407 F.3d 631, 640-42 (2005).
As mentioned, however, there is a split in authority.
A
number of cases have concluded, as the Illinois Supreme Court did
in Valley Forge, that the Policy language defining “advertising
injury” makes no distinction as to the type of privacy insured.
Most notably, two recent Michigan court decisions have followed
this view.
In Auto-Owners Insurance Co. v. Tax Connection
Worldwide, LLC, No. 306860, 2012 Mich. App. LEXIS 2432 (Mich.
App. Ct. Dec. 4, 2012), the Michigan Court of Appeals was again
faced with a similar situation. The plaintiff insurer filed suit
in Michigan state court seeking a declaratory judgment that it
had
no
duty
to
defend
underlying TCPA action.
or
indemnify
Id. at *1-2.
the
defendants
in
an
The underlying complaint
alleged that the insured had sent unsolicited advertisements that
had damaged the recipients.
Id. at *12.
The definition of “advertising injury” at issue was the same
as in the present case.
Id. at *8-9.
The court examined the
policy language with respect to what constituted “advertising
injury” in accordance with Michigan’s principles of contract
construction.
It did not employ the rationale described by the
Seventh Circuit that differentiated between secrecy and seclusion
privacy.
Instead,
following
Michigan’s
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policy
of
giving
contractual terms their common meaning, the court looked to the
dictionary definitions of undefined terms such as “publication,”
“privacy” and “material” to determine the meaning of “advertising
injury.”
Id. at *9-12.
The court found that the TCPA, in making
it unlawful for a person to use a fax machine to send an
unsolicited advertisement, involves an interest in and protection
of “some sort of privacy right.”
Id. at *12.
It thus concluded:
At its most basic level, the sending of
unsanctioned advertising facsimiles in this
case falls within the coverage language of
an “advertising injury” as broadly defined
in the policy at issue. Such a finding is
consistent with other state Supreme Court
decisions called upon to interpret the exact
same language as the policy language at
issue.
.
.
.
In sum, comparing the allegations in the
TCPA complaint with the insurance Policy at
issue’s “advertising injury” provision, we
find that the Policy affords coverage for
the underlying lawsuit. The plain meaning
of the undefined Policy terms leads to such
a conclusion as do the unbinding but
persuasive analyses in [other state supreme
court decisions].
To the extent that the
undefined terms are ambiguous, we construe
them in favor of the insured.
Id. at *12-14 (citations omitted).
Interestingly, the Michigan
Supreme Court earlier this year denied the insurer’s application
to appeal the ruling because it was not persuaded that the
questions presented in the appeal should be reviewed by the
court.
See, Auto-Owners Inc. Co. v. Tax Connection Worldwide,
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LLC, 831 N.W.2d 454 (Mich. 2013).
It did so despite that fact
that one of its members, Justice Markman, dissented based on the
same rationale put forth by the Seventh Circuit in American
States and Websolv.
See, id. at 454-55.
Just two months ago,
the Michigan Supreme Court denied a motion to reconsider the
denial of that appeal.
Auto-Owners Inc. Co. v. Tax Connection
Worldwide, LLC, 835 N.W.2d 577, 578 (Mich. 2013).
Tax Connection is not the only Michigan case to hold that
the sending of unsanctioned advertising faxes falls within the
coverage language of an “advertising injury.”
Just a few months
earlier, a Michigan trial court reached a similar conclusion. In
State Farm v. Kapraun, Case no. 10-94869 (April 23, 2012), the
court
faced
the
question
of
whether
sending
facsimile
advertisements qualified as “advertising injury” under the same
policy language.
Id. at 1.
After examining the split in
authority on the subject, it rejected explicitly the rationale
advanced by the Seventh Circuit in American States and Websolv.
Instead,
the court
concluded:
(1)
the
policy
language
in
question does not compel a determination that only the right to
secrecy, and not the right to seclusion, is covered by the
policy; (2) the language in question was chosen by the insurer,
and it could have chosen more restrictive language if it wanted
to limit coverage to only protect secrecy interests; and (3) the
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insurer’s
strongest
authority,
American
States,
“significantly undermined” by later decisions.
was
Id. at 8.
With all due respect to the thoughtful analysis advanced by
our Circuit Court applying other states’ law in American States
and Websolv, the Court believes that it is more likely that the
Michigan Supreme Court would agree with the two lower Michigan
courts
that
have
ruled
on
this
precise
issue
and
found
independently that unsolicited facsimile advertising falls under
the coverage language of “advertising injury.” In the absence of
persuasive indications that the Michigan Supreme Court would
decide the case differently, decisions of Michigan’s appellate
court control.
Lexington Insurance, 165 F.3d at 1090.
Here,
unlike the situation the Seventh Circuit faced in both American
States and Websolv where there was no lower court authority, two
lower courts applied Michigan law to rule on this exact issue and
one
of
them,
Tax
Connection,
is
a
recent
appellate
court
decision. Both Michigan court decisions came down after American
States and Websolv, and indeed, Kapraun acknowledged and analyzed
those
decisions
explicitly
before
ultimately
finding
them
unpersuasive under Michigan law.
The Court notes that it is not simply the existence of these
two lower court decisions that lead to this conclusion, but also
the fact that the Court finds no flaw in those cases’ application
of
Michigan
law.
Michigan,
like
- 17 -
Illinois,
seeks
to
give
undefined contract terms their plain meaning.
In applying that
principle, the Michigan Court of Appeals chose to approach the
problem in the same manner the Illinois Supreme Court did in
Valley Forge – by looking to the dictionary definitions of the
key undefined contract terms and using them to determine the
breadth of the “advertising injury” clause. Furthermore, Indiana
fails to put forth any persuasive indications that the Michigan
Supreme Court would decide the case differently.
Indiana argues that because Justice Markman’s dissent in the
Michigan Supreme Court’s denial of appeal in Tax Connection “is
the only pronouncement by a Michigan Supreme Court justice on the
issue, [it] should be afforded substantial weight by a court in
its predictive role.”
Pl.’s Mem. in Support of Summ. J. at 17.
Indiana offers no legal support for the proposition that a single
justice dissenting from a denial of leave to appeal can be deemed
to speak for an entire tribunal. Indeed, the Court reads no more
significance into Justice Markman’s dissent than it does the fact
that the Michigan Supreme Court twice chose to decline taking the
Tax Connection case up on appeal.
Indiana also argues that Michigan’s recognition of the “last
antecedent rule” for statutory and contractual interpretation
indicates there is no coverage for “advertising injury.”
The
last antecedent rule “provides that a modifying or restrictive
word or clause contained in a statute is confined solely to the
- 18 -
immediately preceding clause or last antecedent, unless something
in the statute requires a different interpretation.”
Stanton v.
City of Battle Creek, 647 N.W.2d 508, 511 (Mich. 2002).
Policy
covers
publication
privacy.”
of
injury
arising
material
that
out
of
violates
Pl.’s Statement of Facts ¶ 30.
“[o]ral
a
or
person’s
The
written
right
of
According to the rule,
the phrase “violates a person’s right of privacy” modifies the
last antecedent of the prior phrase, “material.”
Indiana argues
that the Michigan Supreme Court would thus interpret the Policy
to cover injuries arising out of publication of material only if
the material violates a person’s privacy, and to do so, the
material would have to contain confidential information and
violate the victim’s right to secrecy. This argument is based on
the secrecy/seclusion distinction this Court has already decided
would not be employed by the Michigan Supreme Court.
The last
antecedent rule could be employed equally effectively to refer to
material that violates a person’s seclusion, such as unsolicited
faxes.
Indiana then makes a number of factual arguments as to why
it should not have to defend this action. For example, it claims
that the faxes were sent not on Matrix’s behalf, but on behalf of
its clients.
It also argues that Matrix was in the business of
advertising, and thus excluded from coverage. Such arguments may
be appropriate to dispute that Indiana has a duty to indemnify,
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but under Michigan law, they are not appropriate to negate a duty
to defend.
In Michigan, “The duty to indemnify arises only after
liability is found on the underlying claim – that is, after the
insured suffers a loss – and it is determined that the loss
suffered is covered by the terms of the policy.” Tax Connection,
2012 Mich. App. LEXIS 2432 at *8.
The duty to defend, however,
is broader than the duty to indemnify.
Id. at *6.
As stated
earlier, the determination of whether there is a duty to defend
is
wholly
dependent
on
the
allegations
set
forth
in
the
underlying complaint. Id. at *21. As the Michigan Supreme Court
explained:
The duty of the insurer to defend the
insured depends upon the allegations in the
complaint of the third party in his or her
action against the insured.
This duty is
not limited to meritorious suits and may
even extend to actions which are groundless,
false or fraudulent, so long as the
allegations
against
the
insured
even
arguably come within the policy coverage. .
. . In a case of doubt as to whether or not
the complaint against the insured alleges a
liability of the insurer under the policy,
the doubt must be resolved in the insured’s
favor.
Protective Nat’l Ins. Co. v. Woodhaven, 476 N.W.2d 374, 375-76
(Mich. 1991) (quotations omitted).
It is thus the underlying
claim that determines an insurer’s duty to defend, and “it is
irrelevant that the insurer may get information from the insured,
or from any one else, which indicates, or even demonstrates, that
- 20 -
the injury is not in fact ‘covered.’”
Dochod v. Cent. Mut. Ins.
Co., 264 N.W.2d 122, 124 (Mich. Ct. App. 1978) (quoting Lee v.
Aetna Cas. & Sur. Co., 178 F.2d 750, 751 (2d Cir. 1949)); see
also, Upjohn v. Aetna Cas. & Sur. Co., 768 F.Supp. 1186, 1196
(W.D. Mi. 1990) (“In making this threshold determination, the
true merit of the underlying claims – that is, facts outside the
four corners of the underlying claims that might negate coverage
– are not taken into account.”).
alleges
that
Matrix
had
a
The Underlying Complaint here
practice
of
faxing
unsolicited
advertisements, that it sent thousands of faxes throughout the
United States, and that by sending those faxes, Matrix forced
class members to pay for its advertising campaign.
56.1 Statement of Facts Ex. 7 ¶¶ 1, 11, 13, 48.
Pl.’s Rule
In light of the
Court’s conclusion as to the scope of the “advertising injury”
provision,
these
allegations
of
the
Underlying
Complaint
demonstrate the TCPA claim at least arguably falls under the
terms of the Policy.
Indiana directs this Court to a variety of evidence and
testimony
supporting
its
arguments
that
Matrix
was
not
advertising its own products or services, that it was in the
advertising business, and that it was providing professional
services as defined by the Policy.
that
evidence,
at
first
blush,
The Court notes that some of
appears
quite
convincing.
However, all of that evidence would be used more appropriately to
- 21 -
challenge Indiana’s duty to indemnify.
Action
has
not
been
resolved
yet,
and
Since the Underlying
there
has
been
no
determination as to whether Matrix is liable in that litigation,
the Court finds that it would be premature to rule on whether
Plaintiff owes Matrix a duty to indemnify.
See, Wakefield
Leasing Corp. v. Transamerica Ins. Co., 539 N.W.2d 542, 544
(Mich. Ct. App. 1995). Indeed, Indiana recognizes that arguments
based on the discovery record in the Underlying Action as to the
duty to indemnify are premature, as it seeks to “reserve[] the
right to raise those arguments, upon conclusion of the Underlying
Action, should the present motion be denied in any respect.”
Pl.’s Mem. in Support of Summ. J. at 27 n. 10.
In sum, the Court believes that the Michigan Supreme Court
would likely follow those courts, including its lower courts,
that have concluded that the Policy language of the “advertising
injury” provision is sufficiently broad to encompass the conduct
alleged in the Underlying Complaint. As such, Indiana has a duty
to continue defending Matrix in the Underlying Action.
It is
therefore unnecessary for the Court to examine whether the
conduct alleged in the Underlying Complaint would also constitute
“property damage,” as the Court has already found that Indiana
owes a duty to defend.
- 22 -
C.
Policy Limit
Indiana asks that if the Court concludes that it owes a duty
to defend Matrix in the Underlying Action, the Court should
declare that the limits of Indiana’s indemnity obligation are
capped at $2 million in the aggregate.
CE Design argues that
such a determination would be inappropriate at this stage, as any
ruling would simply be an advisory opinion. The Court disagrees,
as several cases in this district have addressed, in declaratory
judgment actions, issues of coverage limits even though the
underlying cases had not yet been resolved.
See, American Home
Ins. v. Martin, No. 92 C 1377, 1992 U.S. Dist. LEXIS 7357 at *6-9
(N.D. Ill. May 28, 1992) (collecting cases).
As such, the Court
will examine the limits.
The parties read the Policy very differently as to the
limits of coverage.
applicable
person.
to
Put simply, CE Design reads the limit
“advertising
injury”
as
being
$1,000,000
per
CE Design claims that the provision of the Policy
setting the
aggregate
limit
of
coverage
does
not
apply
to
“advertising injury.” Thus, CE Design claims, there is no cap on
the total amount that Indiana might be responsible for paying,
only as to how much it might have to pay per person.
this argument on two clauses in the Policy.
section D(2):
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It bases
First, it looks to
D.
LIABILITY AND MEDICAL EXPENSES LIMITS OF INSURANCE
. . .
2.
The most we will pay for the sum
of all damages because of all:
a.
“Bodily injury,” “property damage”
and medical expenses arising out
of any one “occurrence”; and
b.
“Personal injury” and “advertising
injury” sustained by any one
person or organization;
is the Liability and Medical Expenses
limit shown in the Declarations. . . .
Pl.’s Rule 56.1 Statement of Facts Ex. 5.
The second provision
CE Design relies upon is D(4), which is entitled “Aggregate
Limits.”
Id.
CE Design states that there is no reference to
“advertising injury” in this aggregate limits section, a fact
that Indiana must have recognized since it included language in
the
next
explicitly.
year’s
policy
to
include
“advertising
injury”
CE Design thus concludes that because the only
specific limitation in the Policy is that found in D(2), which
limits coverage amounts only per person (or organization) but not
in the
aggregate,
that
no
such
aggregate
limit
exists
for
“advertising injury.” Such conclusion, however, is mistaken once
the insurance agreement is examined in its entirety.
Under Michigan law, an insurance contract should be read as
a whole and meaning should be given to all of its terms.
Royal
Prop. Group, LLC v. Prime Ins. Syndicate, Inc., 706 N.W.2d 426,
- 24 -
432
(Mich.
Ct.
App.
2005).
“[T]he
policy
application,
declarations page of policy, and the policy itself construed
together
constitute
the
contract.”
Id.
Matrix’s
policy
application indicates it was seeking $1 million in coverage.
Pl.’s Rule 56.1 Statement of Facts ¶ 13.
More importantly, it is
undisputed that the declarations page of the Policy provides
coverage with limits of $1 million in liability and medical
expenses, and an aggregate limit of $2 million for all injury or
damage other than “products/completed operations hazard.”
27.
Id. ¶
“Advertising injury” is listed in the Policy as a category
of “liability and medical expenses.” Id. ¶ 30. The declarations
page
also
states
explicitly
that
“Except
for
Fire
Legal
Liability, each paid claim for the following coverages reduces
the amount of insurance we provide during the applicable annual
period.”
ECF No. 35-2, Ex. 5 at 10.
The Policy itself also
makes it clear that the amounts in the declarations are the
limits available to Matrix.
Section D(1) of the Policy states
that “The Limits of Insurance shown in the Declarations and the
rules below fix the most we will pay regardless of the number of:
(a) Insureds; (b) Claims made or ‘suits’ brought; or (c) Persons
or organizations making a claim or bringing ‘suits’.”
Thus,
reading
the
contract
as
a
whole
Id.
including
the
application, declaration and Policy, makes it clear that CE
Design’s interpretation is far broader than the contract allows
- 25 -
on its face.
“Advertising injury” is listed in the Policy as a
category of “liability and medical expenses.”
The Policy in
section D(2) states that the most Indiana will pay as a result of
an
“advertising
injury”
sustained
by
any
one
person
or
organization is the limit shown on the declaration for “liability
and medical expenses,” or $1 million.
The declaration page also
states that the aggregate limit for “all other injury or damage”
besides
that
sustained
hazard” is $2 million.
“under
products/completed
operations
The declaration explains that each paid
claim for such coverage reduces the amount of insurance Indiana
will provide.
Thus, the contract establishes that the maximum
limit one person or organization can recover due to sustaining an
“advertising injury” is $1 million, and the aggregate limit for
which Indiana is responsible is $2 million regardless of the
number of advertising injury claims.
The absence of “advertising injury” being discussed in the
aggregates limit section of the Policy does nothing to change
this reading of the Policy, as it states explicitly that the
“Declarations and the rules below fix the most [Indiana] will
pay. . . .” (emphasis added).
Id. (emphasis added).
As one
sister court explained in a case where a plaintiff argued that
the policy did not set a limit of coverage despite such a limit
being found in the declarations page:
The Declarations thus fix the maximum amount
of coverage, and Endorsement #2 does not
- 26 -
change that maximum amount. The fact that
the “Limits of Insurance” section uses the
word “AND” does not afford additional
coverage
beyond
the
limits
of
the
Declarations.
Rather the sentence, using
the word “AND,” means what it clearly and
unambiguously states: the limitations of
coverage are subject to both the limitations
found in the Declarations and the “rules
below.” Under Liberty’s construction of the
Policy, if there were any scenario that the
“rules below” did not address, then there
would be no limit to the coverage. This is
not the case under the plain reading of the
Policy because the liability limits are also
(AND)
subject
to
the
limits in
the
Declarations, in this case $1,000,000.
Quite obviously, there may be any number of
situations – contemplated by the ISO
“drafters” or not – which the “rules below”
may not address. However, the fact that the
“rules below” do not address a given
situation does not remove the application of
the liability limits contained in the
Declarations because the limit of coverage
is also subject to the limits indicated
there.
Liberty Mut. Ins. Co. v. Scottsdale Ins. Co., No. 01-2932, 2001
WL 1629239, at *4 (D. S.C. Dec. 14, 2001).
Similarly, under both
Michigan law and the express language of the Policy itself, the
absence of an explicit discussion of “advertising injury” in the
“Aggregate Limit” section of the Policy does not change the fact
that aggregate limit for advertising injury is provided in the
declaration page.
That Indiana later amended the “Aggregate
Limit” section is of no consequence, as the language of the
insurance
agreement
at
issue
in
this
case
is
clear
and
unambiguous on its face as to the aggregate limit of the policy.
- 27 -
In sum, the Court finds that pursuant to the Policy, the
most Indiana could owe Matrix is $2 million coverage in the
aggregate.
IV.
CONCLUSION
For the reasons stated herein, Indiana’s Motion for Summary
Judgment [ECF No. 33] is granted in part and denied in part.
Indiana’s request for a declaration that Indiana has no duty to
defend, and
therefore
no
duty
to
indemnify, Matrix
in
the
Underlying Action is denied. Indiana’s request for a declaration
that the Policy has $2 million in aggregate limits is granted.
CE Design’s Cross-Motion for Summary Judgment [ECF No. 37]
is granted in part and denied in part.
The Court finds that
Indiana does owe Matrix a duty to defend in the Underlying
Action.
To the extent CE Design’s Cross-Motion sought further
relief, it is denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
Date:12/20/2013
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