The United States Court of Appeals for the Seventh Circuit, applying Illinois law, has held that common-law tort claims regarding errant faxes arose out of the Telephone Consumer Protection Act (TCPA) so as to trigger an exclusion in the relevant insurance policy. Mesa Labs., Inc. v. Fed. Ins. Co., 2021 WL 1538230 (7th Cir. Apr. 20, 2021). The Court held that because the tort claims arose out of the same conduct as the statutory claims, which were clearly barred by the exclusion, the exclusion applied to the entire underlying lawsuit, and there was no duty to defend.
The insured sent faxes promoting its dental industry events. However, some of the recipients did not consent to receiving these faxes, and the faxes did not include an opt-out notice. As result of the errant faxes, the insured faced a putative class-action lawsuit from a Chicago-area dentist alleging violation of the TCPA and the Illinois Consumer Fraud and Deceptive Business Practices Act. The suit also included common-law tort claims for conversion, nuisance, and trespass to chattels for the insured’s appropriation of the recipients’ fax equipment, paper, ink, and toner.
The insurer denied coverage under an Information Laws Exclusion, which provided 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 United States of America Telephone Consumer Protection Act (TCPA) of 1991 . . . or any similar regulatory or statutory law in any other jurisdiction.” The exclusion clearly barred coverage for the statutory claims, but there was a dispute as to whether it barred coverage for the common-law tort claims. The United States District Court for the Northern District of Illinois granted the insurer’s motion for judgment on the pleadings, finding that the Information Laws Exclusion applied to the entire action, and the insurer had no duty to defend.
The Court of Appeals affirmed, concluding that the phrase “arising out of” required a “but-for” inquiry. That is, if the plaintiff would not have been injured but for the conduct that violated the relevant statute, then the exclusion should apply to all claims flowing from that underlying conduct, regardless of the legal theory under which the claim was asserted. The Court reasoned that here the conduct underlying the statutory and common-law claims was the same: the insured’s sending of unsolicited faxes. Accordingly, the Information Laws Exclusion applied, and the insurer had no duty to defend.