On November 26, 2014, the Appellate Court of Illinois affirmed a lower court ruling, concluding that, under Illinois law, a professional liability policy did not cover a class action lawsuit alleging violations of the Telephone Consumer Protection Act (“TCPA”).  Margulis v. BCS Ins. Co., 2014 IL App (1st) 140286.

         Background

Margulis and the agent went on to settle the TCPA case in 2011, for $4,999,999.  The terms of the settlement provided that Margulis would not seek to collect anything from the agent, but instead would only seek recovery from the agent’s insurer.  Margulis then brought suit against the insurer in Cook County (Illinois) Circuit Court, seeking a declaration that the TCPA suit was covered under the policy. 

        Circuit Court Grants Summary Judgment for Insurer

On cross-motions for summary judgment, the circuit court agreed with the insurer’s position that, in placing cold calls, the agent was not providing professional services for others as an insurance agent.  In denying Margulis’ motion and granting the insurer’s, the court also rejected Margulis’ argument that the insurer had breached its duty to defend, estopping it from raising coverage defenses.  The court again agreed with the insurer that estoppel did not apply, because there was no possibility of coverage, eliminating any duty to defend the agent.  

        Appellate Court Affirms Judgment for Insurer

Margulis appealed the circuit court’s judgment, claiming that “arising out of the conduct of the business of the Insured in rendering services for others . . .” was ambiguous and that the lower court wrongly construed that phrase narrowly, rather than broadly, in determining that no coverage existed.  The appellate court found no ambiguity, refusing to “torture ordinary words until they confess to ambiguity.”

In affirming the circuit court’s judgment, the appellate court concluded that Margulis’ position would make the “rendering services for others” language meaningless, in violation of a fundamental rule of policy construction.  Conversely, the court declined to find that the policy only required a “substantial nexus” between the agent’s robocalls and his business, refusing to read into the policy language any additional terms.  Because the TCPA suit, by definition, alleged contact between the agent and people who were not his clients, the court concluded that the agent “was not rendering services for the call recipients as an agent or broker where, as here, the recipients were not [the agent’s] clients or customers.” 

The parties sparred over which of two potentially applicable Illinois appellate cases applied.  The insurer urged the court to follow Westport Ins. Corp. v. Jackson Nat’l Life Ins. Co., 387 Ill. App. 3d 408 (2008), while Margulis argued that Landmark American Ins. Co. v. NIP Group, Inc., 2011 IL App (1st) 101155 should govern the outcome.  The court agreed with the insurer and the lower court that the case was closer to Westport than to Landmark. 

The policy language in Westport was slightly broader than the language at issue in this case, and the Westport court found that similar conduct did not fall within the insuring agreement.  In contrast, the policy language in Landmark allowed coverage for specific types of advertising liability, in addition to offering coverage for professional services, while the policy in Margulis did not.  As in the Westport case, the court ruled that the insurer had neither a duty to defend nor a duty to indemnify the agent against the claims in the TCPA suit. 

The court concluded by rejecting Margulis’ final argument, holding that the doctrine of estoppel did not apply because the insurer did not owe a duty to defend. 

HWW attorneys Thomas Brusstar (tbrusstar@hww-law.com) and Peter Preston (ppreston@hww-law.com) represented the insurer in the circuit court and appellate proceedings.