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Buyer Beware: Businesses Need to Review The Insurance Coverages They Purchase – From The Policy To All Notices Received From A Carrier

As governments get increasingly involved in regulating telecommunications advertising, it is more important than ever for companies to be legally savvy about their mass-marketing techniques. Insurers are well aware that violations of mass-marketing laws have the potential to result in huge class action verdicts, so carriers tend to be vigilant in defending against claims for insurance coverage for these suits. A recent case from Illinois provides insurers with additional ammunition to use in effectively disclaiming such coverage.

In Windmill Nursing Pavilion v. Cincinnati Ins. Co., 2013 IL App (1st) 122431, Unitherm, Inc., a company selling a garment-labeling system, sent nearly 75,000 unsolicited faxed advertisements that allegedly violated the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. Because the TCPA provides for $500 in liquidated damages for each unsolicited faxed advertisement, Unitherm faced more than $37 million in liability for its ill-advised marketing strategy.

Unitherm’s faxes triggered coverage under two commercial general liability policies with Cincinnati – an original policy and a renewal policy. Both policies offered $1 million in general aggregate limits and $2 million in commercial umbrella liability coverage. The renewal policy, however, specifically excluded bodily injury, property damage, or personal or advertising injury arising from a violation of the TCPA.

Windmill Nursing Pavilion., Ltd., representing the class of everyone who received the faxes, settled with Unitherm for $7 million – or as much of that as they could get out of Cincinnati. Windmill and Cincinnati went to court in Illinois to figure out what Windmill was entitled to collect based on two issues: (1) whether Cincinnati had properly notified Unitherm about the change in the renewal policy to exclude coverage for TCPA violations; and (2) whether the products-completed operations coverage in the two policies extended to the advertising mishap at hand.

On the first issue, the parties disagreed on whether the applicable law on policyholder notice was that of Ohio (where both Cincinnati and Unitherm were based) or Illinois (where Windmill was based). The trial court ultimately applied Ohio law to find that Cincinnati had satisfied that state’s notice requirements, therefore precluding any claim for coverage of a TCPA violation under the renewal policy. The court also held that there wasn’t coverage for the faxed advertisements under the products-completed operations hazard provision of the original policy because the advertisements weren’t “goods” or “products” described therein. Having lost on both questions, Windmill appealed.

The appellate court, however, didn’t see it any differently. The appellate court applied Illinois’ choice-of-law standard for insurance contracts, the “most significant contacts” test, by which the controlling jurisdiction is determined by, among other things, consideration of the location of the subject matter, the place of the contract’s delivery, the domicile of the insured and insurer, the location of the last act to give rise to the contract, and the place of performance. Because the policy was executed and delivered in Ohio between and Ohio insurer and insured, the Court reasoned, Ohio had the most significant contacts with the policies and parties involved and that state’s law should apply. The appeals court thus affirmed the trial judge’s application of Ohio law.

Under Ohio law, an insurer that sends notice of material changes in a renewal policy as a short, separately attached, boldly worded endorsement is deemed to have put the insured on actual notice of those changes. Cincinnati’s notice to Unitherm was on separately attached individual pages and contained a “NOTICE TO POLICYHOLDERS – EXCLUSION – VIOLATION OF STATUTES THAT GOVERN E-MAILS, FAX, PHONE CALLS OR OTHER METHODS OF SENDING MATERIAL OR INFORMATION[.]” It stated that the insurance did not apply to any liability “arising directly or indirectly out of any action or omission that violates or is alleged to violate: (a) The Telephone Consumer Protection Act (TCPA), including any amendment or addition to such law[.]” The Court held that this satisfied Ohio’s notice requirements such that Unitherm could be deemed to have been on actual notice of the change in the renewal policy. In other words, Windmill was out of luck in terms of collecting on any damages resulting from the Unitherm’s second fax-bomb.

The Court next turned to the “products-completed operations hazard” provision, which covered all bodily injury and property damage arising out of Unitherm’s “product” or “work[.]” “Product” was defined as “any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by” the company, and “work” was defined as “(1) [w]ork or operations” performed by the company or on its behalf; and “(2) [m]aterials, parts, equipment furnished in connection with such work or operations.” Both definitions included related “warranties or representations made at any time with respect to the fitness, quality, durability, performance or use” of the product or work. Meanwhile, the policy also defined “advertisements” as notices that are “broadcast, telecast or published to the general public or specific market segments” about the company’s “goods, products or services for the purpose of attracting customers or supporters.”

The appellate court rejected Windmill’s argument that the faxes were products, goods, or work. Unitherm wasn’t selling the faxes themselves; rather, the panel held, they were notices “for the purposes of attracting customers” and fell under the policy’s definition of “advertisements” – a classification seemingly acknowledged by Windmill itself when it referred to the faxes as “advertisements” in its complaint. Windmill’s argument that the faxes were covered because they made “warranties and representations” about Unitherm’s good or services was a nonstarter, because the TCPA violations didn’t result from any representations of warranties. Because the faxes were advertisements under the policy, and advertisements weren’t covered by the products-completed operations hazard provision, Windmill couldn’t collect under that clause either.

The lesson is twofold. First, corporate policyholders must carefully read their policies, or seek counsel to determine what they are actually purchasing. Second, from the insurers’ perspective, carriers who wish to avoid responsibility for potentially enormous class-action judgments based on marketing that violates telecommunications regulations would do well to learn from Cincinnati’s example: Know any and all notice requirements and follow them to the letter in alerting policyholders as to limitations based on telecommunications statutes, and state as clearly and explicitly as possible throughout the policy where and when advertising and marketing materials are or are not covered. Otherwise, there’s the possibility that an imprudent advertising flood could quickly ram damages up to policy limits and beyond. For help with your questions about telecommunications liability and policyholder notice, contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or, or associate Chris Mincher at or 443-909-7505.

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