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Thursday, December 23, 2004

Indiana Decisions - 7th Circuit posts one

American States v. Capital Assoc of Jackson County (SD ill)

Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.
EASTERBROOK, Circuit Judge. According to a complaint
filed in state court, Capital Associates of Jackson County
sent an unsolicited advertisement to the fax machine of JC
Hauling Company, thus violating 47 U.S.C. §227(b)(1)(C).
JC Hauling launched a class action on behalf of all recipients
of Capital Associates’ junk faxes. Capital Associates
tendered the defense to American States Insurance Co.,
which had issued a policy covering “advertising injury,”
among other harms. American States, which has undertaken
the defense under a reservation of rights, filed this
federal suit seeking a declaratory judgment that the policy
does not call for either defense or indemnity. * * *

American States contended that sending unsolicited advertising
by fax does not cause “advertising injury” and that,
if it does, the recipient’s loss is “expected or intended from
the standpoint of the insured.” But the district judge held
that an unsolicited fax invades the recipient’s “privacy” and
that American States therefore must defend its insured.
The judge did not discuss the policy’s exclusion of expected
or intended consequences and left several items dangling. * * *

Ours is the first federal
appellate decision on the subject, and for reasons already
given we hold that an advertising-injury clause of the kind
in American States’ policy does not cover the normal
consequences of junk advertising faxes.
For completeness we add that the property-damage clause
in the policy is no more useful to Capital Associates; junk
faxes use up the recipients’ ink and paper, but senders
anticipate that consequence. Senders may be uncertain
whether particular faxes violate §227(b)(1)(C) but all senders
know exactly how faxes deplete recipients’ consumables.
That activates the policy’s intentional-tort exception (which
applies to the property-damage coverage though not the
advertising-injury coverage): it forecloses coverage when the
recipient’s loss is “expected or intended from the standpoint
of the insured.” Because every junk fax invades the recipient’s
property interest in consumables, this normal outcome
is not covered.

So clear is this that American States need not provide a
defense to the suit, even though Illinois (whose law applies)
requires insurers to defend when coverage is a close issue,
whether or not the policy would provide indemnity. See,
e.g., Aetna Casualty & Surety Co. v. Prestige Casualty Co.,
195 Ill. App. 3d 660, 553 N.E. 2d 39 (1st Dist. 1990). This
issue is not close. REVERSED

Posted by Marcia Oddi on December 23, 2004 04:40 PM
Posted to Ind. (7th Cir.) Decisions