In Maxum Indemnity Co. v. Eclipse Manufacturing Co., No. 06 C 4946, 2011 WL 2415629 (N.D. Ill. 2011), the Northern District of Illinois revisited the Illinois Supreme Court’s decision in Valley Forge Ins. Co v. Swiderski Elecs., Inc., 860 N.E.2d 307, 223 Ill. 2d 352 (2006), regarding privacy rights as it concerns blast faxes and General Agents Insurance Company of America, Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 293 Ill. Dec. 594 (2005), for the proposition that reimbursement of defense costs for non-covered claims is allowed where the policy contains an express allocation provision.
M & M Rental Center, Inc. (“M&M”) was a named insured under three consecutive CGL policies issued by Maxum, Security, and FSIC. The Maxum and Security policies provided coverage for advertising injury, which was defined as “oral or written publication of material that violates a person’s right of privacy.” The FSIC policy defined advertising injury more narrowly as false arrest, detention, or imprisonment; malicious prosecution; wrongful eviction, entry, or invasion; or slander, libel, or disparagement.
The Maxum policy also contained an allocation provision which stated as follows:
[T]he Insured must agree to a reasonable allocation of the costs and fees of defense, and the Insured will be responsible for payment of the costs and fees to defend the “damages” or claims not covered by this policy.
In the underlying class action, plaintiffs alleged that M&M violated the Telephone Consumer Protection Act (“TCPA”) by transmitting unsolicited fax advertisements. FSIC defended under a reservation of rights. Maxum and Security sought a declaratory judgment that they were under no duty to defend M&M. FSIC filed an intervening complaint seeking a judgment that it, too, did not have the duty to defend M&M, but Maxum and Security did. The court held that there was no coverage under the FSIC policy, but the Maxum and Security policies provided coverage, particularly in light of the Illinois Supreme Court’s decision in Valley Forge Ins., which held that an almost identical advertising injury provision covers invasion of secrecy and seclusion and thus TCPA claims.
The court then held that FSIC was entitled to reimbursement of its costs from Maxum and Security because it did not act as a volunteer in assuming the defense of the class action and because it did precisely what the law encourages insurers to do in debatable coverage situations: defend under a reservation of rights. However, the court also recognized the enforceability of Maxum’s allocation provision and cited General Agents Insurance, for the proposition that reimbursement is allowed if it is expressly provided for in the insurance policy.