Mo’ Conflict, More Problems: Illinois Choice-of-Law Analysis Now Less Favorable for Insurers

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Choice-of-law analyses are extremely significant when it comes to coverage disputes, especially those involving underlying blast fax suits brought under the Telephone Consumer Protection Act (47 U.S.C. §227, et. seq.), as the question of which state’s law applies will often be determinative of whether there is insurance coverage for the TCPA claim.  The classic example involves a class representative strategically filing suit in Illinois, an historically coverage-friendly jurisdiction for TCPA lawsuits, with an eye on obtaining insurance coverage.  This strategy just got easier for future TCPA claimants under the Illinois Supreme Court’s recent decision in Bridgeview Health Care Center, Ltd. v. State Farm Fire & Casualty Company, 2014 IL 116389 (May 22, 2014).

State Farm’s insured, Jerry Clark d/b/a Affordable Digital Hearing, was sued in the Northern District of Illinois by a class of individuals represented by Bridgeview, an Illinois corporation, for alleged unsolicited faxes sent by Clark in June 2006.  The lawsuit consisted of counts for violations of the TCPA, common law conversion, and the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2).  State Farm issued a commercial general liability policy to Clark through an agent in Indiana, and although Clark was an Illinois resident, his business address on the policy was listed as Terre Haute, Indiana. Clark tendered the defense to State Farm, which accepted his defense pursuant to a reservation of its rights.

Three months after State Farm had its Indiana state court declaratory judgment action dismissed for lack of personal jurisdiction over Bridgeview, Bridgeview filed a declaratory judgment action in the Circuit Court of Cook County, Illinois seeking a declaration that State Farm had a duty to defend and indemnify Clark against the underlying class action.

On cross-motions for partial summary judgment, State Farm conceded that, under Illinois law, coverage was provided to Clark under the CGL’s “property damage” and “advertising injury” provisions.  Yet, State Farm noted that no Indiana state court had addressed the question of whether the sending of unsolicited faxes falls within a CGL policy’s terms.  Nonetheless, State Farm asserted that because there were two unreported Southern District of Indiana decisions favorable to State Farm’s position and contrary to Illinois law, there was a conflict of laws between Illinois and Indiana law requiring a choice-of-law analysis.  The federal district court decisions predicted that the Indiana Supreme Court would hold that there is no coverage under the policies.  Therefore, the choice-of-law analysis, if required, would determine the outcome of the coverage dispute, depending on whether Illinois or Indiana law applied.

As the first definitive holding on this conflict-of-law issue in Illinois, the Illinois Supreme Court concluded that an Erie prediction by a federal district court is not state law, and “such a prediction cannot, by itself, establish a conflict between state laws.”  The court further held that “a mere possibility of a conflict of laws” does not require a choice-of-law analysis.  As a result, the court held that no conflict-of-law analysis was required because State Farm had failed to meet its burden of “demonstrating an actual conflict exists between Illinois and Indiana law.”

Bridgeview further cements Illinois as one of the best jurisdictions in the country for plaintiffs and policyholders to file TCPA coverage actions