Addison Automatics, Inc.
The Netherlands Insurance Company et al.  No. 131207
Filed August 5, 2015
MEMORANDUM OF DECISION AND ORDER ON THE PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT
Honorable Shannon Frison,
This insurance coverage dispute arises out of a class action complaint (" underlying suit") brought by the plaintiff, Addison Automatics, Inc. (" Plaintiff"), against defendants Precision Electronics Glass, Inc. (" Precision") and Phillip Rossi. On December 14, 2012, the United States District Court for the Northern District of Illinois (Coleman, J.) approved and issued final judgment on a settlement in the Underlying Suit. That settlement contemplated a $15, 875, 500 judgment against Precision, the satisfaction of which the settlement class agreed to seek primarily from Precision's insurers--defendants The Netherlands Insurance Company (" Netherlands") and Excelsior Insurance Company (" Excelsior, " collectively, with Netherlands, the " insurers"). Accordingly, Plaintiff has instituted the present action requesting declaratory judgment on the obligations of the insurers pursuant to Precision's insurance policies.
This case is now before the court on Plaintiff and the insurers' cross motions for summary judgment. For the reasons set forth below, the motions are both ALLOWED in part and DENIED in part.
I. The Underlying Suit
Precision is a New Jersey corporation doing business nationwide, including within the Commonwealth of Massachusetts. Rossi is Precision's president and sole shareholder. In 2007, Rossi contracted with a third party to conduct a marketing campaign for Precision that included sending advertisements to potential customers via facsimile (" fax"). Thereafter, in January 2008, over 31, 000 advertising faxes were sent to various entities on Precision's behalf. Rossi has testified in both a sworn affidavit and at his deposition that Precision " assumed, understood, and believed, " based on the representations of its marketing consultant, that the fax campaign was lawful and that any potential recipients, though not current Precision customers, were nonetheless interested in Precision's business at that time.
Plaintiff, an Illinois corporation, received one of Precision's advertising faxes. On August 13, 2010, Plaintiff filed suit against Precision and Rossi. Both individually and on behalf of a putative class of similarly situated persons, Plaintiff claimed that Precision's advertisements used recipients' fax machines, toner, and paper supplies without their consent in violation of the federal Telephone Consumer Protection Act (" TCPA"), the Illinois Consumer Fraud and Deceptive Business Practices Act, and common-law conversion.
The parties ultimately entered into a settlement agreement that was approved by the Honorable Sharon Johnson Coleman of the United States District Court for the Northern District of Illinois on December 14, 2012. In its Final Approval of the settlement, the court entered judgment in the amount of $15, 875, 500 against Precision for violations of the TCPA.,  The court ordered Precision to pay $85, 000 to Plaintiff's attorneys in partial satisfaction of the judgment, while the settlement class was to collect the remaining portion from any proceeds available through Precision's insurance policies. The court found that Rossi and Precision " believed that they had the consent of the fax recipients when they sent the faxes" at issue and " did not intend to injure the fax recipients." It further acknowledged that Precision had tendered the suit to its insurers, Netherlands and Excelsior, but that the companies had disclaimed coverage and refused to defend. Finally, the court found the settlement to be fair, prudent, and made in reasonable anticipation of liability.
II. The Present Action
Netherlands and Excelsior, both maintaining principal places of business in Massachusetts, were Precision's insurers at all times relevant to the underlying suit--from 2005 through 2008. Netherlands was Precision's primary insurer, while Excelsior provided excess liability coverage. Both insurers operated under the umbrella of Peerless Indemnity Insurance Company (" Peerless"), which issued Netherlands and Excelsior insurance policies through its agents. Heritage Insurance Agency, Inc. (" Heritage"), operating in New Jersey, was one such Peerless agent. Precision purchased its 2005-2008 Netherlands and Excelsior insurance policies through Heritage.
In 2005, Peerless sent notice to its agents, including Heritage, that it would be introducing a new exclusion into all its insurance policies. The new exclusion would generally bar insurance companies under the Peerless umbrella from providing liability coverage for actions alleged to violate the TCPA or any other law prohibiting unsolicited faxing (the " TCPA Exclusion"). There is no evidence in the record that Peerless, Netherlands, Excelsior, or any Heritage employee communicated notice of the new, planned exclusion to Precision at that time.
In March 2006, the insurers sent out renewal policies that were to cover Precision's 2006-2007 coverage term. The record is unclear as to whether they were mailed to Heritage, which was to provide the information to Precision through its broker, or directly to Precision itself. The declaration sheets for both Netherlands's and Excelsior's 2006-2007 renewal policies included the line item, " 0305 Exclusion-Violation of Statutes, " under the heading " Forms and Endorsements, " which referred the insured to a certain form within the policy that described the TCPA Exclusion. Then, on page 52 of Netherlands's policy and page 19 of Excelsior's policy,  a form entitled " Important Notice to Policyholders" provided the following:
Exclusion--Violation of Statutes that Govern E-mails, Fax, Phone Calls or Other Methods of Sending Material or Information. This notice does not form a part of your insurance contract. The notice is designed to alert you to coverage changes when the exclusion for violation of statutes that govern e-mails, fax, phone calls or other methods of sending material or information is attached to this policy . . . Please read your policy, and the endorsement attached to your policy, carefully . . . [C]overage is excluded for " bodily injury, " " property damage" or " personal and advertising injury" arising directly or indirectly out of any action or omission that violates or is alleged to violate the Telephone Consumer Protection Act (TCPA) [ ].
(emphasis in original). The body of each renewal policy also contained the TCPA Exclusion sections themselves, which included the following title headings: " This endorsement changes the policy. Please read it carefully" (emphasis in original) and " This endorsement modifies [the] insurance provided [ ]." The line item in the declaration sheets, as well as the TCPA Exclusions themselves and related endorsements, were also included in the insurers' 2007-2008 renewal policies.
As indicated in the TCPA Exclusions, Precision's 2007-2008 insurance policies with Netherlands and Excelsior provided that the insurers had the duty to cover liability for any " property damage" done by Precision, which included lost use of another's property, if " caused by an 'occurrence.'" An " occurrence" was defined as an " accident, " which term was not itself defined. ...