Illinois Supreme Court Holds TCPA Damages Not Punitive

Today the Illinois Supreme Court issued its decision in Standard Mutual v. Lay, 2013 IL 114617 (2013). Locklear brought a class action claim against Lay under the Telephone Consumer Protection Act of 1991 (TCPA), which resulted in a court-approved settlement orchestrated by Lay and Locklear. The settlement agreement provided for $500 statutory damages to be distributed to each of the 3,478 class members. The settlement further restricted Locklear’s ability to satisfy the judgment to only Lay’s insurers. Lay’s insurer, Standard Mutual, filed a complaint for declaratory judgment arguing that, among other things, the settlement was not covered as the TCPA-prescribed damages of $500 per violation constitute punitive damages, which are uninsurable.
The trial court and Appellate Court ruled that because the $500 statutory damages were disproportionate to the actual damages (loss of toner, paper, etc.), the damages assessed for a violation of the TCPA were punitive in nature and therefore uninsurable. On appeal, Locklear contended, among other things, that the damages were not punitive given the legislative history underlying the TCPA. The Supreme Court agreed, holding that the TCPA is “clearly within the class of remedial statutes which are designed to grant remedies for the protection of rights, introduce regulation conducive to the public good, or cure public evils.” The court found that Congress intended to prevent advertisers from unfairly shifting the cost of advertisements to consumers, and imposed a liquidated sum of $500 to reflect the compensable damages and harms suffered by the recipient of an unsolicited fax. The court also held that the $500 liquidated damages were available as an incentive for private parties to enforce the statute, and therefore the statute existed for more than punitive or deterrent purposes. Finally, the treble damages available under the TCPA, which are separate from the $500 liquidated damages, demonstrated Congress’ intent that the liquidated damages serve goals other than deterrence and punishment. The court did not reach the issues of whether TCPA damages fall within an exception to the uninsurability of punitive damages, or Locklear’s argument that all punitive damages should be insurable.