No Duty To Defend Or Indemnify Against $9,600,000 Stipulated Judgment

Chris Pickett won an appeal affirming summary judgment.  In Founders Ins. Co. v. Paldo, et al., 2014 IL (1st) 130756-U, the underlying plaintiff, Paldo, filed suit against Founders’ named insured, Nite & Day Entertainment, alleging that Nite & Day violated the Telephone Consumer Protection Act (“TCPA”) by sending unsolicited junk faxes.  Nite & Day tendered the Paldo suit to Founders for defense and indemnity pursuant to its owners, landlord and tenant (“OLT”) policy.  Founders denied coverage for the claim.  Paldo subsequently filed a third and fourth amended complaint, each of which was tendered to Founders.  Founders agreed to undertake Nite & Day’s defense with respect to the fourth amended complaint.  Within a week of agreeing to assume Nite & Day’s defense, Nite & Day advised Founders that it had entered into a settlement agreement with Paldo calling for a $9,660,000 stipulated judgment, executable solely against the Founders policy.

Founders filed a complaint for declaratory judgment against Paldo and Nite & Day, and the parties filed cross-motions for summary judgment.  Paldo argued that the junk faxes were covered under the OLT coverage which applied to damages “caused by an occurrence on the insured premises and arising out of the ownership, maintenance or use of the insured premises.”  Founders argued that the OLT coverage only applied when there was both an accident and damages or injury on the insured premises.  Paldo also argued that the OLT’s product hazard and completed operations coverage applied.  Paldo argued that the junk faxes were Nite & Day’s product, because they were a “thing produced by labor.”  Paldo argued that the junk faxes were also a completed operation because Nite & Day entered into a contract with a third-party vendor to distribute the junk faxes.  Paldo argued that, upon executing the contract, Nite & Day’s operations were complete, so the ensuing fax transmission were caused by a completed operation.

The trial court entered summary judgment in favor of Founders and the Appellate Court affirmed.  The court held that the OLT coverage unambiguously limited coverage to accidents resulting in damage or injury on the premises.  The court also held that the junk faxes did not qualify as Nite & Day’s product or completed operation as those terms were used in the policy.  Specifically, the court recognized that there was a difference between a product, on the one hand, and an advertisement for the product, on the other hand.  The court held that the junk faxes were mere advertisements and, because the OLT policy did not include advertising injury coverage, the junk faxes could not reasonably be construed as Nite & Day’s operations or product.  The court further held that, because Founders did not owe a duty to defend, it could not be estopped to assert policy defenses.