Insurance companies will not need to pay out $8 million to help a Pennsylvania company settle a class action for reportedly “fax-blasting” hundreds of businesses in Illinois and elsewhere, after a state appellate panel determined the sending of the faxes at the center of the case could not be considered an “accidental” occurrence under Pennsylvania law.

On May 13, a three-justice panel of the Illinois Second District Appellate Court in Elgin ruled against G.M. Sign Inc., of Round Lake, and executive placement services provider Pennswood Partners, of Wyomissing, Pa., and in favor of Maryland Casualty Company and Assurance Company of America, which do business as small business insurance underwriting companies for Zurich Insurance Group.

The decision overturned a ruling from Lake County Circuit Judge Margaret J. Mullen, who had ruled in favor of G.M. Sign and Pennswood in their dispute with the insurance companies, ordering the insurance company to pay $8 million to Pennswood to fund the settlement it had agreed to with the Round Lake sign company.

The case arose in 2007 when G.M. Sign filed its class action complaint against Pennswood for allegedly sending “thousands of … unsolicited facsimile advertisements to” to G.M. Sign and “at least 39 other recipients” without permission, violating federal telecommunication law and Illinois consumer fraud statute.

Pennswood then called on the Zurich companies to fund its defense. The companies denied that claim in July 2007.

Days later, however, Pennswood and the class represented by G.M. Sign agreed to an $8 million settlement, “enforceable only ‘against the proceeds’” Pennswood would receive from its insurers.

Under the approved deal, the class counsel would receive a third of the proceeds.

Justifying the settlement, the trial judge in the case found Pennswood had transmitted more than 560,000 unsolicited faxed advertisements from March 2003 to December 2006.

The Zurich companies in 2008 asked the court to declare it had no obligation to pay the settlement proceeds, saying the complaint against Pennswood doesn’t involve property damage caused by an accident, and so was excluded by the policies.

Initially, the court in 2011 sided with the insurers, finding Illinois and Pennsylvania law were in conflict “regarding whether fax-blasting constitutes property damages caused by an ‘occurrence’ within the meaning of the policies.”

The court found Illinois law provided coverage, but Pennsylvania law does not. And the court found Pennsylvania law applied in this case.

However, Pennswood and G.M. Sign asked the court to reconsider, using a 2011 opinion from the Illinois First District Appellate Court to find there was no conflict between the two states’ laws.

The trial judge agreed, reversing the earlier decision, declaring Illinois applied in the case and ordering the insurance companies to pay.

The Zurich companies then appealed.

The Second District justices reversed the lower court’s order, using federal case law, which applied Pennsylvania law in a similar fax-blasting case, to find Pennsylvania law actually did conflict with Illinois law on the question of whether the “occurrence” could be covered. Therefore, Pennsylvania applied in the case.

And, since the sending of the fax messages could not be classified an “accident,” the actions and the suit resulting from them are not eligible for coverage, the Second District justices said.

“This ‘accidental fax’ argument fails because nothing in the record indicates that Pennswood attempted to determine whether the recipients had consented or given their express permission to receive faxes,” the justices wrote.

The appellate opinion was authored by Justice Robert D. McLaren. Justices Michael J. Burke and Robert B. Spence concurred in the judgment.

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