Central Mutual Insurance Company v. Tracy's Treasures, Inc.

Illinois Official Reports

Appellate Court

Central Mutual Insurance Co. v. Tracy’s Treasures, Inc., 2014 IL App (1st) 123339

Appellate Court CENTRAL MUTUAL INSURANCE COMPANY, Plaintiff-
Caption Appellee and Cross-Appellant, v. TRACY’S TREASURES, INC.,
and PAUL IDLAS, Defendants-Appellants and Cross-Appellees.

District & No. First District, Third Division
Docket No. 1-12-3339

Filed September 30, 2014
Rehearing denied October 28, 2014
Modified upon
denial of rehearing November 5, 2014

Held In a declaratory judgment action seeking a determination of whether
(Note: This syllabus plaintiff insurer was obligated to provide coverage for its insured in an
constitutes no part of the underlying class action seeking damages for violations of the
opinion of the court but Telephone Consumer Protection Act arising from the insured’s
has been prepared by the transmission of unsolicited faxes and the insured had obtained its own
Reporter of Decisions counsel and entered into a settlement of the underlying action
for the convenience of providing for a $14 million judgment that would be enforceable only
the reader.) against plaintiff’s policies, the entry of summary judgment finding
that plaintiff was not obligated to provide coverage based on the
Illinois Appellate Court’s decision in Lay, which holds that awards
under the Act are punitive and uninsurable, was reversed, since the
Illinois Supreme Court later reversed that decision and held that such
awards are insurable liquidated damages; furthermore, the denials of
plaintiff’s motions for summary judgment seeking determinations that
the settlement between its insured and the underlying plaintiff was
collusive and unreasonable and that the policies issued to its insured
had been reformed to eliminate coverage for “advertising injury” and
“personal advertising injury” were reversed and the cause was
remanded for further proceedings, in view of the existence of material
issues of fact with regard to the reasonableness of the underlying
settlement.
 Decision Under Appeal from the Circuit Court of Cook County, No. 07-CH-14995; the
Review Hon. Rita M. Novak, Judge, presiding.

Judgment Reversed in part and affirmed in part; cause remanded.

Counsel on Anderson & Wanca, of Rolling Meadows (Brian J. Wanca, David M.
Appeal Oppenheim, and Jeffrey A. Berman, of counsel), and Bock & Hatch,
LLC, of Chicago (Phillip A. Bock and Robert M. Hatch, of counsel),
for appellants.

Purcell & Wardrope, of Chicago (Michael D. Sanders, of counsel),
and Rivkin, Radler, LLP, of Uniondale, New York (William M.
Savino, Stephen J. Smirti, Jr., and M. Paul Gorfinkel, of counsel), for
appellee.

Panel JUSTICE MASON delivered the judgment of the court, with opinion.
Presiding Justice Pucinski and Justice Neville concurred in the
judgment and opinion.

OPINION

¶1 This insurance declaratory action raises issues regarding: (1) whether coverage is available
for an underlying class action alleging claims for unsolicited faxes in violation of the federal
Telephone Consumer Protection Act (TCPA) (47 U.S.C. § 227(b)(1) (2006)); (2) the
reasonableness of a settlement in the underlying action between the insured and the underlying
plaintiffs, which those parties stipulated would be paid from the proceeds of the insurance
policies; and (3) whether the “buyout” of coverage under the insurance policies, which resulted
from a settlement of a prior class action against the insured, precludes claims under the
“advertising injury” coverage of these policies. Due to an intervening change in the law that
formed the basis of the trial court’s ruling in favor of plaintiff and cross-appellant, Central
Mutual Insurance Company, we must reverse. We affirm the other rulings appealed by Central
and remand for further proceedings.

¶2 BACKGROUND
¶3 Tracy’s Treasures, Inc. (Tracy’s), is the insured under a number of primary and excess
commercial liability policies issued by Central. Central insured Tracy’s under a series of
business owner primary liability insurance policies, cumulatively effective from May 5, 1997,

-2-
 until May 5, 2005, and a series of commercial excess liability insurance policies, cumulatively
effective from January 29, 2002, until January 29, 2005. The face value of all of Central’s
policies of insurance in effect during the relevant time period is $14 million.
¶4 Tracy’s and Paul Idlas, the plaintiff in the underlying class action, appeal from an order of
the trial court granting Central’s motion for summary judgment. The trial court determined, in
accordance with the decision in Standard Mutual Insurance Co. v. Lay, 2012 IL App (4th)
110527, that amounts awarded to claimants under the TCPA are punitive in nature and
therefore not insurable. After the filing of this appeal, our supreme court reversed Lay and held
that damages awarded for TCPA claims are liquidated rather than punitive and, thus, are not
uninsurable as a matter of public policy. Standard Mutual Insurance Co. v. Lay, 2013 IL
114617.
¶5 Central concedes the applicability of the supreme court’s decision in Lay but argues that
liquidated damages, such as those provided for under the TCPA, are not covered under its
policies. Central also advances other provisions of its policies as a bar to coverage for TCPA
claims. Finally, Central cross-appeals from two rulings denying its motions for summary
judgment: (1) in one motion for summary judgment, Central sought a determination that the
settlement reached between its insured and Idlas was, as a matter of law, collusive and
unreasonable under the standards articulated by our supreme court in Guillen v. Potomac
Insurance Co. of Illinois, 203 Ill. 2d 141 (2003); (2) Central also sought summary judgment on
the ground that the insurance contracts had been reformed to eliminate coverage for
“advertising injury” or “personal and advertising injury.” Both motions were denied by the
trial court.

¶6 The Idlas Case
¶7 Tracy’s engaged in the business of selling dating and social relationship services, which it
publicized, at least in part, by facsimile advertisements. On March 5, 2007, Idlas filed a
three-count class action complaint against Tracy’s for unsolicited fax advertisements that
allegedly violated the TCPA, the Illinois Consumer Fraud and Deceptive Business Practices
Act (815 ILCS 505/2 (West 2006)), and Illinois common law (hereinafter, Idlas). Idlas alleged
that between March 5, 2003 and March 5, 2007, Tracy’s sent unsolicited facsimile messages
advertising Tracy’s dating services without prior express permission from the recipients. Idlas
received his unsolicited fax on July 22, 2003, and waited almost four years to seek redress.
¶8 Tracy’s tendered Idlas’s claims to Central pursuant to the insurance contracts. On April 27,
2007, Central disclaimed coverage for the claims asserted in Idlas on several grounds,
including that (i) in 2005 the parties had agreed to a “buyout” of the coverage for personal and
advertising injury, (ii) no “occurrence” giving rise to “property damage” was alleged in Idlas,
(iii) any injury caused by the faxes sent by Tracy’s was expected or intended by Tracy’s, and
(iv) Tracy’s knew that its conduct in sending the faxes was prohibited.
¶9 Despite Central’s denial of coverage, it advised Tracy’s on October 8, 2007, that it was
assigning a lawyer to provide Tracy’s a “courtesy defense.” Counsel appointed by Central filed
an appearance in the case. Billing records for assigned counsel reflect that he filed a motion to
dismiss and discovery requests. The record on appeal does not contain the motion, but
counsel’s records reflect that portions of the Idlas complaint were dismissed with leave to
replead. On June 6, 2007, Central also filed a declaratory judgment action in the circuit court of

-3-
 Cook County seeking an adjudication that it owed no duty to defend or indemnify Tracy’s in
connection with Idlas.
¶ 10 On November 29, 2007, another lawyer, Gregory Ellis, filed a substitute appearance on
behalf of Tracy’s. Two weeks later, on December 12, 2007, Ellis wrote to Central regarding
the substitution. Ellis advised that Tracy’s retained him due to the conflict between Central and
Tracy’s in light of Central’s position that the Idlas claims were not covered under its policies.
In his letter, Ellis described to Central his planned defense of the case:
“My goal would be to attack the viability [of] any finding of a class action in this
case. From my review it looks like names of at least 10,000 customers are known. This
may be the level of damage control. The fact that the lists are 4½ to 6 years old could be
in Tracy’s Treasures favor because of the transient nature of our society these people
may not be able to be contacted. Additionally, a great number of people may well
opt-out from this type of case.
In any event, as I am transitioning into this lawsuit I will be contacting you further
about the status of the case as I further get my arms around the facts and circumstances
and the current law on the TCPA in Illinois and elsewhere. However, you can see from
the attached letter that I am familiar with these types of cases and the current law.”
¶ 11 On December 17, 2007, Central consented to the substitution of counsel and indicated that
it would pay Ellis a reasonable fee (albeit at an hourly rate less than Ellis’s normal billing rate).
Central reserved the right to discontinue paying for Tracy’s defense on reasonable notice to
Tracy’s. The record does not reflect that Tracy’s ever complained about the rate Central was
paying Ellis or informed Central that its decision to pay less than Ellis’s normal billing rate
constituted a breach of its obligations to Tracy’s under the policies. The record also does not
reflect whether Tracy’s paid Ellis the difference between his hourly rate and the rate at which
he was being paid by Central.
¶ 12 Correspondence in the record indicates that a month before he wrote to Central and even
before he filed an appearance for Tracy’s, Ellis was discussing settlement with counsel for
Idlas. On November 15, 2007, two weeks before he filed his substitute appearance and nearly a
month before he claimed to be “transitioning into” the lawsuit, Ellis wrote to Tracy
Choubmesser, president and sole shareholder of Tracy’s, informing her:
“Idlas will settle with Tracy’s and you personally but you need to give them all the
names/fax numbers or faxing and listing company so they can notify 90,000 people.
I’m preparing a settlement agreement and I have talked to [Idlas’s] attorney to get this
done in the next 30 days.”
¶ 13 In a November 27, 2007 letter to Idlas’s attorney, Ellis wrote, “I met with Tracy today. She
seems to have gotten onboard. *** Let me know what you think about this information.” And
in a December 10, 2007 letter to Choubmesser, Ellis wrote:
“In order to prepare the Settlement Agreement that we have discussed, we will need
additional information regarding these fax providers to use in your Affidavit in support
of this settlement.”
¶ 14 Ellis failed to disclose the ongoing settlement negotiations in his December 12, 2007 letter
to Central.
¶ 15 On January 25, 2008, six weeks after he wrote to Central, Ellis, on behalf of Tracy’s, and
counsel for Idlas filed with the Lake County circuit court a motion for preliminary approval of

-4-
 a settlement agreement providing for entry of a $14 million judgment against Tracy’s, which
was enforceable only against Central’s policies. No notice of the motion was provided to
Central. On February 5, 2008, the court preliminarily approved the settlement.
¶ 16 In their motion, as well as in other materials submitted in support, counsel for Tracy’s and
Idlas represented:
“2. Through arms-length negotiation, the parties reached an agreement to settle the
claims of [Idlas] and the Class, as set forth in the [attached] Agreement ***.
3. Counsel for [Idlas] and Tracy’s Treasures have reviewed and analyzed the legal
and factual issues presented in this action, the risks and expenses involved in pursuing
the litigation to conclusion, the likelihood of a damage award in excess of that
negotiated in this settlement, the protracted nature of the litigation, and the likelihood,
costs and possible outcomes of one or more procedural and substantive appeals. Based
upon their review and analysis, [Idlas] and [Tracy’s] agreed to and executed the
Agreement.”
¶ 17 The settlement agreement provided for class counsel to be paid attorney fees equal to
one-third of the recovery from Central plus costs. Each class member who submitted a claim
form was to receive a pro rata share of the amount recovered from the insurance policies, “not
to exceed $500.00 regardless of the number of facsimiles received.” The agreement provided
for an incentive award of $9,500 to Idlas “for his services on behalf of the Class as the class
representative.” (The record does not disclose what “services” Idlas rendered as class
representative justifying a recovery of 19 times greater than the potential recovery of every
other class member and, in particular, it does not appear that Idlas was ever deposed.) Finally,
pursuant to the settlement, any unclaimed funds would be “given to charitable organizations
approved by the Court.”
¶ 18 The motion also stated that “[Central] has denied coverage, claims it has no obligation to
defend or indemnify and has filed a declaratory judgment action seeking [a] coverage
determination in the Circuit Court of Cook County.” Additionally, the motion declared:
“Central Mutual is not controlling the defense of [the Idlas] case. Tracy’s has retained its own
counsel.”
¶ 19 Although the Idlas complaint alleged a putative class of recipients who had received faxes
four years prior to the filing of the complaint (from March 5, 2003 through March 5, 2007), the
settlement agreement defined the class as those persons who allegedly received unsolicited
faxes during the period from September 1, 2002, through July 22, 2003, the date Tracy’s last
sent a fax advertisement. It does not appear that any class members came forward to allege
receipt of an unsolicited fax prior to July 22, 2003, yet the class was expanded to include a
period of time prior to Idlas’s receipt of his fax and outside what plaintiffs claimed was the
four-year statute of limitations applicable to the TCPA claim. Without expansion of the class
definition to a time period earlier than the one originally alleged in the Idlas complaint, a $5
million excess policy issued by Central that expired on January 29, 2003, would not have been
triggered.
¶ 20 Attached to the motion for preliminary approval was Choubmesser’s affidavit.
Choubmesser testified that “Central Mutual declined to defend or indemnify Tracy’s in this
case” and attached the April 27, 2007 letter from Central to Tracy’s denying coverage.
Choubmesser also stated that “Tracy’s has hired its own attorneys to represent it in this matter.
Central Mutual is not controlling Tracy’s defense in this matter.” The affidavit did not disclose

-5-
 that Central had hired and paid for counsel to provide Tracy’s a “courtesy defense,” that
Central was paying for substitute counsel selected by Tracy’s, or that the reason Central was
not controlling Tracy’s defense was because of a conflict of interest and not because Central
refused to respond to Tracy’s demand.
¶ 21 In Choubmesser’s affidavit, she stated that Tracy’s engaged various fax broadcasting
services to obtain contact lists and transmit Tracy’s advertisements by fax. The fax
broadcasters represented their lists consisted of people who had consented to receive
advertisements by fax and that their practice of broadcasting the faxes was legally compliant.
According to Choubmesser, nearly 140,000 faxes were sent on behalf of Tracy’s during the
class period (now expanded to include more than 34,000 additional class members who
received faxes between September 1, 2002, and March 5, 2003).
¶ 22 Of the total universe of putative class members, Tracy’s, as noted by Ellis, was only able to
produce a list of approximately 10,000 fax numbers. Pursuant to the settlement, those class
members were to receive notice of the settlement via fax; the remainder (and vast majority) of
class members were to receive notice by publication. The faxed and published notices set a
deadline of April 25, 2008 for the submission of claims.
¶ 23 In connection with the hearing on final approval of the settlement, the fax broadcast
contractor that sent the notice to the class submitted an affidavit. Out of a total of 9,838 fax
notices that were sent to identifiable recipients of the faxes transmitted in 2002 and 2003, 5,561
transmissions were successful and 4,277 failed. Thus, only 5,561 putative class members
identified by fax number–representing roughly 4% of the total class–actually received the class
settlement notice.
¶ 24 There is no evidence in the record regarding how many claims were submitted by the April
25, 2008 deadline. During oral argument, counsel for Tracy’s represented that although notice
of the settlement has been effected and the claims deadline has passed, the claims process is
“on hold” and thus no claims from class members have been processed. One class member
opted out of the settlement. On May 13, 2008, the court entered a final approval order and
reduced the $14 million settlement to a judgment.

¶ 25 The White Case
¶ 26 Several years before the Idlas action was commenced, Tracy’s was a defendant in another
suit arising under the TCPA, captioned Law Offices of Martha J. White, P.C. v. Tracy’s
Treasures, Inc., No. 03 CH 11297 (Cir. Ct. Cook Co.) (White). In that case, filed July 8, 2003,
the plaintiffs also alleged that Tracy’s had violated the TCPA by sending them unsolicited
facsimile advertisements of the same type involved in Idlas. Four of the named plaintiffs
alleged that they received faxes in October, November and December 2002; the remaining
plaintiff received his fax in May 2003. Central defended Tracy’s and subsequently settled the
White case on behalf of Tracy’s with certain of the White plaintiffs for $12,000. The motion for
class certification was withdrawn and the case was dismissed without prejudice on September
6, 2005, without notice to putative class members.
¶ 27 In connection with Central’s settlement of White on behalf of Tracy’s, Tracy’s agreed, in a
confidential settlement agreement, that all of the insurance policies issued by Central were
reformed to eliminate coverage for “advertising injury” and “personal and advertising injury.”
Although the record reflects that a copy of the White settlement agreement was provided to the

-6-
 circuit court under seal, a copy is not included in the record on appeal.

¶ 28 Proceedings in the Trial Court
¶ 29 Central moved for summary judgment arguing that the $14 million settlement reached
between Idlas and Tracy’s was collusive and unreasonable as a matter of law under the
standards articulated by our supreme court in Guillen v. Potomac Insurance Co. of Illinois, 203
Ill. 2d 141 (2003). The trial court denied this motion, finding that these claims raised several
disputed issues of fact. Central argues this ruling was erroneous.
¶ 30 Central also sought summary judgment on the basis that the insurance contracts no longer
contained any provision for coverage for either “advertising injury” or “personal and
advertising injury.” The trial court, citing Reagor v. Travelers Insurance Co., 92 Ill. App. 3d
99 (1980), denied Central’s motion, finding that since Idlas’s rights vested on July 22, 2003,
when Idlas received his fax, “Tracy’s and Central [could not] agree to divest Idlas in a secret
agreement concluded in November of 2005.” Central likewise challenges this ruling.
¶ 31 After Tracy’s and Idlas appealed the order granting Central summary judgment based on
Lay, Central timely cross-appealed the denial of its motions for summary judgment.

¶ 32 ANALYSIS
¶ 33 At the outset, we note that Central’s statement of facts in its opening brief contravenes
Illinois Supreme Court Rule 341(h)(6) (eff. July 1, 2008). Central’s rendition of the facts is
argumentative, recites facts without proper citation to the record, and incorporates facts that
are not necessary to the disposition of this appeal. We have reviewed the record and Tracy’s
statement of facts, and any inappropriate or unsupported statements will be disregarded (Board
of Managers of Eleventh Street Loftominium Ass’n v. Wabash Loftominium, LLC, 376 Ill. App.
3d 185, 187 (2007)), but we caution counsel that disregard of the rules applicable to appellate
briefs hinders the efficient disposition of an appeal. We now turn to the merits of this appeal.
¶ 34 Summary judgment is appropriate “if the pleadings, depositions, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-1005(c)
(West 2008). We review the trial court’s summary judgment ruling under a de novo standard of
review. Guillen v. Potomac Insurance Co. of Illinois, 203 Ill. 2d 141, 149 (2003); American
Service Insurance Co. v. Jones, 401 Ill. App. 3d 514, 520 (2010). This court has the authority
to grant summary judgment based on the record before us. See Ill. S. Ct. R. 366(a)(5) (eff. Feb.
1, 1994) (this court has the power to make any further order or grant any relief that the “case
may require”).
¶ 35 Because our supreme court’s decision in Lay determined that claims under the TCPA are
not uninsurable as a matter of law based on its finding sums awarded on such claims do not
constitute punitive damages, the basis for the trial court’s ruling granting summary judgment
in favor of Central is no longer viable, and we must reverse. Central nevertheless argues that
summary judgment in its favor can be affirmed on the basis of arguments advanced in support
of its earlier motions for summary judgment, which it claims the circuit court erroneously
rejected, as well as its contention that its policies do not cover liquidated damages. Since we
may affirm the grant of summary judgment on any basis appearing in the record (Salerno v.
Innovative Surveillance Technology, Inc., 402 Ill. App. 3d 490, 496 (2010)), we will consider

-7-
 Central’s alternative arguments.

¶ 36 Do Central’s Policies Cover Liquidated Damages?
¶ 37 Conceding the holding of our supreme court in Lay that the amounts recoverable under the
TCPA do not constitute punitive damages, Central nevertheless contends that its policies do
not cover liquidated damages. Central reasons that because damages awarded under the TCPA
do not represent actual losses, but are rather an incentive for private parties to enforce the
statute, and because insurance covers only compensatory damages–that is, damages that one
must expend to remedy an injury–awards under the TCPA are liquidated, not compensatory,
damages that are not covered by Central’s policies.
¶ 38 We can address this argument summarily. In Outboard Marine Corp., our supreme court
recognized that the concept of “damages” includes all “money required to be expended in
order to right a wrong.” Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d
90, 115-16 (1992). In the TCPA, Congress has determined that the sum of $500 is the amount
that will compensate a recipient of an unsolicited fax for the invasion of privacy,
inconvenience and loss of use of the recipient’s fax machine, ink, toner and paper. 47 U.S.C.
§ 227(b)(3) (2006). The fact that the sum is set by statute does not mean that it falls outside the
definition of “damages.”
¶ 39 In Outboard Marine, the court observed that “[i]f the insurer had desired to restrict
coverage to only those suits seeking legal, compensatory damages, it could have easily
included among its exclusionary provisions an exclusion pertaining to the costs of complying
with mandatory injunctions.” Outboard Marine, 154 Ill. 2d at 117. We have no reason to
believe that our supreme court would apply the reasoning of Outboard Marine any differently
in this context. If Central wanted to exclude damages set by statute from the scope of its
obligation to pay “those sums” that Tracy’s would be required to pay “as damages,” as a result
of property damage or advertising injury, it could easily have done so. Central points to no
provision of its policies that excludes such sums from the definition of “damages.” Therefore,
we reject Central’s claim that its policies do not cover liquidated damages awarded pursuant to
the TCPA.

¶ 40 Can Central Challenge the Idlas Settlement and, if So,
Is Tracy’s Decision to Settle and the Amount of That Settlement Reasonable?
¶ 41 The first issue we address focuses on Central’s claim that the Idlas settlement was
unreasonable and the product of collusion. Tracy’s and Idlas counter that this court should not
examine the terms of the settlement or the circumstances surrounding its negotiation because
Central is precluded from questioning its reasonableness.
¶ 42 Tracy’s and Idlas argue that Central cannot challenge the settlement terms because: (i)
Tracy’s had a right to settle without Central’s consent once Central ceded defense of the case to
independent counsel; (ii) any effort to obtain Central’s consent would have been futile; and
(iii) there is no prejudice to Central. Further, Tracy’s and Idlas claim that the trial court in Idlas
determined that the settlement was reasonable and therefore Central cannot challenge that
finding here, as Central may not relitigate the issue. Finally, Tracy’s and Idlas contend that, in
any event, the settlement was reasonable.

-8-
¶ 43 Can Central Challenge Its Obligation to Pay the Idlas Settlement?
¶ 44 Tracy’s and Idlas are correct that in Illinois, when an insurer cedes control of the defense of
an action against its insured, the insured may enter into a reasonable settlement agreement
without the insurer’s consent. Myoda Computer Center, Inc. v. American Family Mutual
Insurance Co., 389 Ill. App. 3d 419, 425 (2009). An insurer may cede control of the defense
under two scenarios: (1) when a conflict of interest exists, which entitles the insured to control
the defense through counsel of its own choosing; or (2) when the insurer breaches its duty to
defend, thereby requiring the insured to assume its own defense.
¶ 45 Under Illinois law, a conflict of interest arises when “the interests of the insurer would be
furthered by providing a less than vigorous defense to the allegations against the insured.”
Mobil Oil Corp. v. Maryland Casualty Co., 288 Ill. App. 3d 743, 756 (1997). Such a situation
arises, for example, when a complaint alleges both negligent and intentional conduct by the
insured. In that instance, beyond the mutual interest of insurer and insured in securing a
determination of nonliability, the financial interest of the insurer would be served by a finding
that the insured’s conduct was intentional since that finding would likely render policy
exclusions applicable, while the insured’s interest would favor a finding of negligence, thus
implicating coverage under the policy. Under these circumstances the insured has the right to
reject the defense being offered by the insurer, select an attorney of its own choice, control the
defense of the case, and recover its defense costs from the insurer. Maryland Casualty Co. v.
Peppers, 64 Ill. 2d 187, 198-99 (1976).
¶ 46 In light of the declaratory judgment action and Central’s position that the claims asserted in
Idlas were not covered under its policies, a conflict of interest arose between Central and
Tracy’s and Tracy’s was entitled to substitute an attorney of its choice for the attorney assigned
by Central. Central acquiesced to Tracy’s independent counsel and agreed to compensate
Tracy’s chosen counsel at a rate set by Central. Because Central surrendered control of the
defense, it also surrendered its right to control the settlement of the action and to rely on policy
provisions requiring consent to settle. Myoda, 389 Ill. App. 3d at 425. For the same reason,
Tracy’s conduct in settling the underlying suit does not contravene the policy provision
prohibiting an insured from voluntarily assuming an obligation (“No insured will, except at
that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any
expense *** without our consent.”). Thus, the fact that Tracy’s voluntarily entered into the
settlement without Central’s permission is not a bar to Central’s obligation to pay the
settlement.
¶ 47 But Tracy’s ability to settle the underlying suit without Central’s permission does not,
standing alone, render the settlement automatically binding on Central. Tracy’s and Idlas rely
on Myoda and Pekin Insurance Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, in
support of the argument that Central cannot challenge the settlement here because it ceded
control of Tracy’s defense.
¶ 48 In Myoda, American Family undertook the defense of Myoda under a reservation of rights.
A potential conflict of interest arose and American Family surrendered control of the defense
to Myoda’s independent counsel. Myoda, 389 Ill. App. 3d at 425. The court concluded that
since American Family no longer controlled Myoda’s defense, Myoda’s failure to seek
American Family’s consent to the settlement did not bar an action for indemnification. Id. The
court followed and quoted from Commonwealth Edison Co. v. National Union Fire Insurance
Co., 323 Ill. App. 3d 970 (2001). In that case, the court held that Commonwealth Edison was

-9-
 not required to obtain National Union’s consent prior to settling because National Union was
not controlling the defense due to a conflict of interest. Commonwealth Edison, 323 Ill. App.
3d 970. Commonwealth Edison therefore did not breach the voluntary payments provision
under the policy. Id. at 985. Conversely, because National Union defended under a reservation
of rights and ceded control of the defense due to a conflict of interest, National Union also did
not breach its duty to defend and thus, “the settlement in the underlying case did not
compromise National’s ability to contest indemnification in the [declaratory judgment]
action.” Id.
¶ 49 In XData, Pekin argued it had no duty to indemnify its insured for a class settlement
between its insured and underlying plaintiffs because the insured violated the insurance
policy’s “voluntary payments” provision. XData, 2011 IL App (1st) 102769, ¶ 28. Finding that
Pekin abandoned its insured by denying coverage and refusing to defend, the court concluded
that Pekin breached its duty to defend and the insured did not need Pekin’s consent before
entering into the settlement agreement. Id. ¶ 31. The court also noted that it found no evidence
of collusion in connection with the settlement. Id. ¶ 32.
¶ 50 Guillen holds that even where an insurer has breached its duty to defend, it may
nevertheless be heard on the issue of the reasonableness of the decision to settle and the
amount of the settlement before being required to pay it. Guillen, 203 Ill. 2d 141. What an
insurer who breaches its duty to defend forfeits is the ability to raise the provisions of the
policy as a bar to enforcement of the settlement against policy proceeds. Id. at 159-62. The
rationale for this result is that the insurer, having breached the contract, should not be able to
enforce the provisions of that same contract in order to defeat coverage. Id. at 161-62. But
where an insurer has not breached its duty to defend, it necessarily has not only the same rights
to be heard on the reasonableness of the settlement afforded under Guillen, but it is also
entitled to contest whether the claims asserted in the underlying action fall within the policy’s
coverage.
¶ 51 As is evident from these authorities, the fact that an insured is not required to obtain the
insurer’s consent to a settlement does not necessarily preclude the insurer from later contesting
the reasonableness of the settlement. Further, where the insurer has preserved its rights by
filing a declaratory judgment action, even though it is not participating in its insured’s defense
and even though the underlying case may be settled without its consent, the insurer may still
challenge its obligation to pay the settlement. Myoda, 389 Ill. App. 3d at 425.
¶ 52 Here, Central preserved its right to contest coverage by filing a declaratory judgment
action. Central did not “abandon” its insured–it denied coverage and provided a “courtesy
defense” to Tracy’s. Upon Tracy’s tender of the Idlas defense to Central, Central disclosed to
Tracy’s its position that the claims asserted were not covered under its policies and did nothing
thereafter to prejudice Tracy’s defense of the case. See Gibraltar Insurance Co. v. Varkalis, 46
Ill. 2d 481, 487 (1970) (insurer that controlled defense of wrongful death action for 16 months
without disclosing issues regarding coverage under its policy estopped from denying liability
under the policy); Mobil Oil, 288 Ill. App. 3d at 755 (insurer that controlled insured’s defense
for 2½ years without disclosing potential limitation on coverage was estopped from claiming
that it was not obligated to fully indemnify insured). When Tracy’s retained substitute counsel,
Central continued to pay for Tracy’s independent legal counsel. Given that Central neither
breached its duty to defend nor controlled the defense of Idlas to Tracy’s detriment, Central
retained the ability to contest both the reasonableness of the settlement and whether the claims

- 10 -
 giving rise to the settlement are covered under its policies. Thus, we will next consider
Central’s contention that the Idlas settlement is not binding because, as a matter of law, it is
unreasonable.

¶ 53 What Standards Apply to Evaluating the Reasonableness of the Idlas Settlement?
¶ 54 Guillen articulates the standards we must use to evaluate whether the settlement reached in
Idlas is binding on Central. In Guillen, the plaintiff in the underlying personal injury action
claimed that she was exposed to lead-contaminated paint in an apartment rented to her by
defendants. Guillen, 203 Ill. 2d at 143. After defendants tendered defense of the claim to
Potomac, the insurer denied its obligation to defend or indemnify based on a recently added
endorsement to defendants’ policy excluding such claims. Id. at 143-44. Potomac neither
defended under a reservation of rights nor filed an action seeking to declare its rights under the
policy. Id. at 144. Defendants ultimately settled the plaintiff’s claim for $600,000 and assigned
the plaintiff their rights under the Potomac policy. Id.
¶ 55 After rejecting Potomac’s invocation of the exclusion and its argument that its insured’s
assignment of rights under the policy to the underlying plaintiff was ineffective, the supreme
court turned to a discussion of Potomac’s ability to challenge its responsibility to pay the
settlement. Adopting the majority view, the court concluded that although Potomac’s concern
over the possibility of collusion was well taken, “the risk of collusion and fraud can be
lessened ***, if not avoided altogether, by placing a requirement upon the plaintiff to prove
that the settlement it reached with the insured was reasonable before that settlement can have
any binding effect upon the insurer. [Citations.]” Id. at 163.
¶ 56 The court then delineated two “reasonableness” inquiries that must be addressed. First,
with respect to the insured’s decision to settle, “the litmus test must be whether, considering
the totality of the circumstances, the insured’s decision ‘conformed to the standard of a prudent
uninsured.’ (Emphasis added.) Rhodes v. Chicago Insurance Co., 719 F.2d 116, 120 (5th Cir.
1983).” Id. Second, in reference to the amount of the settlement, “the test ‘is what a reasonably
prudent person in the position of the [insured] would have settled for on the merits of plaintiff’s
claim.’ Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982).” Id. The latter test involves a
“commonsense consideration of the totality of ‘facts bearing on the liability and damage
aspects of plaintiff’s claim, as well as the risks of going to trial.’ Miller, 316 N.W.2d at 735.”
Id. Under either test, the burden of proving reasonableness rests with the underlying plaintiff
“both out of fairness, since the plaintiff was the one who agreed to the settlement, and out of
practicality, since, as between the plaintiff and the insurer, the plaintiff will have better access
to the facts bearing upon the reasonableness of the settlement.” Id. at 163-64. The insurer is
also entitled to rebut any preliminary showing of reasonableness with affirmative evidence
bearing on the issue. Id. at 164.
¶ 57 Tracy’s and Idlas argue that the Lake County court, in approving the settlement, has
already found that the settlement was reasonable and therefore Central cannot “relitigate” that
finding here. Apart from the fact that Central has not had the opportunity to be heard on the
reasonableness of the Idlas settlement and thus cannot be criticized for relitigating anything, in
Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage, Inc., 393 Ill. App. 3d 951 (2009),
this court rejected an identical argument. Specifically, the Stonecrafters court held that a trial
court’s express finding of the reasonableness of the underlying settlement between the insured
and the plaintiff can be challenged by the insurer where a settlement hearing is held without

- 11 -
 notice to or participation by the insurer. Id. at 963-66. Stonecrafters concluded that the insurer
is therefore not bound to the settlement until a hearing is held where the plaintiff presents facts
bearing on the reasonableness of the settlement, which the insurer may contest. Id at 963.
¶ 58 The same circumstances are present here. Tracy’s and Idlas requested the Lake County
court to schedule a fairness hearing to provide the class members an opportunity to voice their
position regarding the settlement. The Lake County court entered preliminary and final
approval orders (both drafted by counsel for Tracy’s and Idlas) finding, among other things,
that: (1) the settlement judgment was made in reasonable anticipation of liability; (2) the
amount was fair and reasonable (3); Tracy’s decision to settle conformed to the standard of a
prudent uninsured; and (4) the agreed damages amount was what a reasonably prudent person
in Tracy’s position would have settled for on the merits of the claims in this litigation.
Obviously, these last two findings had no bearing on whether the settlement was fair and
reasonable vis-à-vis class members, but were apparently included by Tracy’s and Idlas in an
effort to short circuit Central’s ability to later challenge the settlement. As these orders were
entered by agreement, the record does not reflect that the court made any substantive
determinations regarding the parties’ representations and, specifically, whether Tracy’s acted
as a prudent uninsured in agreeing to settle or as a reasonably prudent person in negotiating a
$14 million settlement. Thus, the findings made in connection with preliminary and final
approval of the Idlas settlement are not binding on Central unless and until a hearing is
conducted at which Idlas sustains his burden to demonstrate the reasonableness of both the
decision to settle and the amount of the settlement and Central is afforded the opportunity to
rebut that showing.

¶ 59 Is the Idlas Settlement Unreasonable and Collusive as a Matter of Law?
¶ 60 Central contends, however, that no hearing is necessary here and the trial court should have
determined, based on the evidence in the record, that the Idlas settlement was unreasonable
and collusive as a matter of law. While we acknowledge that there are certainly strong
indications that the settlement was collusive–facts and circumstances that the trial judge
properly characterized as “very troubling”–we agree with the trial court that these issues are
not subject to resolution on summary judgment. As a hearing is required on remand, and
because the parties’ briefs display such divergent views on the matters that may be considered
by the trial court, we discuss the issues the court will be called on to address at the hearing on
the reasonableness of the settlement.
¶ 61 Although Central makes much of the fact that it was not given notice of the hearings on
preliminary and final approval of the settlement, we conclude that this fact, while undisputed,
does not tip the balance one way or the other. Central articulates no basis for imposing such an
obligation on the parties in the underlying case or, in particular, on substitute counsel for
Tracy’s. Given the acknowledged conflict between Central and Tracy’s, once Ellis appeared
for Tracy’s and Central consented to the substitution, Central had no role in Tracy’s defense or
the decision whether to settle and, if so, for what amount. Further, once counsel appointed by
Central withdrew from the case, Central must have recognized that no counsel in the case was
representing its interests. Although Central could easily have assigned counsel to monitor the
case, it failed to do so. See Peppers, 64 Ill. 2d at 199 (“[The insurer] is entitled to have an
attorney of its choosing participate in all phases of this litigation subject to the control of the
case by [the insured’s] attorney ***.”) And while Central criticizes Ellis for “misrepresenting”

- 12 -
 his plans for defense of the case and failing to keep Central apprised of the litigation’s progress
as he told Central he would, the truth is that as counsel for Tracy’s, he had no obligation to do
so.
¶ 62 Once he appeared for Tracy’s, Ellis’s sole obligation was to represent Tracy’s interests. So
although, as we discuss below, Ellis’s misrepresentations and other conduct may certainly
have a bearing on other issues arising at the reasonableness hearing, they do not bolster
Central’s position regarding the effect of its nonparticipation in the hearings regarding
approval of the settlement. Thus, the lack of notice to Central is not determinative of the
reasonableness of the Idlas settlement.
¶ 63 Turning to the reasonableness tests under Guillen, as a threshold issue, the parties disagree
on the characteristics of the “prudent uninsured” who faces the first reasonableness inquiry: the
decision whether to settle Idlas. Central contends that the hypothetical must include the fact
that the defendant’s attorney fees are being paid and, therefore, this uninsured would have an
incentive to litigate all viable issues. But this is counterintuitive. If we are hypothesizing a
defendant without insurance, then that party is necessarily paying its own attorneys. The
question then becomes whether the hypothetical defendant would reasonably choose to devote
a portion of its assets to litigate (or at least threaten to litigate) certain issues designed to
eliminate or, at a minimum, circumscribe its liability for the claims asserted in Idlas.
¶ 64 Just as Central skews the hypothetical “prudent uninsured” in its favor, so do Tracy’s and
Idlas. Their uninsured defendant (like the real defendant, Tracy’s) lacks any significant assets
and must decide whether to spend what little money it has litigating or instead settle with Idlas.
But in order for the prudent uninsured test to have any meaning, we must assume that the
defendant is not on the brink of bankruptcy and instead must posit that the uninsured defendant
has assets sufficient to satisfy a substantial judgment and that it must weigh whether those
assets are best put to use litigating certain issues that could lower the value of the case or
whether an early settlement, presumably at a discount, is more advantageous. This is the only
context in which a trial court can meaningfully assess whether a hypothetical prudent
uninsured would put its own money at risk.
¶ 65 On the issue of the reasonableness of Tracy’s decision to settle, the trial court will have to
determine whether a prudent uninsured would have foregone the opportunity to litigate various
motions before agreeing to a substantial settlement. In particular, Central contends that a
prudent uninsured would have pursued a motion to dismiss certain of the claims in Idlas as
time-barred.
¶ 66 Regarding the statute of limitations for TCPA claims, Tracy’s and Idlas point to a decision
from this court recognizing a four-year statute of limitations for such claims. (Wellington
Homes, Inc. v. West Dundee China Palace Restaurant, Inc., 2013 IL App (2d) 120740, ¶ 43),
and argue that a prudent uninsured would not have pursued a motion to dismiss on this ground.
Obviously, because Wellington Homes was decided more than five years after the parties were
discussing settlement in Idlas, the decision is not necessarily indicative of the state of the law
on the issue in 2007. Further, although the trial court in Wellington Homes denied a motion to
dismiss based on the timeliness of plaintiff’s complaint filed nearly three years after receipt of
an unsolicited fax, the court certified the question to this court under Illinois Supreme Court
Rule 308 (eff. Feb. 26, 2010) because its order “involved a question of law as to which there is
substantial ground for difference of opinion.” The decision itself discusses in detail a split of
authority, which, as of 2007, found three states applying the four-year limitations period under

- 13 -
 the federal catchall statute of limitations and two states applying shorter state limitations
periods. 2013 IL App (2d) 120740, ¶ 33. Under Illinois law, actions for statutory penalties are
required to be commenced within two years of the date the cause of action accrued. 735 ILCS
5/13-202 (West 2006). Prior to our supreme court’s decision in Lay, at least one court found
that the sums provided for under the TCPA constituted punitive damages. Standard Mutual
Insurance Co. v. Lay, 2012 IL App (4th) 110527 ¶ 37. Further, to the extent the statute
provides for the trebling of damages for willful violations, it clearly imposes a penalty. 47
U.S.C. § 227(b)(3) (2006). Thus, it is clear that the limitations period applicable to TCPA
claims was unsettled in 2007 when Idlas was filed and, to date, the issue has never been
addressed by our supreme court. Such circumstances suggest that pursuit of a motion to
dismiss on this basis would not have been a futile exercise.
¶ 67 Thus, the issue is whether a prudent uninsured in 2007 would have conceded the
applicability of the most generous statute of limitations on the TCPA claim or instead have
pursued a motion to dismiss. Resolution of this aspect of the Guillen reasonableness test will
depend on evidence relating to, for example, the estimated cost of pursuing the motion and the
likelihood of success considering the trend of authority on the issue. These and any other
factors the trial court deems relevant may be considered in evaluating the reasonableness of
Tracy’s decision to settle.
¶ 68 Tracy’s and Idlas point to the fact that counsel appointed by Central to represent Tracy’s
never engaged in such motion practice during the time he represented Tracy’s and contend that
this undercuts any assertion that a prudent uninsured should have pursued a different strategy.
But assigned counsel testified in a deposition that he would not have pursued a motion based
on the timeliness of the claims asserted in Idlas until the plaintiff’s motion for class
certification was resolved. Such strategy does not appear unreasonable. Therefore, the conduct
of counsel assigned by Central to defend Tracy’s is not the barometer of this aspect of the
Guillen reasonableness test.
¶ 69 Central also argues that a prudent uninsured would have commenced third-party actions
seeking contribution or indemnification from the fax broadcasters that claimed they had the
recipients’ permission to receive fax advertisements and also would have opposed class
certification. It appears that in White, Tracy’s did file a third party complaint against fax
broadcasters for indemnification, contribution, and breach of contract, so this strategy was not
unknown to Tracy’s. Again, the trial court correctly determined that these issues in the context
of this case are not amenable to resolution on summary judgment and, on remand, the court
may consider evidence regarding the viability of such claims and legal positions and the cost to
pursue them in determining whether a prudent uninsured would have adopted that course of
action instead of reaching a quick settlement.
¶ 70 Another issue the trial court will be called upon to address is whether a prudent uninsured
would have agreed that it faced staggering liability in Idlas. On this point, it is relevant that
Idlas waited nearly four years to file this TCPA class action and, as Ellis acknowledged, by that
time Tracy’s was only able to produce a list of approximately 10,000 recipients of faxes it sent
in 2002 and 2003. While Tracy’s and Idlas stress the number of faxes originally sent multiplied
by $500 per class member (a total exposure they estimate upwards of $60 million), it is
apparent that in 2007, when the parties were aware that, at most, less than 10% of those who
received the faxes would receive actual notice of the settlement, and, of those, significantly
fewer were likely to file a claim, the reasonably anticipated value of potential claims was

- 14 -
 vastly lower. And we view it as unlikely in the extreme that in the context of a class action with
one named representative having a claim valued, at most, at $1,500 (see 47 U.S.C. § 227(b)(3)
(2006) (providing for maximum damages of $1,500 for willful violations)), a court would
deem it appropriate to enter a judgment against Tracy’s in excess of $60 million on the strength
of that claim alone.
¶ 71 Indeed, it would appear that a reasonable defense strategy for a prudent uninsured could
have involved a stipulation regarding Tracy’s liability (despite Tracy’s assertion that it had
been assured that the fax broadcasters it hired had the recipients’ permission to receive faxes),
with a trial limited to the amount of damages. Tracy’s and Idlas assume that the outcome of a
trial would have been a judgment in the amount produced by multiplying the number of faxes
transmitted by $500. But in the context of TCPA claims, that result is by no means certain.
¶ 72 In enacting the statute, Congress’s purpose was both to compensate recipients of
unsolicited faxes for the admittedly minor annoyance such a communication entails and to
deter transmitters like Tracy’s from engaging in such conduct. See generally Standard Mutual
Insurance Co. v. Lay, 2013 IL 114617 (discussing the legislative history of the TCPA, showing
Congress recognized the costs imposed on the recipient and aimed to curtail the practice by
providing an incentive for a plaintiff to bring suit on his own behalf); see also Missouri ex rel.
Nixon v. American Blast Fax, Inc., 323 F.3d 649, 654-55 (8th Cir. 2003). The statute was not
designed to put those who advertise their products or services via fax out of business. So while
from a purely theoretical standpoint, the liability faced by Tracy’s might have been
astronomical, from a practical perspective it was not. A trial court presiding over a class
action–a creature of equity–would certainly possess the discretion to fashion a damage award
that (1) fairly compensated claiming class members and (2) included an amount designed to
deter future violations, without destroying defendant’s business. See Murray v. GMAC
Mortgage Corp., 434 F.3d 948, 954 (7th Cir. 2006) (court found the possibility of annihilating
damages was not a sufficient basis to deny class certification in a case involving statutory
damages under the Fair Credit Reporting Act, but that after certification, the judge “may
evaluate the defendant’s overall conduct and control its total exposure”). See also Texas v.
American Blastfax, Inc., 164 F. Supp. 2d 892, 900-01 (W.D. Tex. 2001) (finding it “inequitable
and unreasonable” to award damages in the amount of $2.34 billion against a 15-employee
company and instead interpreting the TCPA authorize “up to” $500 per violation and awarding
7 cents per violation); Freedman v. Advanced Wireless Cellular Communications, Inc., No.
SOM-L-611-02, 2005 WL 2122304, at *4 (N.J. Super. Ct. Law Div. June 24, 2005) (finding it
“manifestly unjust” to subject TCPA violator to a $23,000,000 judgment “for damages to an
entire class of plaintiffs when Congress intended damages of $500 to be pursued by individual
plaintiffs”). In this context, the trial court will have to determine whether a prudent uninsured
would have agreed that $14 million to settle a $60 million case was a good bargain or whether
some effort to reach a significantly lower figure would have been made.
¶ 73 Finally, the trial court will have to determine whether a prudent uninsured, settling Idlas
with its own funds, would have agreed to a settle on terms that allowed unclaimed funds to be
distributed through cy pres. As we have discussed, at the time Idlas was settled, the parties
were aware that only relatively few class members were likely to actually receive notice. Given
this knowledge, and assuming, without deciding, that it was reasonable for the parties to
predicate their settlement negotiations on the supposition that every class member with an
identified fax number would both receive the faxed notice and file a claim, that would produce

- 15 -
 a claims total of less than $5 million (9,838 x $500 = $4,919,000). Further, as Ellis observed in
his letter to Central, given the “transitory nature” of our society, it was foreseeable–and
particularly to counsel familiar with TCPA litigation–that many of the identifiable fax
numbers would no longer be valid, thus producing a lower expected number of claims. In this
context, the hypothetically prudent uninsured’s decision to settle on terms that allowed
millions of dollars in anticipated residual settlement funds to be donated to charity strikes us
both as extraordinarily generous and extremely helpful to class counsel’s quest for attorney
fees. But the trial court, after considering the evidence the parties adduce on this point, will
ultimately make that determination.
¶ 74 We next turn to the second reasonableness test under Guillen: whether a reasonably
prudent person in Tracy’s position would have agreed to pay $14 million to resolve the claims
in Idlas. This test, unlike the prudent uninsured test, focuses on the particular facts and
circumstances relevant to the reasonableness of Tracy’s decision to agree to a $14 million
settlement and, as we have noted, is guided by a “commonsense consideration of the totality of
facts bearing on the liability and damage aspects of plaintiff’s claim.” (Internal quotation
marks omitted.) Guillen, 203 Ill. 2d at 163.
¶ 75 Some of the considerations under both reasonableness inquiries overlap. Idlas’s delay in
filing suit, the chances of success on motion practice regarding defenses available to Tracy’s,
the parties’ inability to identify more than a fraction of the recipients of Tracy’s fax
advertisements and predicted claimant response rates all affect the value of the claims asserted
in Idlas. Additional factors that bear on the reasonableness of the settlement amount particular
to Tracy’s circumstances include whether, in fact, it was the product of arm’s length
negotiations, what facts were available to Ellis in the relatively short time he represented
Tracy’s that allowed him to reliably value the Idlas claims, what analysis Ellis, in fact, made of
the viability of various motions he could pursue on Tracy’s behalf, how Ellis assessed the
likelihood that, with a single class representative asserting a claim having a maximum value of
$1,500, a trial court would enter a judgment after trial in excess of $60 million, and how the
parties arrived at the $14 million figure.
¶ 76 Evidence regarding Ellis’s dealings with counsel for Idlas and inquiry into why he would
tell Central about his plans for defending the lawsuit when he had already engaged in
apparently fruitful settlement negotiations may also bear on whether the amount of the
settlement was the product of good-faith negotiations. Central argues that Ellis had
relationships with Idlas’s counsel both before and after the Idlas litigation. We leave it to the
trial court to determine whether this information is relevant to the reasonableness of the
settlement amount. The trial court may also consider evidence regarding the factual basis for
Ellis’s assertion in the motion for preliminary approval that he had “analyzed the legal and
factual issues presented in Idlas,” the risks and expenses involved in pursuing the litigation to
conclusion, the likelihood of a damage award in excess of $14 million, and “the likelihood,
costs and possible outcomes of one or more procedural and substantive appeals.” Any
evidence presented in the trial court showing that there was an abdication of a true defense or
that there were strategic efforts by the parties to implicate coverage up to Central’s policy
limits bears directly on the reasonableness of the settlement.
¶ 77 Particularly troublesome on this record is Ellis’s agreement to expand the class definition
to include a time period (September 1, 2002 to March 4, 2003) outside the four-year statute of
limitations Idlas claimed was applicable. This expansion of the class definition resulted in the

- 16 -
 addition of another 34,000 putative class members and, importantly, triggered a $5 million
excess policy issued by Central that otherwise would have been unavailable because it expired
in January 2003.
¶ 78 Tracy’s argues that it had no choice but to expand the class because the pendency of White
tolled the limitations period for other class members, thus rendering claims prior to March 3,
2003 timely. See Steinberg v. Chicago Medical School, 69 Ill. 2d 320, 342 (1977)
(commencement of class action suspended the applicable statute of limitations as to all
asserted members of the class who would have been parties had the suit continued as a class
action). But this begs the question of why, with a sole class representative who received his fax
on July 22, 2003, counsel for Tracy’s would not have been in a position to insist (given the
effect that expansion of the class definition had on the size of the class) that if plaintiffs wanted
to expand the class period alleged in the complaint, they would have to identify a class member
who received an unsolicited fax prior to March 5, 2003. By adopting that stance and adhering
to the class as originally defined, Tracy’s would have assumed the risk–presumably
minimal–that an as yet unidentified fax recipient from the earlier period would come forward
to file another class action. Since a substantial number of faxes were sent out during the period
from September 1, 2002, to March 4, 2003, it would appear, without more, that the cost of
expanding the class greatly outweighed the risk that another lawsuit would be filed. But maybe
there is more and that is what the trial court will be called upon to decide.
¶ 79 Fundamentally, the amount of the Idlas settlement may be deemed unreasonable if there is
evidence of bad faith, collusion or fraud by Tracy’s. The parties have not cited and we have not
located reported Illinois state court decisions addressing the circumstances under which a
settlement will be deemed collusive. See Wolf v. Maryland Casualty Co., 617 F. Supp. 456,
460 (S.D. Ill. 1985) (issue for jury as to whether judgment in underlying case was product of
fraud and collusion created where evidence showed that counterclaim was amended to clearly
fall within terms of policy and to seek damages in the amount of the policy limits, insured
failed to provide amended counterclaim to insurer and insured agreed it would not contest the
entry of summary judgment against it in return for a covenant to execute only against the
proceeds of the policy). But courts in other jurisdictions have considered such issues so we will
examine those authorities. See Rhone v. First American Title Insurance Co., 401 Ill. App. 3d
802, 812 (2010) (“Although the decisions of foreign courts are not binding, ‘the use of foreign
decisions as persuasive authority is appropriate where Illinois authority on point is lacking or
absent.’ [Citations.]”).
¶ 80 We recognize that collusion and fraud in the context of settlements negotiated by an
insured and an underlying plaintiff are broadbrush concepts and that “[a]ny negotiated
settlement involves cooperation to a degree.” Continental Casualty Co. v. Westerfield, 961 F.
Supp. 1502, 1505 (D.N.M. 1997) (citing Stephen R. Schmidt, The Bad Faith Setup, 29 Tort
and Insurance L.J. 705, 728 (1994)). But a settlement “becomes collusive when the purpose is
to injure the interests of an absent or nonparticipating party, such as an insurer or nonsettling
defendant. Among the indicators of bad faith and collusion are unreasonableness,
misrepresentation, concealment, secretiveness, lack of serious negotiations on damages,
attempts to affect the insurance coverage, profit to the insured, and attempts to harm the
interest of the insurer. They have in common unfairness to the insurer, which is probably the
bottom line in cases in which collusion is found.” Id.

- 17 -
¶ 81 Collusion occurs when “the insured and a third party claimant work together to *** inflate
the third party’s recovery to artificially increase damages flowing from the insurer’s breach” of
the duty to defend. Safeco Insurance Co. of America v. Parks, 88 Cal. Rptr. 3d 730, 748 (Cal.
Ct. App. 2009). Several factors are relevant to a determination whether a settlement is
collusive, including “the amount of the overall settlement in light of the value of the case
[citations]; a comparison with awards or verdicts in similar cases involving similar injuries
[citations]; the facts known to the settling insured at the time of the settlement [citations]; the
presence of a covenant not to execute as part of the settlement [citation]; and the failure of the
settling insured to consider viable available defenses [citations].” (Internal quotation marks
omitted.) Id.
¶ 82 Again, the trial court correctly concluded that the record presents material issues of fact as
to collusion and fraud that are not appropriate for resolution on summary judgment. It will be
up to the trial court to determine whether counsel for Tracy’s and Idlas colluded in agreeing to
a settlement in an amount, perhaps coincidentally, equal to the value of Central’s insurance.
Certain facts on the record before us certainly point to a finding that there was not even the
illusion of adversity or arm’s-length negotiations between counsel for Idlas and counsel for
Tracy’s. Ellis’s communications with Idlas’s counsel even before his substitution and before
he had access to defense counsel’s case file suggest the lack of a true adversarial relationship or
any real effort to limit Tracy’s liability or the settlement amount. More evidence will either
prove or disprove these impressions.
¶ 83 The trial court correctly observed that Tracy’s and Idlas’s position that the $14 million
figure was objectively reasonable when measured against the potential for liability in excess of
$60 million (which translates to a recovery of approximately $125 per fax sent) is insufficient
to sustain their burden under Guillen. As we have noted, the $60 million figure is overblown
and the real magnitude of the risk faced by Tracy’s given the factors we have enumerated
above appears to be significantly less. Further, the fact that the settlement is within the limits of
available insurance coverage is likewise not conclusive. Guillen, 203 Ill. 2d at 165.
¶ 84 Tracy’s and Idlas also emphasize the risk Tracy’s faced in refusing to settle and instead
going to trial. But there are obviously many points along a litigation timeline when parties may
pursue settlement: shortly after the case is filed (as here), after initial motion practice, after
class and merits discovery, after summary judgment motions, and immediately before, during
or after trial. It is not apparent on this record that the settlement was the product of Tracy’s one
and only chance to settle or that there was particular pressure brought to bear on Tracy’s to
settle early, particularly since Central–at least at that point–was paying its attorneys. Tracy’s’
reasons for agreeing to a $14 million settlement at virtually the earliest possible point is an
appropriate topic of evidence at the reasonableness hearing.
¶ 85 Issues relative to the reasonableness of the decision to settle and the amount of the
settlement, collusion, and fraud are thus reserved for a hearing before the trial court at which
Tracy’s and Idlas bear the initial burden of proof. The trial court may then determine whether
Tracy’s acted as a prudent uninsured in deciding to settle and as a reasonably prudent person in
agreeing the settlement amount of $14 million. The court may also consider whether counsel in
Idlas colluded in connection with the settlement. We therefore affirm the trial court’s ruling in
denying summary judgment on the issues of reasonableness, collusion and fraud.

- 18 -
¶ 86 Central’s Invocation of Other Policy Provisions
¶ 87 As noted above, in addition to challenging the settlement as unreasonable under Guillen,
Central, because it did not breach its duty to defend Tracy’s, may also invoke provisions of its
policies as a bar to enforcement of the settlement against it. Idlas, as Tracy’s assignee, stands in
the shoes of Tracy’s, and is subject to all policy defenses Central could have asserted against
its insured. Guillen, 203 Ill. 2d at 158-59.
¶ 88 Central argues a number of these provisions on appeal. For example, Central argues that
Tracy’s conduct in sending faxes does not constitute an “occurrence” within the meaning of its
policies because an occurrence is defined as an “accident.” Central also points to a policy
provision excluding coverage for property damage “expected or intended from the standpoint
of the insured.” Central contends that Tracy’s admittedly intended to send the faxes, so that
conduct is not an “accident,” and necessarily anticipated that the recipient’s fax machine, ink,
paper and toner would be used in the process, leading to the conclusion that Tracy’s “expected
or intended” the property damage. Similarly, with respect to the personal and advertising
injury coverage under its policies, Central invokes a provision that excludes coverage for such
injury “caused by or at the direction of the insured with the knowledge that the act would
violate the rights of another and would inflict ‘personal and advertising injury.’ ” At least one
court has rejected such defenses to coverage for TCPA claims. See Columbia Casualty Co. v.
Hiar Holding, L.L.C., 411 S.W.3d 258 (Mo. 2013).
¶ 89 Idlas contends that the proper focus should be whether Tracy’s intended to violate the
TCPA and emphasizes evidence in the record that Choubmesser had been assured by third
parties that the recipients of the faxes had consented to receive them. Central counters, relying
on evidence that Tracy’s was specifically advised by certain fax recipients in September 2002,
at the outset of its fax advertising campaign, that its conduct was in violation of the TCPA.
¶ 90 Central raises additional issues, assuming that coverage exists, regarding the limits
available under its policies. For example, Central argues that Tracy’s fax advertising campaign
constituted, at most, one “occurrence,” thus triggering only the $1 million per-occurrence
limits of its policies and not the $2 million aggregate limits. See Aetna Casualty & Surety Co.
v. O’Rourke Bros., Inc., 333 Ill. App. 3d 871, 881-82 (2002) (single fraudulent sales campaign
triggered per occurrence limits regardless of the number of individual claims or injuries).
Tracy’s and Idlas argue that each fax constitutes an occurrence and thus the higher aggregate
limits apply.
¶ 91 Central also invokes an exclusion in the personal and advertising injury provision for
claims “arising out of oral or written publication of material whose first publication took place
before the beginning of the policy period.” Pointing to the fact that several policy periods were
involved here, Central contends that because the first publication of the offending fax occurred
in 2002 prior to the policies that incepted in 2003, coverage under those later policies is
excluded. Again, Tracy’s and Idlas argue that each fax constituted a separate “publication” so
that any publication during a policy period triggers coverage.
¶ 92 Although Central invites us to resolve these and other issues regarding the applicability of
policy provisions and exclusions, the trial court has not yet had the opportunity to consider
many of them. Central points out that the trial court has already addressed the applicability of
certain of these policy provisions in another ruling denying Central summary judgment. But
given the many factual issues raised by Central’s invocation of these policy provisions, we find
no error in the denial of Central’s motion for summary judgment on this basis. Further, if the

- 19 -
 trial court finds that the Idlas settlement was unreasonable under Guillen, it will be
unnecessary to consider Central’s policy defenses. Thus, on remand Central may raise such
issues in connection with any hearing to determine whether it is bound by the Idlas settlement.

¶ 93 The Effect of Central’s “buy-out” of Coverage for
Personal and Advertising Injury
¶ 94 Central also challenges the denial of its motion for summary judgment on the issue of the
effect of the “buy-out” of the “personal and advertising injury” coverage under the White
settlement agreement. Central claims the trial court erroneously concluded that Central and
Tracy’s could not alter the availability of this coverage because Idlas’s rights under the policies
had already vested prior to the time White was settled.
¶ 95 As we recite above, Tracy’s and Central settled White in 2005 after negotiating dismissal of
the class representatives’ individual claims in exchange for a total payment of $12,000. In a
separate agreement, Tracy’s also agreed to release Central from any claims–past, present or
future–for coverage under the “advertising injury” and “personal and advertising injury”
provisions of Central’s policies and agreed that the policies were reformed to exclude such
coverage. The terms of the settlement between Tracy’s and Central were confidential.
¶ 96 In denying Central’s motion, the trial court ruled that the agreement between Tracy’s and
Central was not binding on Idlas because Idlas’s rights as a third party beneficiary of the
insurance contracts had vested before modification of those contracts to eliminate coverage for
“personal and advertising injury.” The trial court based its decision on Reagor v. Travelers
Insurance Co., 92 Ill. App. 3d 99, 103 (1980), which held that an “injured person has rights
under the [insurance] policy which vest at the time of the occurrence giving rise to his
injuries.” The trial court ruled that Idlas’s rights vested on July 22, 2003, when he received the
unsolicited fax, and Central and Tracy’s could not “agree to divest Idlas in a secret contract
concluded in November of 2005.” We disagree with this conclusion.
¶ 97 Central argues that our supreme court’s ruling in Olson v. Etheridge, 177 Ill. 2d 396
(1997), overruled Reagor, without explicitly so stating, in that Olson rejected the rule that third
party contract beneficiary rights vest immediately. The supreme court in Olson specifically
adopted the third party beneficiary vesting rule under the Restatement (Second) of Contracts,
section 311, which outlines the preconditions to the vesting of a third party beneficiaries’ rights
under a contract. Restatement (Second) of Contracts § 311(3) (1981). In Olson, our supreme
court expressly overruled the vesting rule as formulated in Bay v. Williams, 112 Ill. 91 (1884),
i.e., that the rights of a third-party beneficiary under a contract vest immediately and cannot be
altered or extinguished by a later modification of the contract by the original parties unless the
beneficiary assents. Olson, 177 Ill. 2d at 408-09.
¶ 98 In Olson, the supreme court noted that the rationale underlying section 311’s vesting rule is
that “ ‘parties to a contract should remain free to amend or rescind their agreement so long as
there is no detriment to a third party who has provided no consideration for the benefit
received.’ Board of Education of Community School District No. 220 v. Village of Hoffman
Estates, 126 Ill. App. 3d 625, 628 (1984).” Id. at 410. The Olson court observed that, in
contrast, the vesting rule of Bay curtails the freedom to contract. Id. at 411. Section 311 was
thus adopted in Illinois, establishing the rule that, “in the absence of language in a contract
making the rights of a third-party beneficiary irrevocable, the parties to the contract ‘retain
power to discharge or modify the duty by subsequent agreement,’ without the third-party

- 20 -
 beneficiary’s assent, at any time until the third-party beneficiary, without notice of the
discharge or modification, materially changes position in justifiable reliance on the promise,
brings suit on the promise or manifests assent to the promise at the request of the promisor or
promisee.” Id. at 408-09 (quoting Restatement (Second) of Contracts § 311(2) (1981)).
¶ 99 Although Central argues that Olson effectively overruled Reagor, we conclude that these
decisions are consistent and easily harmonized. As an initial matter, we note that Reagor is
distinguishable on its facts. In Reagor, after the plaintiff filed suit as a result of injuries
sustained in a man-made lake created by Travelers’ insured, Travelers undertook the defense
of the case. Reagor, 92 Ill. App. 3d at 101. While the suit was pending, Travelers and its
insured agreed that there was no coverage under Travelers’ policy. Id. Under those
circumstances, the court concluded that the agreement between Travelers and its insured was
not binding on the injured party. Id. at 102. The same result would obtain under a Restatement
analysis. Because section 311 creates an exception to the ability of contracting parties to
modify the contract where the injured party (third party beneficiary) has already commenced
suit, the result in Reagor would be the same even after the decision in Olson and the adoption
of section 311. Thus, we need not find that Olson overruled Reagor.
¶ 100 Turning to the facts of this case, it is clear that Idlas does not fall within any arguably
applicable exception in section 311. Prior to the modification of Central’s policies by
agreement between Central and Tracy’s in 2005, Idlas had not materially changed his position
in justifiable reliance on the existence of coverage or brought suit for the TCPA violation.
Under these circumstances, because it is undisputed that prior to March 2007, Central and
Tracy’s were unaware of Idlas’s claim and in November 2005 (well over two years after the
last fax was sent) they may well have concluded that no further claims were likely to or could
be filed, nothing prevented them from agreeing to the buyout of personal and advertising injury
coverage under Central’s policies. Certainly on this record it cannot be said that Central and
Tracy’s acted together, as in Reagor, to defeat Idlas’s rights under the policies since it is
apparent that the contracting parties were unaware of Idlas’s claim due to his delay in asserting
it.
¶ 101 Tracy’s relies on cases decided in the context of automobile liability insurance and argues
that, like parties injured in automobile accidents, we should find that Idlas’s injury, sustained
on July 22, 2003, precluded Central and Tracy’s from modifying Central’s policies to
eliminate coverage for personal and advertising injury over two years later, in 2005. Skidmore
v. Throgmorton, 323 Ill. App. 3d 417 (2001) (citing Reagor in holding that insurer and insured
cannot agree to an automobile policy interpretation that coverage was limited under an
antistacking provision and thus, automobile accident victim could raise the issue of ambiguity
against the insurer); Chandler v. Doherty, 299 Ill. App. 3d 797, 805 (1998) (citing Reagor and
others for the position that a claimant in the underlying action is a necessary party because such
claimants are a “ ‘real party in interest to the liability insurance contract’ whose rights ‘vest at
the time of the occurrence giving rise to his injuries’ ” (quoting Reagor, 92 Ill. App. 3d at
103)); Universal Casualty Co. v. Lopez, 376 Ill. App. 3d 459, 467 (2007) (holding that
insured’s default in failing to answer automobile insurer’s complaint could not be attributed to
nondefaulting injured third party defendants). But these cases and others emphasize Illinois’
strong public policy in favor of mandatory liability insurance for those operating automobiles
on our State’s roadways. For example, in People ex rel. Terry v. Fisher, 12 Ill. 2d 231 (1957),
our supreme court referred to the specific statutes that had been passed in Illinois “that confer

- 21 -
 an interest in such a[n] [auto insurance liability] policy on every member of the public that is
negligently injured, and by the unique characteristics of a liability insurance policy.” Id. at 237.
“Section 388 of the Insurance Code [citation] requires certain standard provisions
to be included in liability policies affording injured persons a right of action against the
insurer if execution against the insured is returned unsatisfied; section 58(k) of the
Motor Vehicle Act [citation] provides certain minimum liability insurance coverage for
motor vehicles; and section 16 of the Truck Act [citation] requires motor carriers to
have specified liability insurance policies before permits may be issued. Moreover, we
have construed section 388 of the Insurance Code to be declarative of the public policy
of this State to protect persons injured by the negligent operation of motor vehicles, and
as conferring rights which cannot be defeated after the accident by the concerted action
of the insured and the insurer. [Citation.] It is clear that the legislature, by virtue of the
foregoing enactment, has placed liability insurance in a category distinct from the
insured’s other assets so far as persons injured by the negligent operation of his motor
vehicle are concerned.” Id. at 237-38.
¶ 102 Similarly, in Gothberg v. Nemerovski, 58 Ill. App. 2d 372, 385 (1965), the court noted the
significance of automobile insurance in society and held that the injured plaintiffs could sue
the insurer directly after obtaining judgment against the insured. The court held that “[t]he
procuring of automobile public liability insurance of the type contemplated has connotations
extending to the general public above and beyond the private interests of the two contracting
parties.” Id. at 386.
¶ 103 In M.F.A Mutual Insurance Co. v. Cheek, 34 Ill. App. 3d 209 (1975), aff’d, 66 Ill. 2d 492
(1977), the court ruled that injured claimants are necessary parties in a declaratory judgment
action and thus the insured’s violation of the cooperation clause could not serve as a defense to
coverage unless there was proof of substantial prejudice to the insurer. In making this ruling,
the court summarized the Illinois public policy as to automobile insurance policies and
differentiated the character of the automobile insurance policy. Cheek, 34 Ill. App. 3d at
215-18. In the supreme court’s ruling in Cheek, the court noted the character of an automobile
insurance policy, stating the automobile insurance policy “is more than a private agreement
between the insured and the insurer against losses sustained as a result of the negligent
operation of a motor vehicle.” Cheek, 66 Ill. 2d at 500-01. Rather, such policies “ ‘abound with
public policy considerations, one of which is that the risk-spreading theory of such policies
should operate to afford to affected members of the public–frequently innocent third
persons–the maximum protection possible consonant with fairness to the insurer.’ ” Id. at 501
(quoting Oregon Automobile Insurance Co. v. Salzberg, 535 P.2d 816, 819 (Wash. 1975)).
¶ 104 The cases relied upon by Tracy’s thus establish that in Illinois, statutes and public policy
provide certain rights to persons injured as a result of an automobile accident. While such
reasoning could also be extended to cases involving professions subject to mandatory
insurance requirements, such as doctors or lawyers, Tracy’s and Idlas point to no
corresponding public policy requiring those who advertise their businesses through electronic
transmissions to carry liability insurance to cover the possibility that those to whom the
advertisements are transmitted have not consented to receive them. Indeed, as noted by this
court on remand in Lay, requiring insurance companies to cover damages awarded as a result
of a TCPA violation potentially undermines Congress’s intent to discourage senders of
unsolicited faxes who can pass the cost of violations on to their insurance carriers. Standard

- 22 -
 Mutual Insurance Co. v. Lay, 2014 IL App (4th) 110527-B, ¶ 23. Therefore, we are not
persuaded that cases involving the interests of parties injured in automobile accidents in
policies of liability insurance compel a different result in the context of this case.
¶ 105 While we conclude that Reagor does not preclude us from giving effect to the agreement
between Tracy’s and Central to eliminate the personal and advertising injury coverage under
Central’s policies, we nevertheless affirm the denial of summary judgment to Central on this
ground for two reasons. First, as we have noted, the agreement between Central and Tracy’s is
not in the record. We cannot accept Central’s representations as to the contents of that
agreement without having an opportunity to examine the entirety of the document. Second,
even if the agreement was in the record, we would nevertheless affirm given that we cannot
determine, as a matter of law, that the amount paid by Central was adequate consideration for
the buyout of the personal and advertising injury coverage. The evidence may support a
finding that in September 2005, more than two years after Tracy’s fax advertisement campaign
ended and after the parties had the opportunity to conduct discovery in White, Central and
Tracy’s reasonably believed that no further TCPA or related claims were likely to be filed. If
that is the case, then the buyout would appear to be supported by adequate consideration and it
would therefore be effective as against Idlas. But on this record, we are unable to predict what
the evidence will show on this issue and thus we affirm the denial of summary judgment to
Central.

¶ 106 CONCLUSION
¶ 107 We reverse the order of the circuit court of Cook County granting summary judgment to
Central based on an intervening change in the law. We affirm the orders denying Central’s
motions for summary judgment and remand for further proceedings consistent with this
opinion.

¶ 108 Reversed in part and affirmed in part; cause remanded.

- 23 -