Faxing fracas
The Siding & Insulation Company appealed the trial court’s decision to grant a motion for summary judgment by Acuity, A Mutual Insurance Company, and to deny Siding & Insulation’s motion for summary judgment in this declaratory judgment action.
The declaratory judgment action followed from a settlement that was reached in The Siding & Insulation Co. v. Beachwood Hair Clinic, Inc., a class action suit. In the underlying case, The Siding & Insulation Company alleged that Beachwood Hair Clinic violated the Telephone Consumer Protection Act by sending unsolicited fax advertisements without the recipients’ prior express invitation or permission. The Siding Company, Beachwood, and Beachwood’s liability insurer, Acuity, entered into a settlement agreement subject to the court’s approval.
In its final approval of settlement and judgment, the court found that Beachwood “was solicited by a fax broadcaster that represented that its fax advertising was with the permission of the recipient” and that “[a] total of 37,219 unsolicited advertisements were successfully faxed on [Beachwood’s] behalf on at least nine occasions[.]” The court certified a class and approved the terms of the settlement. The court entered judgment against Beachwood in the total amount of $3,956,650, ordered that Acuity create an initial settlement fund of $1,956,650 in partial satisfaction of the judgment, and instructed that the remaining portion of the judgment was to be subject to a separate coverage action and to being satisfied only through the proceeds of Beachwood’s policy with Acuity.
As contemplated by the settlement agreement, The Siding Company filed a declaratory judgment action against Acuity to determine whether it was entitled to recover an additional $2 million to satisfy the balance of the underlying judgment. Ultimately, the court’s decision was vacated by the court of appeals, where the court found that federal jurisdiction was lacking and that the individual plaintiffs could not aggregate their claims to satisfy the amount-in-controversy requirement for diversity jurisdiction. Thereafter, Acuity filed the present action against The Siding Company.
The Siding Company filed an answer and counterclaim for declaratory relief. Upon agreement of the parties, the court ordered the parties to file joint stipulations and motions for summary judgment. After these filings, the court granted Acuity’s motion and denied The Siding Company’s motion. The court declared that Acuity already had paid the balance of its $2 million “general aggregate limit (other than products-completed operations)” of liability coverage in satisfaction of the claims against The Siding Company in the Beachwood Hair Clinic case. In addition, the court declared that the Acuity policy did not provide any additional liability coverage including, without limitation, coverage subject to the products-completed operations aggregate limit. The Siding Company appealed.
On appeal, the court noted that the policy provided coverage for “personal and advertising injury” and “property damage.” There was no dispute that the personal and advertising injury provisions were applicable to the underlying action, and that Acuity paid $1,956,650 in partial satisfaction of the judgment.
The parties disputed whether the property damage provisions applied to the underlying claims. The business liability coverage of the policy stated in relevant part:
1. Business Liability
b. This insurance applies:
(1) To * * * property damage only if:
(a) The * * * property damage is caused by an occurrence * * *[.]
{12} “Occurrence” and “property damage” were defined as:
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same harmful conditions.
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. * * *; or
b. Loss of use of tangible property that is not physically injured. * * *.
{¶ 13} The term “accident” was not defined. The court noted that the plain and ordinary meaning of “accident” is “an unexpected and undesirable event [.]”
{¶ 14} Under its business liability coverage, the policy had the following
exclusion for expected or intended injury:
This insurance does not apply to:
a. Expected or Intended Injury
* * * [P]roperty damage expected or intended from the standpoint of the insured. * * *
{¶ 15} The business liability coverage had a “Products-Completed Operations Aggregate Limit” of $2 million and a “General Aggregate Limit (Other Than Products-Completed Operations)” of $2 million. With respect to these aggregate limits, the policy provided:
a. The Products-Completed Operations Aggregate Limit shown in the Declarations is the most we will pay for injury or damage under the products-completed operations hazard arising from all occurrences during the policy period.
b. The General Aggregate Limit shown in the declarations is the most we will pay for the sum of all damages because of all:
(1) Bodily injury, property damage and medical expenses arising from all occurrences during the policy year. This limit applies separately to:
(a) Each location owned by or rented to you. * * *; and
(b) Each of your projects away from a location owned by or rented to you; or
(2) Personal and advertising injury arising out of all offenses committed during the policy period.
{¶ 16} A “products-completed operations hazard” was defined as:
16. Products-Completed Operations
Includes all bodily injury and property damage occurring away from premises you own or rent and arising out of your product or your work [subject to the exceptions provided].
The Siding Company argued that the underlying claims were covered by both the personal and advertising injury provision and the property damage provisions. Its position was that the underlying claims involved property damage and injury sufficiently accidental to be an “occurrence” and not excluded as an “expected or intended injury.” As such, The Siding Company claimed that it should be entitled to recover an additional $2 million under the policy. It claimed that the property damage was within the policy’s products-completed operations hazard and that the policy provided a $2 million limit for products-completed operation hazard claims separate and apart from the general aggregate limit. The Siding Company also claimed that the general aggregate limit (non-product-completed operations) applied separately to (1) advertising injury and property damage claims; and (2) property damage claims arising from separate projects.
The court noted that the underlying claims alleged property damage as defined under the policy. The class action complaint alleged that the recipients of the unsolicited faxes were damaged by loss of use of paper, toner, and the fax machine, and wear and tear on the fax machine. The court said it has been recognized that the recipient of an unsolicited fax suffers property damage or a cognizable injury in the form of depletion of the recipient’s consumables and loss of use of the fax machine. The court pointed out that the majority of federal courts have found that property damage coverage does not exist because the insured should have expected or intended that its conduct would cause property damage, i.e., the loss of use of the fax machine and the depletion of the fax recipients’ paper and toner as a result of receiving unsolicited faxes from the insured. The act of sending the unsolicited fax does not qualify as an “occurrence” and is precluded by the intentional acts exclusion because, according to a previous case, “ ‘[w]hile appellants might not have intended to violate the TCPA, they did intend to send the faxes and knew that sending them would use the recipients’ paper, toner and time.’ ”
The Siding Company argued that there was no intent to cause harm in this case because Beachwood believed the faxes were sent with consent. The Siding Company maintained that the underlying claims were based on the wrongful conduct of a third-party fax broadcaster who represented that its fax advertising was with the permission of the recipient.
According to the court, the property damage was not caused by an “occurrence”; it was expected or intended by the insured, and the exclusion applied to preclude coverage under the policy’s property damage provisions. The court further found that the property damage did not fall within the policy’s products-completed operations hazard provision, and that the policy did not apply any other limits of insurance to the underlying claims. The judgment of the lower court was affirmed.
Acuity, A Mutual Insurance Company, vs. Siding & Insulation Company-Court of Appeals of Ohio-March 31, 2016-No. 103180.
