Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-01497/USCOURTS-ca8-04-01497-0/pdf.json

Parties Involved:
Lou Fusz Automotive Network
Appellee
Onsite Computer Consulting Services
Appellee
Stephenson Electric Company
Not Party
Universal Underwriters Insurance Company
Appellant
West Brothers Chrysler
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-1497

___________

Universal Underwriters Insurance *

Company, a Kansas corporation, *

*

Plaintiff - Appellant, *

*

v. *

*

Lou Fusz Automotive Network, Inc., a * Appeal from the United States

Missouri corporation; Onsite Computer * District Court for the Eastern

Consulting Services, Inc., a Missouri * District of Missouri.

corporation, *

*

Defendants - Appellees, *

*

West Brothers Chrysler, Inc.; *

Stephenson Electric Company, *

*

Defendants. *

___________

Submitted: January 13, 2005

 Filed: March 21, 2005

___________

Before MELLOY, SMITH, and COLLOTON, Circuit Judges.

___________

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The Honorable Catherine D. Perry, United States District Judge for the Eastern

District of Missouri.

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MELLOY, Circuit Judge.

Onsite Computer Consulting Services (“Onsite”) brought a class action lawsuit

against Lou Fusz Automotive Network, Inc. (“Lou Fusz”) in state court under the

Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “Act”), a federal statute

that prohibits unsolicited fax advertisements. Lou Fusz tendered the claim to its

insurer, Universal Underwriters Insurance Company (“Universal”). Universal agreed

to provide a defense under a complete reservation of rights and subsequently

instituted this action to seek declaratory judgment regarding its duty to defend and

indemnify Lou Fusz. The district court1 determined that Universal owed Lou Fusz

a defense. The district court also determined that it could not resolve the issue of

indemnification until after resolution of the state court action. We affirm.

I. Background

Onsite brought its state court, class-action petition on behalf of all persons

harmed by Lou Fusz’s alleged transmission of unsolicited fax advertisements. Onsite

sought class certification, injunctive relief, and "[a]n award of the full amount of

statutory damages allowed under 47 U.S.C. § 227(b)(3), including treble damages,

sustained by Onsite and the Class . . . .” The Act provides for damages in the amount

of actual monetary loss or $500 per violation, whichever is greater. 47 U.S.C. §

227(b)(3)(B). The Act also permits up to treble damages for knowing and willful

violations. Id. at § 227(b)(3). In its answer to the state court complaint, Lou Fusz

denied that it sent unsolicited advertisements or authorized anyone to send unsolicited

advertisements on its behalf. Lou Fusz also alleged that it had permission to send all

challenged faxes. 

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2

 The relevant policy language is as follows:

INSURING AGREEMENT – WE will pay all sums the INSURED

legally must pay as DAMAGES (including punitive DAMAGES where

insurable by law) because of INJURY to which the insurance applies

caused by an OCCURRENCE arising out of GARAGE OPERATIONS

or AUTO HAZARD.

* * *

We have the right and duty to defend any SUIT asking for these

DAMAGES. WE may investigate and settle any claim or SUIT WE

consider appropriate. OUR payment of the limit shown in the

declarations ends OUR duty to defend.

* * *

“DAMAGES” means amounts awardable by a court of law. . . . 

DAMAGES does not mean civil penalties, fines or assessments.

* * * 

“INJURY” means, with respect to:

Group 1 – bodily injury, sickness, disease or disability (including death

resulting from any of these) or damage to or loss of use of tangible

property;

* * *

Group 3 – false arrest, false imprisonment, wrongful eviction, wrongful

detention, malicious prosecution, abuse of process, libel, slander,

defamation of character, private nuisance (except pollution), invasion of

rights of privacy or possession of personal property;

Group 4 – plagiarism, misappropriation of advertising ideas or style,

infringement of copyright, title, slogan or trademark;

* * *

With respect to INJURY Groups 3,4, 5 and 6, OCCURRENCE means

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In response to the present declaratory judgment action, Onsite and Lou Fusz

joined forces to argue in favor of coverage under the policy. Universal presented

numerous arguments against coverage that depended upon the policy’s definitions of

the terms “INJURY” and “DAMAGES.”2

 Universal argued that Onsite sought only

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acts of the INSURED during the Coverage Part period which result in

such INJURY.

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fixed damages of $500 per violation as permitted under the Act and that the fixed

damages were “civil penalties, fines or assessments” excluded from the policy’s

definition of DAMAGES. Universal also argued that the alleged violations of the Act

did not qualify for coverage under any of the policy’s definitions of INJURY.

Finally, Universal argued that violations of the Act were intentional and therefore

excluded from coverage.

Lou Fusz moved for summary judgment, which the district court granted. The

district court concluded that Onsite sought all available damages, not merely fixed

damages. The district court also concluded that even if Onsite had sought only fixed

damages, such damages were not “civil penalties” that would be excluded from

coverage under the policy, but rather, were at least in part a liquidated sum

representing uncertain and hard-to-quantify actual damages. The district court

determined that an alleged violation of the Act qualified as a private nuisance, and

therefore a Group 3 INJURY under the policy, but the district court did not address

whether a violation of the Act satisfied any of the other definitions of INJURY. The

district court found that the issue of intent was unresolved and therefore Universal

could not be relieved of its duty to defend based on the allegedly intentional nature

of Lou Fusz’s actions. Finally, the district court found Universal’s claim regarding

a duty to indemnify Lou Fusz premature and dismissed that claim without prejudice.

II. Discussion

Under Missouri law, the interpretation of an insurance policy is a question of

law. Standard Artificial Limb, Inc. v. Allianz Ins. Co., 895 S.W.2d 205, 209 (Mo. Ct.

App. 1995). Accordingly, our review is de novo. In addition, this case comes to us

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following a grant of summary judgment, which we review de novo. Royal Ins. Co.

of America v. Kirksville Coll. of Osteopathic Med., Inc., 304 F.3d 804, 806 (8th Cir.

2002).

“The duty to defend is broader than the duty to indemnify.” McCormack Baron

Mgmt. Servs. Inc. v. American Guarantee & Liab. Ins. Co., 989 S.W.2d 168, 170

(Mo. 1999) (en banc). The duty to defend exists where there is a potential liability.

Id.; Royal Ins. Co. of America, 304 F.3d at 807 (“[Under Missouri law] the insurer’s

duty to defend arises when there is merely the potential for coverage.”). In assessing

whether there is a duty to defend, we must compare “the language of the policy with

the allegations in the petition.” Auto Club Family Ins. Co. v. Jacobsen, 19 S.W.3d

178, 182 (Mo. Ct. App. 2000). In construing the policy, we must give each term its

ordinary, lay meaning unless the policy expressly defines a term in a technical

manner. Farmland Inds., Inc. v. Republic Ins. Co., 941 S.W.2d 505, 508 (Mo. 1997)

(en banc). Finally, we must resolve any ambiguities in favor of coverage. Aetna Cas.

& Sur. Co. v. Haas, 422 S.W.2d 316, 321 (Mo. 1968) (“[T]he language must be

construed so as to give the insured the protection which he reasonably had a right to

expect; and to that end any doubts, ambiguities and uncertainties arising out of the

language used in the policy must be resolved in his favor.”) (internal quotation

omitted).

For there to be a potentially covered liability, the complaint must allege

DAMAGES as defined in the policy. The policy’s definition of DAMAGES excludes

“civil penalties, fines or assessments” but includes punitive damages (where punitive

damages are insurable as a matter of law). Universal argues that Onsite requested

only the fixed damages available under the Act and that these fixed damages are

“civil penalties” under the policy.

Onsite sought “[a]n award of the full amount of statutory damages allowed

under 47 U.S.C. § 227(b)(3), including treble damages . . . .” We believe that Onsite’s

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reference to the “full amount of statutory damages” is a broad request for all forms

of available relief or for the most favorable among the alternative forms of available

relief. Although, in general, the phrase “statutory damages” may be understood as a

limited reference only to fixed damages available under a statute, such a construction

fails in the present case. If we adopt a limited interpretation of the wording “statutory

damages” as set forth in the complaint, the complaint’s following phrase “including

treble damages” makes no sense. If the full amount of statutory damages includes

treble damages, then the term “statutory damages” as used in the complaint cannot be

limited only to the fixed $500 amount. Because Onsite sought the “full amount of

statutory damages” we believe it is clear that Onsite requested exactly what the Act

provides: the greater of actual monetary loss or a fixed sum of $500 per violation,

plus treble damages if appropriate.

Universal also argues that Onsite failed to allege any harm, and therefore only

stated a claim for fixed damages. The facts as alleged, however, plainly identify harm

to Onsite. Onsite alleged that it received an unsolicited fax. Although the monetary

impact of a single unsolicited fax is minor, it is nevertheless a cost borne by the

recipient and recognized by Congress as a compensable harm. See, e.g., Missouri ex

rel. Nixon v. American Blast Fax, Inc., 323 F.3d 649, 654-55 (8th Cir. 2003) (listing

the various harms caused by the receipt of unsolicited faxes). 

Even if Onsite had sought only fixed damages under the Act, we would still

construe the complaint as having alleged DAMAGES under the policy. Universal

elected not to define the term “civil penalties” when it drafted the policy. Because

the policy does not contain a technical definition for the phrase “civil penalty,” we

must use the term’s lay meaning. If we find that the lay meaning is ambiguous, or

that there is more than one reasonable lay meaning for the term, we must adopt the

meaning that supports a finding of coverage. Aetna Cas. & Sur. Co., 422 S.W.2d at

321. According to Universal, the lay meaning of the term “civil penalty” is any award

that exceeds dollar for dollar compensation for actual loss and has a punitive or

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deterrent effect. Lou Fusz and Onsite, on the other hand, argue that a lay person

would understand a “civil penalty” to be an amount awarded to a public or

governmental body. We disagree with the former interpretation and need not adopt

the latter.

Initially, we note that Universal’s proffered interpretation is unworkable when

read “in the context of the policy as a whole.” Columbia Mut. Ins. Co. v. Schauf, 967

S.W.2d 74, 77 (Mo. 1998) (en banc). The policy’s definition of DAMAGES includes

amounts awarded as punitive damages. Accordingly, we cannot accept a definition

for “civil penalty” that excludes from the definition of DAMAGES all awards with

a punitive or deterrent effect. Such an interpretation would create an internal

inconsistency in the policy in which one section would authorize the coverage of

punitive awards and another would specifically exclude such awards from coverage.

Further, even if Universal’s proffered definition did not create an internal

inconsistency, a duty to defend would exist because a portion of the fixed amount

represents a liquidated sum for uncertain and hard-to-quantify actual damages. We

noted in Nixon, 323 F.3d at 654-55, that Congress identified the loss of use of

equipment and phone lines for outgoing and incoming faxes, the expense of paper and

ink, and the resultant inconvenience and annoyance as examples of the harm to

individuals who receive unsolicited fax advertisements. Further we noted that,

“unsolicited fax advertisements can shift to the recipient more than one hundred

dollars per year in direct costs, . . . and . . . unsolicited fax advertising interferes with

company switchboard operations and burdens the computer networks of those

recipients who route incoming faxes into their electronic mail systems.” Id. at 655.

These harms, while small in reference to individual violations of Act, nevertheless

represent compensable harms encompassed by a liquidated sum within the fixed

amount. 

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We also believe that Congress intended the fixed damages available under the

Act to be, at least in part, an incentive for private parties to enforce the Act.

See Forman v. Data Transfer, Inc., 164 F.R.D. 400, 404 (E.D. Pa. 1995) (“The

statutory remedy is designed to provide adequate incentive for an individual plaintiff

to bring suit on his own behalf.”). Because the actual losses associated with

individual violations of the Act are small, this added incentive is necessary. Whether

we view the fixed award as a liquidated sum for actual harm or an incentive for

aggrieved parties to act as private attorneys general, or both, it is clear that the fixed

amount serves more than purely punitive or deterrent goals. Also, the fact that

Congress elected to make treble damages available separate from fixed damages

strongly suggests that the fixed damages serve additional goals other than deterrence

and punishment.

We also find that the complaint alleges an “INJURY” under the policy. The

policy lists “private nuisance (except pollution), [and] invasion of rights of privacy

or possession of personal property” under the definition of INJURY. It does not limit

or qualify these terms in any manner. It sets forth technical definitions for neither

“private nuisance” nor “invasion of rights of privacy.” Accordingly, under Missouri

law, we must apply ordinary, lay definitions to these terms. Looking at how Congress

described unsolicited fax advertisements, see Nixon, 323 F.3d at 654-55, it is clear

that Congress viewed violations of the Act as “private nuisances” and as “invasions

of privacy” under ordinary, lay meanings of these phrases. Congress also stated:

Unrestricted telemarketing, however, can be an intrusive invasion of

privacy and, when an emergency or medical assistance telephone line is

seized, a risk to public safety.

Many customers are outraged over the proliferation of intrusive,

nuisance calls to their homes from telemarketers.

* * *

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Individuals’ privacy rights, public safety interests, and commercial

freedoms of speech and trade must be balanced in away that protects the

privacy of individuals and permits legitimate telemarketing practices.

Evidence compiled by the Congress indicates that residential telephone

subscribers consider automated or prerecorded telephone calls,

regardless of the content or the initiator of the message, to be a nuisance

and an invasion of privacy.

* * *

Banning such automated or prerecorded telephone calls to the home . . .

is the only effective means of protecting telephone consumers from this

nuisance and privacy invasion.

* * *

Businesses also have complained to the Congress and the Federal

Communications Commission that automated or prerecorded telephone

calls are a nuisance, are an invasion of privacy, and interfere with

interstate commerce.

47 U.S.C. § 227 (Historical and Statutory Notes, re: Section 2 of Pub. L. 102-243)

(emphasis added) (internal quotation marks and numbering omitted). Although the

above references cite pre-recorded or unsolicited telephone calls, we previously

equated such calls to intrusive faxes, as did Congress when it defined prohibited

conduct under the Act. See Nixon, 323 F.3d at 657 n.5 (“Artificial or prerecorded

messages, like a faxed advertisement, were believed to have heightened intrusiveness

because they are unable to ‘interact with the customer except in preprogrammed

ways.’”) (quoting S. Rep. No. 102-178, at 4-5) (emphasis added). Universal offers

only technical and restricted legal definitions to support its position that violations of

the Act are neither “private nuisances” nor “invasions of privacy”. Under Missouri

law, we cannot restrict the undefined terms in such a manner.

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 The Act defines “unsolicited advertisement” as “any material advertising the

commercial availability or quality of any property, goods, or services which is

transmitted to any person without that person’s prior express invitation or

permission.” 47 U.S.C. § 227(a)(4). The Act makes no exception for senders who

mistakenly believe that recipients’ permission or invitation existed. The issue of

intent, or more accurately, the issues of knowledge and willfulness, however, clearly

are material to the question of treble damages. 

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We note also that the issue of Lou Fusz’s intent is an open factual question and

that intent is not a prerequisite to liability under the Act.3

 Intent is, however, relevant

to coverage. The policy contains an exclusion which provides, “This insurance does

not apply to . . . any act committed by or at the direction of the INSURED with intent

to cause harm.” Therefore, if a finder of fact ultimately determines that Lou Fusz not

only violated the Act, but did so with an intent to cause harm, the policy would

provide no coverage. Because coverage depends upon resolution of this factual

question, the district court properly refused to rely on the policy’s intentional acts

exclusion.

Finally, we note that our case is distinct from a recent Seventh Circuit case

which held an insurer did not owe its insured a defense against claims under the Act.

See American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939

(7th Cir. 2004). There, the intentional nature of the violations appeared undisputed,

and the policy specifically excluded from coverage any losses that were “expected or

intended from the standpoint of the insured.” The Seventh Circuit analyzed the issue

of coverage under a definition for “invasion of privacy” where that term appeared only

as a subpart of the broader term “advertising injury.” The court noted that the term

“invasion of privacy” had many meanings, including privacy in the sense of a right to

seclusion (that could be violated by intrusions into private space) or a right to secrecy

(that could be violated by public dissemination of private information). The court

concluded that because the policy at issue only addressed “invasion of privacy” as a

form of “advertising injury,” “invasion of privacy” under that specific policy was

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limited to secrecy-type privacy rights. The court further determined that intrusive and

unsolicited fax advertisements only touched upon the seclusion-type privacy rights.

Accordingly, invasions of seclusion through unauthorized faxes failed to meet the

policy’s limited definition of “advertising injury.”

In the present case, by contrast, the policy defines advertising injury in a

section that is entirely separate from the definition of INJURY that includes “invasion

of privacy.” There is no support in the present policy for a limited reading of the term

“invasion of privacy.” In short, differences both as to the insurance policies under

examination and the facts of the alleged offenses make the Seventh Circuit’s case

inapplicable to the current situation.

We affirm the judgment of the district court.

______________________________

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