2014 IL App (1st) 123339

THIRD DIVISION

Order filed September 30, 2014

Modified upon denial of rehearing November 5, 2014 

No. 1-12-3339

CENTRAL MUTUAL INSURANCE COMPANY,

Plaintiff-Appellee and Cross-Appellant, 

v.

TRACY'S TREASURES, INC., and PAUL IDLAS,

Defendants-Appellants and Cross-Appellees.

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Appeal from the 

Circuit Court of 

Cook County

No. 07 CH 14995

Honorable 

Rita M. Novak, 

Judge Presiding

 

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. 
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¶ 2 BACKGROUND

¶ 3 Tracy's Treasures, Inc., 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, 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 
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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 threecount 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 (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 
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June 6, 2007, Central also filed a declaratory judgment action in the circuit court of 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 41⁄2 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 
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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.
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¶ 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 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 
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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 
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is not controlling Tracy's defense in this matter." The affidavit did not disclose 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. 
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¶ 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. et al. v. Tracy's 

Treasures, Inc., No. 03 CH 11297 (Cr. 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 

circuit court under seal, a copy is not included in the record on appeal.
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¶ 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 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.
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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 Central's 

alternative arguments. 
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¶ 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 
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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. 

¶ 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.
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¶ 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 
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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 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 
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"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 
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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 

21⁄2 years without disclosing potential limitation on coverage was estopped from claimiming 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 

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.
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¶ 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 inssured 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. 
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¶ 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 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, 
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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 
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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" 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. 
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¶ 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 
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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 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 

the 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 
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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 
No. 1-12-3339

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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 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 $1500 (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 
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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 a claims total of 
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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 
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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 

addition of another 34,000 putative class members and, importantly, triggered a $5 million 
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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 
No. 1-12-3339

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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.

¶ 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, 
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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 arms'-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 
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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.

¶ 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 
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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 
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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 

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.
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¶ 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.
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¶ 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 thirdparty beneficiary irrevocable, the parties to the contract 'retain power to discharge or modify the 

duty by subsequent agreement,' without the third-party 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)).
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¶ 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.
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¶ 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 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 
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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 
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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 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 
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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.