Court Opinion

ID: 2750525
Source: CourtListenerOpinion
Date Created: 2014-11-12 18:03:44.703496+00
Date Added: 2024-06-11T12:45:36.338506
License: Public Domain

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,                      )           Appeal from the
                                                            )           Circuit Court of
            Plaintiff-Appellee and Cross-Appellant,         )           Cook County
                                                            )
            v.                                              )           No. 07 CH 14995
                                                            )
     TRACY'S TREASURES, INC., and PAUL IDLAS,               )           Honorable
                                                            )           Rita M. Novak,
            Defendants-Appellants and Cross-Appellees.      )           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.
     No. 1-12-3339

¶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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     No. 1-12-3339

     the ground that the insurance contracts had been reformed to eliminate coverage for "advertising

     injury" or "personal and advertising injury." Both motions were denied by the trial court.

¶6                                            The Idlas Case

¶7          Tracy's engaged in the business of selling dating and social relationship services, which it

     publicized, at least in part, by facsimile advertisements. On March 5, 2007, Idlas filed a three-

     count class action complaint against Tracy's for unsolicited fax advertisements that allegedly

     violated the TCPA, the Illinois Consumer Fraud and Deceptive Business Practices Act (815

     ILCS 505/2 (West 2006)), and Illinois common law (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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       No. 1-12-3339

       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 4½ to 6

                years old could be in Tracy's Treasures favor because of the transient nature of our

                society these people may not be able to be contacted. Additionally, a great number

                of people may well opt-out from this type of case.

                   In any event, as I am transitioning into this lawsuit I will be contacting you

                further about the status of the case as I further get my arms around the facts and

                circumstances and the current law on the TCPA in Illinois and elsewhere.

                However, you can see from the attached letter that I am familiar with these types of

                cases and the current law."

¶ 11            On December 17, 2007, Central consented to the substitution of counsel and indicated

       that it would pay Ellis a reasonable fee (albeit at an hourly rate less than Ellis's normal billing

       rate). Central reserved the right to discontinue paying for Tracy's defense on reasonable notice to

                                                       -4-
       No. 1-12-3339

       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.

                                                        -5-
       No. 1-12-3339

¶ 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

                                                       -6-
       No. 1-12-3339

       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

                                                      -7-
       No. 1-12-3339

       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.

                                                      -8-
       No. 1-12-3339

¶ 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.

                                                       -9-
       No. 1-12-3339

¶ 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.

              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.

¶ 31                                              ANALYSIS

¶ 32          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.

                                                     - 10 -
       No. 1-12-3339

       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.

¶ 33          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").

¶ 34          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.

                                                      - 11 -
       No. 1-12-3339

¶ 35                           Do Central's Policies Cover Liquidated Damages?

¶ 36          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.

¶ 37          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."

¶ 38           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

                                                       - 12 -
       No. 1-12-3339

       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.

¶ 39                         Can Central Challenge the Idlas Settlement and, If So,
                  Is Tracy's Decision to Settle and the Amount of That Settlement Reasonable?

¶ 40          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.

¶ 41          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.

¶ 42                   Can Central Challenge Its Obligation to Pay the Idlas Settlement?

¶ 43          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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       No. 1-12-3339

¶ 44          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).

¶ 45          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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       No. 1-12-3339

       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.

¶ 46          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.

¶ 47          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.

¶ 48          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.

¶ 49          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.

¶ 50          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.

¶ 51          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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       No. 1-12-3339

       defense" to Tracy's. Upon Tracy's tender of the Idlas defense to Central, Central disclosed to

       Tracy's its position that the claims asserted were not covered under its policies and did nothing

       thereafter to prejudice Tracy's defense of the case. See Gibraltar Insurance Co. v. Varkalis, 46
Ill. 2d 481, 487 (1970) (insurer that controlled defense of wrongful death action for 16 months

       without disclosing issues regarding coverage under its policy estopped from denying liability

       under the policy); Mobil Oil, 288 Ill. App. 3d at 755 (insurer that controlled insured's defense for

       2½ years without disclosing potential limitation on coverage was estopped from 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.

¶ 52              What Standards Apply to Evaluating the Reasonableness of the Idlas Settlement?

¶ 53          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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       No. 1-12-3339

¶ 54           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.

¶ 55           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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       No. 1-12-3339

¶ 56          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.

¶ 57          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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       No. 1-12-3339

       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.

¶ 58                   Is the Idlas Settlement Unreasonable and Collusive as a Matter of Law?

¶ 59          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.

¶ 60          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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       No. 1-12-3339

       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.

¶ 61          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.

¶ 62          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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       No. 1-12-3339

¶ 63           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.

¶ 64           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.

¶ 65           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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       No. 1-12-3339

       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.

¶ 66           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.

¶ 67           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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       No. 1-12-3339

       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.

¶ 68          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.

¶ 69          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

                                                        - 24 -
       No. 1-12-3339

       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.

¶ 70          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.

¶ 71          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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       No. 1-12-3339

       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.

¶ 72          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

                                                      - 26 -
       No. 1-12-3339

       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.

¶ 73            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.

¶ 74            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

                                                     - 27 -
       No. 1-12-3339

       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.

¶ 75          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.

¶ 76          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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       No. 1-12-3339

       excess policy issued by Central that otherwise would have been unavailable because it expired in

       January 2003.

¶ 77          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.

¶ 78          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

                                                       - 29 -
       No. 1-12-3339

       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.]").

¶ 79           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.

¶ 80           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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       No. 1-12-3339

       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.

¶ 81          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.

¶ 82          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

                                                      - 31 -
       No. 1-12-3339

       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.

¶ 83           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.

¶ 84           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.

¶ 85                             Central's Invocation of Other Policy Provisions

¶ 86           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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       No. 1-12-3339

       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.

¶ 87          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).

¶ 88          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.

¶ 89          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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       No. 1-12-3339

       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.

¶ 90          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.

¶ 91          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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       No. 1-12-3339

¶ 92          The Effect of Central's "buy-out" of Coverage for Personal and Advertising Injury

¶ 93          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.

¶ 94          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.

¶ 95          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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       No. 1-12-3339

¶ 96          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.

¶ 97          In Olson, the supreme court noted that the rationale underlying section 311's vesting rule

       is that " 'parties to a contract should remain free to amend or rescind their agreement so long as

       there is no detriment to a third party who has provided no consideration for the benefit received.'

       Board of Education of Community School District No. 220 v. Village of Hoffman Estates, 126 Ill.

       App. 3d 625, 628 (1984)." Id. at 410. The Olson court observed that, in contrast, the vesting rule

       of Bay curtails the freedom to contract. Id. at 411. Section 311 was thus adopted in Illinois,

       establishing the rule that, "in the absence of language in a contract making the rights of a third-

       party beneficiary irrevocable, the parties to the contract 'retain power to discharge or modify the

       duty by subsequent agreement,' without the third-party 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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       No. 1-12-3339

¶ 98          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.

¶ 99          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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        No. 1-12-3339

¶ 100          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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        No. 1-12-3339

               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.

¶ 101          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.

¶ 102          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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        No. 1-12-3339

        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)).

¶ 103           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.

¶ 104           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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        No. 1-12-3339

        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.

¶ 105                                           CONCLUSION

¶ 106          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.

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

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