Emcasco Insurance Co v. Custom Mechanical Equipment, Inc. Claim Against Insurer for TCPA Violation Barred


Judge Bars Claims Against Insurer for Violation of TCPA 

This appeals case began with an unsolicited or “junk” fax. In April 2008, the Oklahoma-based company Custom Mechanical Equipment, Inc., faxed an unsolicited advertisement to CE Design in Illinois. While the majority of those who receive junk faxes simply dispose of them, CE Design sued Custom under federal and state laws, bringing a class action suit comprised of 2,551 others who had received the same junk fax from Custom. CE Design alleged Custom breached the TCPA (Telephone Consumer Protection Act), costing CE employee time, paper, and toner. The TCPA provides $500 in damages for each violation. CE claimed Custom knew—or should have known—they did not have invitation or permission to fax advertisements as no established business relationship existed between the companies.

Emcasco Insurance, Custom’s insurer, declined to defend the charges and CE and Custom subsequently settled for $1,276,000 in damages ($500 per violation times 2,552 unsolicited faxes). In the settlement agreement, the Illinois trial court adopted the parties’ proposed settlement, concluding the damages amount agreed upon is what a “reasonably prudent person in Custom’s position would have settled for on the merits of the claim in this Litigation.” The language of the settlement also noted the following: Custom believed it had the consent of the fax recipients when the faxes were sent, Custom did not intend injury to the recipients and the lawsuit was given to Emcasco, who refused to defend the matter.

At this juncture, CE agreed not to enforce the judgment against Custom, but to proceed directly to the insurer, Emcasco, who refused to pay the judgment. Emcasco sued CE Design, seeking a declaratory judgment that it was not liable for the $1,276,000 judgment. CE claimed Custom’s insurance police covered the claim against Custom by virtue of the advertising injury and property damage clauses. Emcasco claimed three policy exclusions barred coverage and that Custom’s fax neither caused property damage nor personal injury. One of those three exclusions dealt specifically with TCPA. Taking into consideration the terms of the insurance policy, the U.S. District Court of Oklahoma concluded Emcasco was not legally obligated to defend Custom—or to pay the judgment, therefore granted Emcasco’s summary judgment motion. CE Design appealed the decision.

On appeal, CE Design argued the court made an error in its conclusion that Emcasco had no duty to defend Custom against CE’s claims. CE alleged intentional conversion, negligent conversion and violation of the Illinois Consumer Fraud Act Claim. The claim of intentional conversion stated Custom misappropriated the class member’s fax machines, toner, paper and employee time to their own use. The claim of negligent conversion held Custom knew or should have known it misappropriated paper, toner and employee time.


On the allegations of intentional conversion—that Custom misappropriated the class members’ fax machines, toner, paper and employee time for their own use—the Court found the policy in question applies only if the property damage is caused by an “occurrence,” which is defined as an accident. The term “accident” is defined as an event that “takes place without one’s foresight or expectation…” The Court found that while CE Design proved its intentional conversion claim, by the very act of proving that claim the company disproved that an accident caused the property damages.

The Court rejected the negligent conversion claim, noting “if this sufficed as an accident, it is hard to imagine what would not.” When language in an insurance policy is unclear or can be interpreted in more than one way, the policy language is typically interpreted more favorably for the insured rather than the insurer. However, in this case, the explicit exclusion regarding property damage or personal and advertising injury arising from a violation of the TCPA was clear, with no ambiguity attached.

The Court also rejected CE’s Illinois Consumer Fraud Act claim, holding the claim required proof that Custom intended CE to rely on a deceptive act to further an ICFA claim and that such a deceptive act would trigger the same Emcasco coverage exceptions. All of CE Design’s claims failed, and Emcasco was granted summary judgment.

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