Central Mutual Insurance Co. v. Tracy's Treasures, Inc. , 2014 IL App (1st) 123339 ( 2014 )


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  •                                             
    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
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    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.
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    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
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    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
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    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.
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    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.
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    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.
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    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
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    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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    No. 1-12-3339
    "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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    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. - 17
    -
    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.
    - 18 -
    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,
    - 19 -
    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
    - 20 -
    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.
    - 21 -
    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
    - 22 -
    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
    - 23 -
    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
    - 25 -
    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
    - 28 -
    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
    ,
    - 30 -
    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
    - 32 -
    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
    - 38 -
    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
    - 39 -
    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
    - 40 -
    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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