Mesa Laboratories, Inc. v. Federal Insurance Company ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20‐1983
MESA LABORATORIES, INC.,
Plaintiff‐Appellant,
v.
FEDERAL INSURANCE COMPANY,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 19‐cv‐2340 — John Z. Lee, Judge.
____________________
ARGUED NOVEMBER 10, 2020 — DECIDED APRIL 20, 2021
____________________
Before EASTERBROOK, KANNE, and SCUDDER, Circuit Judges.
KANNE, Circuit Judge. Mesa Laboratories, Inc., was sued for
sending unsolicited fax advertisements, but when it sought a
defense from its insurer, its claim was denied. In support of
the denial, the insurer cited an exclusion in the policy barring
coverage for any claims “arising out of” the Telephone Con‐
sumer Protection Act (“TCPA”) of 1991.
2 No. 20‐1983
The question in this case is straightforward: When an in‐
surance policy provides that the insurer has no duty to defend
its insured against any claim “arising out of” the TCPA, does
that exclusion extend to common‐law claims arising from the
TCPA‐violating conduct?
The district court said yes, and we agree. We therefore af‐
firm the district court’s decision granting judgment on the
pleadings in favor of the insurer.
I. BACKGROUND
Mesa Laboratories, Inc., a Colorado corporation, sent faxes
promoting its dental‐industry‐related services. But some (if
not all) of the recipients had not consented to receive such
faxes, and the faxed materials did not include an opt‐out no‐
tice as required by the TCPA. 47 U.S.C. § 227(b)(1)(C).
In 2018, James L. Orrington, II, a Chicago‐area dentist,
filed a class‐action lawsuit against Mesa in federal court for
sending unsolicited fax advertisements in violation of the
TCPA and the Illinois Consumer Fraud and Deceptive Busi‐
ness Practices Act (“ICFA”), 815 ILCS 505/2. He also alleged
that Mesa’s conduct constituted common‐law conversion,
nuisance, and trespass to chattels for Mesa’s appropriation of
the recipients’ fax equipment, paper, ink, and toner. Orrington
v. Mesa Lab’ys, Inc., No. 18‐cv‐841 (N.D. Ill.).
During the litigation, Mesa notified its insurer, Federal In‐
surance Company, of the Orrington action and asked Federal
to defend it. Federal declined to provide a defense because it
contended that the suit fell outside of the policy’s coverage.
After Mesa and Orrington reached a settlement agree‐
ment, Mesa filed this suit against Federal, alleging breach of
contract, bad faith, and improper delay and denial of claims
No. 20‐1983 3
under Colorado Revised Statute sections 10‐3‐1115 and 10‐3‐
1116. Federal moved for judgment on the pleadings.
In January 2020, the district court granted Federal’s mo‐
tion. It concluded that two of the policy’s exclusions applied
to bar Mesa’s claim. As explained below, we need only con‐
sider one of the exclusions to decide this case—the “Infor‐
mation Laws Exclusion.” It provides that the policy “does not
apply to any damages, loss, cost or expense arising out of any
actual or alleged or threatened violation of … the United
States of America Telephone Consumer Protection Act
(TCPA) of 1991 … or any similar regulatory or statutory law
in any other jurisdiction.” The district court concluded that
this exclusion barred all of the claims because the common‐
law claims arose out of the same conduct underlying the stat‐
utory claims.
Mesa filed a motion to vacate the judgment and for leave
to file an amended complaint, which the court denied. Mesa
now appeals.
II. ANALYSIS
As stated in Landmark American Insurance Co. v. Hilger, we
review a district court’s grant of a motion for judgment on the
pleadings de novo, applying the same standard as a Rule
12(b)(6) motion to dismiss for failure to state a claim. 838 F.3d
821, 824 (7th Cir. 2016). “Thus, we view the facts in the com‐
plaint in the light most favorable to the nonmoving party and
will grant the motion ‘only if it appears beyond doubt that
[Mesa] cannot prove any facts that would support [its] claim
for relief.’” Id. (quoting Buchanan‐Moore v. County of Milwau‐
kee, 570 F.3d 824, 827 (7th Cir. 2009)).
4 No. 20‐1983
“A federal court exercising its diversity jurisdiction over
state‐law claims applies the choice‐of‐law rules of the state in
which it sits.” Gunn v. Cont’l Cas. Co., 968 F.3d 802, 808 (7th
Cir. 2020) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487 (1941)). Here, the district court sits in Illinois.
Before the court is required to make a choice‐of‐law deter‐
mination, the moving party must establish that “there is a
conflict between Illinois law and the law of another state such
that ‘a difference in law will make a difference in the out‐
come.’” West Side Salvage, Inc. v. RSUI Indemnity Co., 878 F.3d
219, 223 (7th Cir. 2017) (quoting Townsend v. Sears, Roebuck &
Co., 879 N.E.2d 893, 898 (Ill. 2007)). “If the party fails to estab‐
lish the existence of such a conflict, the court applies the law
of the forum state.” Id. (citing Bridgeview Health Care Ctr., Ltd.
v. State Farm Fire & Cas. Co., 10 N.E.3d 901, 905 (Ill. 2014)).
Although the parties dispute whether Colorado or Illinois
law applies, Mesa points to no true conflict between the laws
of those states regarding the interpretation of the Information
Laws Exclusion. Indeed, Mesa acknowledged in its opening
brief that there is no Colorado case law on point. Therefore,
we, like the district court sitting in Illinois, look to Illinois law.
In Illinois, “[a]n insurer has a duty to defend its insured
‘unless it is clear from the face of the underlying complaint
that the facts alleged do not potentially fall within the policy’s
coverage.’” Zurich Am. Ins. Co. v. Ocwen Fin. Corp., 990 F.3d
1073, 1078 (7th Cir. 2021) (quoting G.M. Sign, Inc. v. State Farm
Fire & Cas. Co., 18 N.E.3d 70, 77 (Ill. App. Ct. 2014)). One way
for an insured’s claim to fall outside of a policy’s coverage is
for it to fall within an exclusion. See id. But if even one claim is
covered, then the insurer has a duty to defend the entire suit.
Health Care Indus. Liab. Ins. Program v. Momence Meadows
No. 20‐1983 5
Nursing Ctr., Inc., 566 F.3d 689, 694 (7th Cir. 2009). Moreover,
“a decision to excuse an insurer’s duty to defend based on an
exclusionary clause in the contract ‘must be clear and free
from doubt.’” Zurich, 990 F.3d at 1078 (quoting Evergreen Real
Est. Servs., LLC v. Hanover Ins. Co., 142 N.E.3d 880, 887 (Ill.
App. Ct. 2019)).
To make this determination, we compare the factual alle‐
gations in the underlying complaint to the relevant policy
provisions. Health Care, 566 F.3d at 694 (citing Outboard Marine
Corp. v. Liberty Mut. Ins., 607 N.E.2d 1204, 1212 (Ill. 1992)).
The Information Laws Exclusion provides that the policy
“does not apply to any damages, loss, cost or expense arising
out of any actual or alleged or threatened violation of … the
United States of America Telephone Consumer Protection Act
(TCPA) of 1991 … or any similar regulatory or statutory law
in any other jurisdiction.”
Orrington’s complaint asserted claims against Mesa under
the TCPA, the ICFA, and common law. And the alleged con‐
duct underlying each claim was the same: Mesa sent unsolic‐
ited fax advertisements to Orrington’s office. The parties
agree that the exclusion covers Orrington’s statutory claims,
but they diverge on its application to the common‐law claims.
The answer is now clear under our recent decision in Zur‐
ich—the “arising out of” language subjects the common‐law
claims to the exclusion, as well. Zurich, 990 F.3d at 1078–79.
In Zurich, we considered a similar policy exclusion for
property damage “resulting from or arising out of any actual
or alleged violation of … the [TCPA].” Id. at 1076. We con‐
cluded that “[t]he ‘arising out of’ language excludes the un‐
derlying conduct that forms the basis of the violation of an
6 No. 20‐1983
enumerated law, even if liability for that underlying conduct
might exist under a legal theory that is not expressly men‐
tioned in the policy exclusion (e.g., common‐law invasion of
privacy).” Id. 1079.
The same is true here. The common‐law claims of conver‐
sion, nuisance, and trespass to chattels arise out of the same
underlying conduct as the statutory claims—the sending of
unsolicited faxes. As we explained in Zurich, “the ‘arising out
of’ phrase presents a ‘but‐for’ inquiry: if the plaintiff would
not have been injured but for the conduct that violated an
enumerated law, then the exclusion applies to all claims flow‐
ing from that underlying conduct regardless of the legal the‐
ory used.” Id. (citing G.M. Sign, 18 N.E.3d at 78). None of Or‐
rington’s injuries would have occurred but for Mesa’s send‐
ing unsolicited fax advertisements, so the Information Laws
Exclusion applies to all of Mesa’s claims.
III. CONCLUSION
We thus AFFIRM.