The Illinois Supreme Court has ruled that penalties levied under the Telephone Consumer Protection Act of 1991 are remedial rather than punitive and, as such, are insurable.

The ruling may have implications involving other cases involving privacy statutes, according to one attorney.

Locklear Electric Inc. in 2009 brought a class action suit against Ted Lay Real Estate Agency, alleging violations of the Telephone Consumer Protection Act of 1991 when Lay sent unsolicited faxes to Locklear.

Locklear represented a class of 3,478 people who alleged Lay faxed them unsolicited advertisements and sought the TCPA-prescribed damages of $500 per violation, according to court documents.

Lay's insurer, Standard Mutual Insurance Co., with which Lay had commercial general liability and business owners liability policies, filed for declaratory judgment on whether the insurer had a duty to defend.

Standard argued that the TCPA damages where punitive and therefore not insurable.

In 2010, the case was settled against Lay for $1.7 million and Locklear sought payment from Lay's insurance policies.

The circuit court granted summary judgment for Standard, finding that Lay was not entitled to insurance coverage. The appellate court confirmed.

But the Illinois Supreme Court in Springfield, Ill., unanimously reversed part of the judgment and deemed the damages insurable in a ruling May 23.

The state's high court found that the TCPA damages are remedial in nature, according to the opinion.

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“We hold that the TCPA is a remedial and not a punitive statute, and that the $500 liquidated damages per violation are not punitive damages,” the ruling reads.

Linda D. Kornfeld, Los Angeles-based partner at Kasowitz, Benson, Torres & Friedman L.L.P. said the case is important decision in terms of privacy statute violations.

“This decision does have broader implications,” she said. “There are a number of privacy statues that have been issued both at the state and federal level,” such as the Health Insurance Portability and Accountability Act, the Fair Credit Reporting Act, and the Song-Beverly Act, among others.

“In many instances, the statutory fine or penalty, as insurers term it, is not punitive or penal in nature, but in fact is remedial and therefore is covered as a compensatory damage under the policy,” Ms. Kornfeld said.

Privacy statutes are either being amended to become stricter or courts are furthering interpreting the statutes to make them tougher, increasing the chance of exposure for companies, she said.

“This issue, I think, with respect to what's covered when you're talking about statutory violations, is a very important issue as we go forward for policyholders because the exposure is increasing on a monthly basis for these entities, potentially.”

The case, Standard Mutual Insurance Company v. Norma Lay et al. was remanded to the appellate court for consideration of the remaining arguments Locklear raised on appeal.