7th Circuit Court of Appeals Rejects Insured’s Attempt to Use Broad Duty to Defend Standard to End Run Coverage Exclusions

Zurich Am. Ins. Co. v. Ocwen Fin. Corp. (“Ocwen”), presents yet  another example of why companies facing potential robo-call liability need more than Commercial General Liability Coverage to protect them from possible suits.  In Ocwen, the Seventh Circuit was asked to review the District Court’s grant of Zurich’s motion for judgment on the pleadings in connection with its coverage dispute with its insured, Ocwen Financial Corp.  Ocwen is in the loan collection and servicing business and was sued by Tracy A. Beecroft in connection with its attempts to collect on a mortgage loan that Beecroft has discharged in bankruptcy.  As a result of Ocwen’s aggressive pursuit Ms. Beecroft allegedly “suffered emotion and physical distress, including a stress-induced miscarriage, and she was later denied a loan because Ocwen wrongly reported the alleged default to credit agencies.”  Counts I through III of her resulting complaint against Ocwen relied on the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA), while Count IV and V, respectively, alleged common law defamation and common law invasion of privacy.

The Zurich policies at issue contained an exclusion for “Recording and Distribution of Material in Violation of Law,” which excluded coverage for injuries “directly or indirectly arising out of or based upon any action or omission that violates or is alleged to violate” the TCPA or “[a]ny federal, state statute, ordinance or regulation . . ., or any other legal liability, at common law or otherwise, that addresses, prohibits or limits the printing, dissemination, disposal, monitoring, collecting, recording, use of, sending, transmitting, communicating or distribution of material or information.”  They also contained an exclusion for “Violation of Communication or Information Law,” which excluded injury “resulting from or arising out of any actual or alleged violation of: (A) the [TCPA] … or (B) any other federal, state, or local statute, regulation or ordinance that imposes liability for the: (1) Unlawful use of telephone, electronic mail, internet, computer, facsimile machine or other communication or transmission device; or (2) Unlawful use, collection, dissemination, disclosure or re-disclosure of personal information of any manner by any insured or on behalf of any insured.”  Before going on, one might wonder why a single plaintiff case deserves so much attention.  The answer to that question is buried in footnote 1 of the opinion, which establishes that Beecroft’s lawsuit was later consolidated with a class action.

The precise issue raised in the appeal was limited to whether the policy exclusions noted above were properly applied to exclude coverage for the common law invasion-of-privacy claim found in Count V of the complaint.  Ocwen asserted that the District Court improperly applied the exclusions because “the Beecroft complaint potentially alleges conduct that neither falls into the enumerated statutes no ‘arises out of’ conduct that is alleged to violate those statutes.”  Ocwen put forth three purported scenarios it asserted were supported by the allegations at issue that would each fall outside of the scope of the policy exclusions.  First, Ocwen asserted that the allegations created the possibility of calls to Beecroft’s home landline using a live operator.  Second, Ocwen asserted that the allegations created the possibility of calls to Beecroft’s cell phone without the use of an automated telephone dialing system.  According to Ocwen, either of these possibilities (i.e. live calls to a landline or manually dialed calls to a cellphone) would escape the scope of the TCPA such that the exclusion would be inapplicable.  Third, Ocwen argued that such calls could also escape the reach of the FDCPA because the complaint alleged that Ocwen “intentionally and/or negligently” invaded her privacy such that any negligently placed calls “were not made with the requisite intent for an FDCPA violation.”

The panel rejected Ocwen’s proffered readings of the complaint because it concluded that “[f]airly read, Beecrofts’ complaint does not allege that Ocwen called her home phone using a live operator.”  It similarly rejected the assertion that calls were placed to her cellphone without the use of an automated dialing machine, instead finding the allegations to be more fairly read to allege that the calls were made with different types of auto dialers.  Finally, the panel rejected Ocwen’s attempt to rely on “Beecroft’s vague references to negligent conduct in Count V, where she says that Ocwen ‘intentionally and/or negligently’ invaded her privacy by calling her repeatedly.”  Instead, the panel focused on the fact that the calls at issue in the lawsuit were described in paragraph 16 of the complaint and were expressly alleged to have “violated the Telephone Consumer Protection Act and were an invasion of Plaintiff’s privacy.”  The panel noted that those phone calls were the calls at issue and that the complaint contained no other factual allegations regarding other phone calls.  Given these circumstances, the appellate panel was unwilling to allow Ocwen to stretch the potentiality standard to create the types of calls that could escape application of the exclusions contained in the Zurich policies.


The takeaway from this case is that even though the duty to defend is broad, Courts appear willing to apply exclusions where the clear import of the allegations at issue is a focus on calls that are alleged to be in violation of the TCPA.  Therefore, rather than relying on Courts to stretch the potentially standard to find ways around multiple policy exclusions, the time has come for insureds facing potential robo-call liability to look to insurance products other than commercial general liability insurance policies to protect them from such risks.

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