Eighth Circuit Holds Insurer Not Obligated to Defend Debt Collection Firm in FDCPA Lawsuit

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In Rodenburg LLP v. The Cincinnati Insurance Company, No. 20-2521 (8th Cir. August 25, 2021), the Eighth Circuit upheld a district court’s grant of summary judgment in favor of an insurance company that was sued by a law firm, finding that the insurance company was not obligated to defend a Fair Debt Collection Practices Act (FDCPA) lawsuit filed against the law firm arising out of collection activities it mistakenly initiated against the wrong person.

The Rodenburg Law Firm (Rodenburg), whose primary business is debt collection, held a Commercial Umbrella Liability Policy with The Cincinnati Insurance Company (Cincinnati Insurance) that obligated Cincinnati Insurance to indemnify Rodenburg for liability to third parties for certain defined injuries.

The law firm obtained a default judgment on a debt owed by a consumer named “Charlene Williams.” After serving a notice of intent to garnish wages at the residential address associated with the debt and not receiving an answer, the law firm then served a notice of garnishment on the employer of the person they thought was Charlene Williams. Williams then contacted Rodenburg and informed the firm that she was not the Charlene Williams who owed the debt. Rodenburg ignored this information and proceeded to garnish Williams’s wages for six weeks. Williams eventually obtained counsel who contacted Rodenburg, and the law firm ceased garnishment activities, returning the garnished funds to Williams.

Williams then sued Rodenburg, asserting several claims, including multiple violations of the FDCPA. Rodenburg filed a claim under its policy for coverage of the Williams lawsuit. Cincinnati Insurance denied Rodenburg’s claim, asserting that it was not required to defend or indemnify the law firm under the policy. Rodenburg eventually settled its lawsuit with Williams and then sued Cincinnati Insurance in U.S. District Court in North Dakota, seeking a declaratory judgment that Cincinnati Insurance had breached its contractual duty to defend and indemnify. The district court granted Cincinnati Insurance’s motion for summary judgment, finding that the policy did not provide coverage based on a policy exclusion. Rodenburg appealed.

Rodenburg’s policy insured liability for “bodily injury” and “personal and advertising injury” if the injury was “caused by an occurrence.” The Eighth Circuit accepted Rodenburg’s argument that the lawsuit met the definition of occurrence as defined in the policy.

The court next considered the exclusionary clause found in the policy. The policy included a “Violation of Statutes Exclusion” section. Under that section, coverage excluded “[a]ny liability arising directly or indirectly out of any action or omission that violates or is alleged to violate … [a]ny statute, ordinance or regulation, other than the TCPA or CAN-SPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material or information.” The court held that based on the language in the exclusion provision, Cincinnati Insurance was not obligated to cover Rodenburg because Rodenburg’s potential liability arose either directly or indirectly from conduct that was alleged to violate the FDCPA. Thus, the statutory exclusion barred the claim.

The court did not reach the question of whether there was a duty of Cincinnati Insurance to indemnify Rodenburg because there was no duty of the insurer to defend Rodenburg.

This case emphasizes the need for law firms engaged in debt collection practices to critically review insurance policies and confirm appropriate coverage. Statutory exclusions in insurance policies can be broad and may not cover the majority of a consumer law firm’s business.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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