Insurance companies are increasingly the subject of Telephone Consumer Protection Act (TCPA) lawsuits. Any insurance company that communicates with its customers, job applicants, and others by phone or text using an automated telephone dialing system—or that has independent or semi-independent agents engaging in such automated communications—faces potential litigation risk under the TCPA. This Legal Alert provides an analysis of some of the key issues facing insurers in TCPA cases.

TCPA Background

The Telephone Consumer Protection Act was enacted in 1991 to protect consumers from unsolicited advertisements via telephone and fax. The TCPA regulates and restricts the manner in which a business may market its products and services to consumers’ cell phones (including via text messages), residential phone lines, and fax machines. Specifically, the TCPA prohibits the use of an “automated telephone dialing system” or an “artificial or prerecorded voice” to make calls to cell phones without the prior express consent of the called party. For marketing calls, the consent must be in writing, and the prohibitions apply to both calls and text messages. With more and more households abandoning traditional hard-wired landlines in favor of cell phones for their principal means of communication, TCPA risk has increased substantially. In addition, the TCPA prohibits artificial or prerecorded voice calls to residential telephone lines (without prior express consent) and unsolicited fax advertisements.

Agent Marketing and Vicarious Liability Issues

Insurance companies often market their products through the use of independent and semi-independent sales forces. Where an agent or agency has allegedly violated the TCPA, the insurer may also be drawn into the litigation on a theory of vicarious liability.

This risk was evidenced in a recent decision in which an Illinois federal court found that a vicarious liability claim could be raised against an insurance company for the actions of its agents and the agents’ third-party marketer. The plaintiffs sued three insurance companies, alleging that they received prerecorded, unsolicited calls regarding car insurance policies on behalf of the respective companies. The calls were allegedly made by a third-party telemarketing company through the use of an automated dialing system. If a person answered the call, the telemarketing company would then join the call, take the individual’s information, and pass it along to the insurance company’s local agent. If the call was not answered, then the telemarketing company left a prerecorded voice message. The complaint acknowledged that the agents, and not the insurance companies, were the ones who had contracted directly with the marketing company.

In its decision, the district court first addressed the question of whether the insurance companies could be held directly and/or vicariously liable for the calls placed by the marketing company and the agents. Although the court determined that the insurance companies could not be found directly liable since they did not physically place the calls, the court concluded that one of the companies might be subject to vicarious liability for the actions of the agents. Specifically, the court held that nothing in the TCPA directly prohibits the principles of common law vicarious liability from applying. Noting Congress’ intent to protect individuals from receiving certain calls without providing prior consent, the court opined that the actual sellers—i.e., the insurers—were in the best position to monitor and police third-party telemarketers’ compliance with the TCPA. Otherwise, in the court’s view, there would be a disincentive to monitor telemarketers, and consumers would not have an effective remedy under the TCPA. Applying this rationale to the complaint, the court dismissed the complaints against several insurers, but found that plaintiffs had alleged sufficient facts to support a basis for holding at least one of the insurance companies liable for the marketing company’s actions under a subagency theory, where plaintiffs had alleged that the insurance agents who had hired the marketing company were legally agents of the insurance company.

Vicarious liability has also been asserted where a third-party contractor is making the calls. In 2013, a federal district court in California granted class certification to plaintiffs who allegedly received unsolicited text messages on their cell phones on behalf of a life insurance company in violation of the TCPA. In that case, the plaintiffs alleged that the defendant insurance company entered into a marketing agreement with a third-party marketing group to promote its life insurance products. The plaintiffs alleged that they received text messages sent by the marketing group encouraging them to call a toll-free phone number to claim a gift card voucher, which, according to plaintiffs, did not exist. Rather, plaintiffs alleged that the number connected callers to a call center operated by the marketing group that pitched the insurance company’s products and services, as well as the products and services of the marketing group’s other clients. Of particular importance to the issue of third-party liability, the insurance company specifically argued that neither it nor the marketing company had actually caused the text messages to be sent, but rather that third-party contractors actually carried out the operation. The court expressed its skepticism of that defense, stating that it was “unlikely to be viable,” and certified the plaintiff class. The case was later settled on a class basis. Note, however, that more recent case law in the Ninth Circuit may provide additional support for a defense against vicarious liability where a company lacks control over a third party that sends the communications. See Thomas v. Taco Bell Corp., No. 12-56458 (9th Cir. July 2, 2014) (holding that Taco Bell Corp. was not vicariously liable for text messages sent by a company that a third-party advertiser had hired to assist with a product promotion campaign).
 
Insurer Communications and Consumer Consent

Several cases against insurance companies and their affiliates have raised issues of “prior express consent,” which can be a defense to claims under the TCPA. (Since October 2013, “prior express written consent” from the called party is required for marketing calls and texts).

In a recent case against an insurer’s affiliate, the Eleventh Circuit examined the question of who constituted the “called party” for purposes of consent and held that the “called party” was the person actually called even if the intended recipient was someone else. In the case, the plaintiff took out a car insurance policy and opened a credit card with the insurer and its affiliate and, as part of the application process, provided her housemate’s cell phone number as a contact.

In a subsequent attempt to collect past-due payments, the company allegedly called the housemate’s cell phone number. The housemate sued under the TCPA and took the position that the calls were made without consent. The court found that under the TCPA, the “called party” is not the intended recipient of the call (in this case the insured) but rather the actual party that is called (the cell phone subscriber/housemate). To constitute valid consent, the company would have had to obtain consent either directly from the cell phone subscriber/housemate or from someone with the authority to provide consent on the cell phone subscriber’s behalf. In this instance, the court stated that consent could be established if the plaintiff was in an agency relationship with her housemate, and the case was therefore remanded for further factual determination on that issue.

More broadly, however, the court’s holding on the meaning of the term “called party” creates TCPA risk any time the actual recipient of a call is different from the intended recipient. Several courts have held that consent runs with the person and not with the phone number. Even where a caller has consent from the intended recipient of the call (a former subscriber), some courts have held that there can be a violation of the TCPA where the caller does not have consent from the current subscriber to whom the number has been reassigned, even if the caller is unaware of the reassignment. See Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637 (7th Cir. 2012). For companies that make a significant number of automated calls, this fact pattern can arise with some frequency given that there is a regular churn of cell phone numbers being assigned to new subscribers on an ongoing basis.

Several insurance companies have been drawn into TCPA litigation as a result of junk fax advertisements allegedly sent by insurance agents. The issue of consent is central to these cases. In one case against a life insurer, a federal district court granted the plaintiff’s motion for class certification in a case alleging that a third-party agent sent unsolicited fax advertisements for low-cost life insurance. The plaintiff further alleged that the faxes lacked the required opt-out that would allow recipients to opt out of future messages. In arguing against class certification, the insurer asserted that determining whether each recipient consented was an individual issue that precluded certification. The court rejected that defense and stated that “no individual inquiry is necessary and [the] established relationship or voluntary consent defenses are unavailable where, as here, the opt-out requirement [of the TCPA] is alleged to have been violated.” The case was recently settled on a class basis.

Recruiting Calls

In at least one case, a plaintiff unsuccessfully sued an insurance company under the TCPA for making recruiting calls in an effort to hire new agents. There, the plaintiff had sued an insurance company for allegedly using an automatic dialing system to leave messages on his residential landline phone (not cell phone) requesting that the plaintiff attend a recruiting webinar to learn about the insurer’s products and services as part of the insurer’s hiring efforts. Because the case involved allegations of calls to a landline rather than to a cell phone, a key threshold issue was whether the recruiting calls constituted marketing or non-marketing, because non-marketing calls to landlines are not covered by the TCPA.

The federal court agreed with the insurer and dismissed the case, holding that the alleged calls did not constitute advertisements or solicitations. The court reasoned that under the TCPA, the insurer’s calls did not constitute a solicitation because they were not made for the purpose of encouraging the purchase of property, goods, or services. Rather, the company’s calls were made for the purpose of promoting an employment and/or independent contractor opportunity. To the extent that the calls mentioned the company’s products, the court explained that the intent was not to sell the products to the recipients of the call, but rather to encourage the call recipients to contract with the company to sell those products to others. Thus, the court found that the complaint failed to state a claim. The key distinction in this case was that the calls were made to a landline rather than to a cell phone. A risk to any company making recruiting or other non-marketing calls is that the company may not always know whether it is calling a landline or a cellphone, and consumers more and more are relying on cell phones as their only number.

TCPA Insurance Coverage Issues

In addition to cases brought directly against insurance companies for alleged TCPA violations, a growing number of cases have been brought by commercial liability insurers seeking declaratory judgments that they do not have to provide coverage for their insured’s alleged TCPA violations. These cases often turn on the specifics of the exclusions in the commercial liability policy at issue. Some commercial liability policies have express exclusions for TCPA claims, while others may contain more general exclusions that may exclude TCPA claims.

Conclusion

The trend of high-dollar TCPA settlements has spurred a large increase in TCPA filings over the past few years, including an increase in complaints filed against the insurance industry. (Click here for Sutherland’s Legal Alert on recent TCPA settlements.) The issues facing insurers in these cases are similar to the issues facing companies in other industry segments: consent and the scope of that consent, vicarious liability issues arising from the acts of agents and third-party marketers, and large potential exposure due to TCPA statutory damages. Companies are continuing to adjust to new Federal Communications Commission rules that went into effect in late 2013, which set a high standard for the type of written consent required for marketing calls made to cell phones. (Click here for Sutherland’s Color-Coded Summary of FCC Rules.) With the new FCC rules and ongoing litigation risk, companies should obtain written consent where appropriate and maintain adequate records of the specific details of that consent.