Court Finds No Defense Obligation for Alleged Statutory Violations

April 12, 2021 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, April 6, 2021

The 7th U.S. Circuit Court of Appeals, construing Illinois law, recently held that a commercial general liability policy issued to a debt collector did not provide coverage for allegedly harassing calls giving rise to statutory violations, despite arguments by the debt collector that some of the allegations in the underlying complaint could be construed as targeting calls that were not technically excluded from coverage.

The case is Zurich American Insurance Co. v. Ocwen Financial Corp., 2021 U.S. App. Lexis 7292 (7th Cir., March 12, 2021). The insurer, Zurich was represented by Akerman LLP, having offices in Chicago and Atlanta. Reed Smith LLP of Chicago represented the insured, Ocwen.

A consumer, Tracy Beecroft, brought suit against Ocwen in 2015 in connection with its attempts to collect on a mortgage loan that Beecroft had discharged in bankruptcy. In an amended complaint she alleged that Ocwen made about 58 phone calls to her cellular or home phone through use of an autodialer.

She claimed emotional and physical distress as well as credit problems due to the debt being reported to credit agencies. She further claimed violations of the Telephone Consumer Protection Act and Fair Debt Collection Practices Act.

Zurich’s policy issued to Ocwen for the relevant period contained an exclusion titled “Recording and Distribution of Material or Information in Violation of Law.” It precluded coverage for injuries “directly or indirectly arising out of or based upon” violations of various laws, including the TCPA, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) and the Fair Credit Reporting Act.

A second exclusion entitled “Violation of Communication or Information Law” similarly excluded coverage for violation of some of the same acts along with violations of other federal or state law imposing liability for unlawful use of the telephone, electronic mail, internet or computer.

Ocwen tendered to Zurich, and Zurich declined coverage based on the exclusions and brought this declaratory action for determination of its coverage rights and obligations. Ocwen counterclaimed for breach of the duty to defend. Zurich responded with a motion for judgment on the pleadings.

After reviewing the insurance policy and Beecroft’s complaint, the district court agreed with Zurich and held that it had no duty to defend. Ocwen brought this appeal.


In an opinion by Judge Diane P. Wood, the 7th Circuit affirmed. She initially outlined the standards for establishing a duty to defend, including the requirement that a single covered factual allegation would suffice to trigger Zurich’s duty to defend the entire complaint.

Wood then outlined Ocwen’s bases for coverage. One was that the TCPA prohibits calls “to any residential line using an artificial or prerecorded voice” but does not address such calls not using these devices. According to Ocwen, the phrasing of the allegations left open the possibility that some of the calls were to Beecroft’s home phone using a live operator.

A second claimed basis for coverage was that the TCPA forbids making calls “using any automatic telephone dialing system (ATDS) or an artificial or prerecorded voice” to a cellular phone. Ocwen contended that the complaint did not foreclose the possibility that some of the calls were made without an ATDS.

A third basis focused on the FDCPA, which prohibits use of a telephone to “annoy, abuse, or harass any person at that called number.” Thus even if Ocwen’s first two arguments avoided the TCPA, it still had the FDCPA to worry about. Ocwen thus seized on the word “negligently” — when being alleged to have “intentionally and/or negligently” invaded Beecroft’s privacy — to claim that it lacked the requisite intent to violate the FDCPA.

None of these proposed bases for coverage impressed Wood. Fairly read, she said, the underlying complaint did not allege that Ocwen called Beecroft’s home phone using a live operator. While the complaint did reference the fact that Beecroft picked up the phone on two occasions and experienced a delay before an operator came on the line — indicating the call was auto-dialed — Wood declined to infer from the allegation that live calls were made to Beecroft’s home.

In any event, Wood wrote, a fair reading of the underlying complaint revealed that Beecroft was not complaining about calls to her home phone. In addition, while it is possible that Ocwen made calls to Beecroft’s cell phone without use of an ATDS, the complaint was complaining only about those calls made with use of an ATDS, not the stray direct call.

Finally, with respect to Ocwen’s intent under the FDCPA, the mere use of the term “negligently” in the context of the underlying complaint’s other allegations, and in the absence of factual elaboration, according to Wood, is not sufficient to trigger a duty to defend under Illinois law. Particularly is this the case where, as Beecroft alleged in her complaint, she requested Ocwen to stop making the calls.

The court therefore affirmed the judgment in favor of Zurich.

Key point

In determining the duty to defend based on the allegations of an underlying complaint, courts should fairly read the allegations in context and focus on the pleaded facts, rather than labels attached to those facts.

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