7th Circuit Finds Insurer Has No Duty to Defend Mortgage Servicer Against Robocall Lawsuit

A liability insurance carrier that excluded any violation of telecommunications laws from coverage had no duty to defend a loan servicer from a class-action lawsuit that accused it of making harassing robocalls to more than 1 million cell phones.

The 7th Circuit Court of Appeals on Friday affirmed a U.S. District Court’s declaration that Zurich American Insurance Co. did not have to defend Ocwen Mortgage Servicing from the lawsuit. Ocwen settled the action in June 2019 by agreeing pay $21.5 million in damages, plus about $4.7 million for the plaintiff’s attorney fees.

Tracee A. Beecroft says that after she discharged a mortgage debt through bankruptcy, Ocwen, headquartered in the Virgin Islands, called her cell phone 58 times, using an an automated dialing system for at least some of those calls. Beecroft claimed the constant calls were so stressful that she suffered a miscarriage.

In 2015, Beecroft filed a lawsuit in federal court in Minnesota on behalf of herself and other people who received robocalls from Ocwen on their cell phones. The suit was consolidated with another lawsuit filed in Illinois.

Eventually, a U.S. District Court certified a class consisting of the owners of 1,685,757 unique cell phone numbers. The suit alleged that Ocwen had violated the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act.

The TCPA prohibits the use of recorded or artificial voices on calls that are placed to consumers’ cell phones, while the FDCPA bars any calls that are made with an intent to “annoy, abuse or harass.”

Zurich was well aware of those laws and the potential liability they can impose. The carrier excluded damages caused by any violations of the TCPA and the FDCPA from coverage in the commercial general liability policies it issued to Ocwen from 2010 to 2016.

Ocwen, regardless, asked Zurich to defend it shortly after Beecroft filed suit. Instead, Zurich filed a lawsuit seeking a court declaration that it had no duty to defend. U.S. District Judge Charles P. Kocoras ruled in Zurich’s favor.

On appeal, Ocwen argued that while some of the phone calls its agents made to Beecroft may have illegal, not all of them were. Some calls were made to her home phone. Also, prerecorded voices may have been used in some of the calls to Beecroft’s cellphone, but not all, the company’s lawyers argued.

Ocwen said that if there was no violation of law on some of the calls, Zurich had a duty to defend its policyholder against those allegations.

The 7th Circuit disagreed. The appellate panel said the evidence shows that Beecroft had asked Ocwen to stop calling her, meaning that any calls made to her after that were in violation of the FDCPA’s prohibition against harassment. The lawsuit mentions only calls that were in violation of the law, so any calls that were made that did not violate law are not relevant to the suit, the appellate court said.

“Because Zurich had no duty to defend based on the factual allegations in Beecroft’s complaint, we affirm the district court’s judgment,” the opinion concludes.

Ocwen was also accused of violating consumer-protection laws in 2013. The mortgage servicer entered into a consent order with the federal Consumer Financial Protection Bureau agreeing to refund $125 million to 185,000 borrowers whose homes were foreclosed upon and agreed to help underwater borrowers by reducing the principle owed on their loans by $2 billion, the CFPB said in a press release at the time.

More recently, 33 state attorneys general objected to a proposed settlement in a class-action lawsuit that would allow an Ocwen successor, PHH Mortgage Corp., to escape more serious penalties for allegedly collecting illegal fees from homeowners who used its online system to make mortgage payments.

The U.S. Attorney’s Office entered the fray this month, filing a motion on March 3 asking the U.S. District Court in Southern Florida to reject the proposed settlement because it is too generous to the plaintiff’s attorneys without fairly compensating consumers.