In Rodenburg LLP v. The Cincinnati Insurance Company, n ° 20-2521 (8th Cir. 25 August 2021), the eighth circuit confirmed the granting of a summary judgment by a district court in favor of an insurance company sued by a law firm, believing that the insurance company was not obligated to defend a lawsuit under the Fair Debt Collection Practices Act (FDCPA) brought against the law firm as a result of collection activities initiated in error against the bad person.
The Rodenburg (Rodenburg) law firm, primarily engaged in debt collection, had a commercial liability policy with The Cincinnati Insurance Company (Cincinnati Insurance) which required Cincinnati Insurance to indemnify Rodenburg for third party liability. for certain defined injuries.
The law firm has obtained a default judgment on a debt owed by a consumer named “Charlene Williams”. After serving a notice of intention to garnish wages at the residential address associated with the debt and not receiving a response, the law firm then served a notice of garnishment on the employer. person he believed to be Charlene Williams. Williams then contacted Rodenburg and informed the company that it was not the Charlene Williams who owed the debt. Rodenburg ignored this information and proceeded to garnish Williams’ salary for six weeks. Williams eventually got a lawyer who contacted Rodenburg, and the law firm ceased its garnishment business, returning the seized funds to Williams.
Williams then sued Rodenburg, making several allegations, including multiple violations of the FDCPA. Rodenburg has filed a claim under his policy for coverage of the Williams lawsuit. Cincinnati Insurance denied Rodenburg’s claim, saying it was under no obligation to defend or indemnify the law firm under the policy. Rodenburg ultimately settled his lawsuit with Williams, then sued Cincinnati Insurance in U.S. District Court for North Dakota, seeking declaratory relief that Cincinnati Insurance had breached its contractual obligation to defend and indemnify. The district court allowed Cincinnati Insurance’s summary judgment motion, ruling that the policy did not provide coverage on the basis of a policy exclusion. Rodenburg appealed.
Rodenburg police provided liability for “bodily injury” and “personal injury and publicity” if the injury was “caused by an event”. The Eighth Circuit accepted Rodenburg’s argument that the trial met the definition of an event as defined in the policy.
The court then looked at the exclusion clause in the policy. The policy included a section “Violation of exclusion of laws”. Under this section, the coverage excluded “[a]any liability arising directly or indirectly from any action or omission which violates or is alleged to violate … [a]any law, ordinance or regulation, other than the TCPA or CAN-SPAM of 2003, that prohibits or restricts the sending, transmission, communication or distribution of material or information. The court ruled that, based on the wording of the exclusion clause, Cincinnati Insurance was not obligated to cover Rodenburg because Rodenburg’s potential liability arose directly or indirectly from conduct alleged to violate the FDCPA. Thus, the exclusion provided for by law excluded the claim.
The court did not reach the question of whether Cincinnati Insurance had an obligation to indemnify Rodenburg because the insurer did not have an obligation to defend Rodenburg.
This case highlights the need for law firms engaged in debt collection practices to critically review insurance policies and confirm appropriate coverage. Legal exclusions in insurance policies can be broad and not cover the majority of the activities of a consumer law firm.