Violation of Statute Exclusion Bars Coverage Under Umbrella Policy
Many general liability polices contain an exclusion for violations of certain statutes involving the sending or communicating of information like the Telephone Consumer Protection Act (“TCPA”). The question a federal court in North Dakota faced was whether debt collection practices came within the statutory violation exclusion.
In Rodenburg, LLP v. Certain Underwriters at Lloyd’s, London, no. 3:19-cv-00027, 2020 U.S. Dist. LEXIS 3259 (N.D. Jan. 9, 2020), a debt collections law firm sought coverage against a lawsuit brought under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, and other related state law claims. This opinion focused on its commercial umbrella liability policy. The umbrella insurer denied coverage and refused to defend or indemnify. The policyholder brought a declaratory judgment action alleging that the umbrella insurer improperly denied coverage. Cross-motions for summary judgment were made and the district court granted summary judgment to the insurance company.
The court applied North Dakota law and focused solely on whether the umbrella policy imposed duties on the insurer to defend and indemnify the policyholder in the FDCPA lawsuit. Applying relevant insurance contract construction principles, the court first found that the allegations in the underlying complaint fell within the coverage grants of the umbrella policy for personal and advertising injury because it alleged conduct that implicated violation of the right of privacy, malicious prosecution, and defamation. The court rejected the policyholder’s argument that the policy’s definition of property damage applied.
Although the allegations fell within the coverage grants, the court applied several exclusions to preclude coverage. The court held that the underlying injuries were the natural and probable consequence of the policyholder’s intentional acts. Accordingly, the policyholder’s conduct was “ambiguously precluded from the Umbrella Policy’s coverage because [the claimant’s] bodily injury resulted from intentional acts.” Intentional acts were excluded under the umbrella policy.
On the question of whether the underlying claims for personal and advertising injury triggered the umbrella policy, the court looked to the exclusion for violation of statutes. The court held that the exclusion barred coverage for the underlying claims. The policy excluded coverage for any liability arising directly or indirectly out of any action or omission that violates or is alleged to violate several statutory schemes, including the TCPA, the CAN-SPAM Act, and “[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 found that the FDCPA fell within the exclusion’s catch-all subsection (quoted above).
The policyholder argued that the FDCPA was dissimilar to the TCPA and the CAN-SPAM Act so it shouldn’t apply. The court rejected this interpretation. Instead, the court held that the FDCPA was a statute that independently met the requirements of the catch-all provision, regardless of whether it was similar to the two enumerated statutes. According to the court, “[t]hat is enough to defeat coverage.” The court held that the umbrella policy’s violation of statute exclusion barred the underlying claim for personal and advertising injury and that the claim was also precluded under the expected or intended injury exclusion. Thus, there was no duty to defend or indemnify and summary judgment was granted.