In 2015, Ocwen Financial Corp. was sued for its attempts to collect on a mortgage loan that had been discharged in bankruptcy. It tendered the defense to Zurich American Insurance Co., but Zurich asserted that two exclusions precluded coverage and sought a declaration from a federal court that it had no duty to defend the underlying complaint. The district court agreed, and the Seventh Circuit affirmed on appeal.
The underlying complaint alleged that Ocwen violated the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) and also committed common law defamation and invasion of privacy. The complaint alleged that Ocwen engaged in aggressive debt collection practices that included “letters, billing statements and repeated robocalls to [the complainant’s] cellular phone” and alleged that Ocwen “made approximately 58 phone calls to [the complainant’s] cellular telephone using an automated telephone dialing system.” Amendments to the complaint added that Ocwen’s collection methods included robocalls to the complainant’s home telephone and that Ocwen and its agents “intentionally and/or negligently” harmed her.
The first exclusion relied on by Zurich precluded coverage for injuries “directly or indirectly arising out of” a violation of the TCPA. The second excluded coverage for liability arising out of a “violation of communication or information law,” specifically excluding alleged violations of the TCPA and “any other federal, state, or local statute … that imposes liability for the [u]nlawful use of [the] telephone.”
Ocwen “seiz[ed] on” the complaint’s allegation that its conduct may have been negligent rather than intentional, thereby creating the possibility that it did not have the requisite intent to violate the FDCPA, triggering Zurich’s duty to defend. As the court described it, Ocwen argued that the complaint’s allegations raised the potential for covered liability under the policy, thereby implicating Zurich’s duty to defend, by “stitch[ing] together two components of [the underlying complaint] to support an argument that it may have placed non-prohibited calls.” Ocwen also argued that the underlying complaint’s allegation that “some or all of the calls to her cell phone” violated the federal statutes raised the possibility that some of the calls did not violate the statutes and therefore were potentially covered.
Under Illinois law, which applied to the dispute, “[i]t is the factual allegations in the complaint, and not the legal labels a plaintiff uses, that matter” in determining whether a duty to defend has been triggered. The court stated that a “natural reading” of the complaint, putting the factual allegations in the context of the complaint as a whole, “precludes [the] linkage” Ocwen attempted to draw between the alleged calls to the complainant’s home phone upon which it based its argument that the TCPA might not have prohibited its conduct. Read in context, it was clear to the court that the relevant allegations only pertained to calls made to the complainant’s cellphone, and the court declined to read a single paragraph in the complaint “in tandem with the stray references to calls to [the complainant’s] home.”
The court also disagreed with Ocwen’s proffered interpretation of the word “some.” Although recognizing Ocwen’s argument was based on “rules of grammatical construction [that] hold true in isolation,” “these rules do not override the text taken as a whole.” In context, the court determined that the reference to “some” could not “be read impliedly to omit calls in the group that it specifically purports to classify” and therefore could not be read to indicate the possibility that some of the relevant phone calls did not violate the TCPA.
The Seventh Circuit ruled that the underlying complaint’s references to Ocwen “intentionally and/or negligently” invading her privacy were “precisely the types of ‘legal labels’ that Illinois courts refuse to credit without factual elaboration.” The court held that, under the relevant FDCPA case law, it was not improper to draw the inference that Ocwen engaged in intentional conduct when it allegedly persisted in calling the complainant after being requested to stop. Accordingly, despite the underlying complaint’s allegation that Ocwen “intentionally and/or negligently” engaged in prohibited acts, because the underlying complaint was properly read to allege only intentional conduct, the exclusions applied, precluding the possibility for coverage under the policy. Therefore, Zurich did not have a duty to defend Ocwen against the underlying complaint.