Prevailing TCPA Plaintiff Sues Debt Collector's Insurer for Bad Faith Failure to Settle the Case Within the Policy's Limits

Back in September, insideARM republished a TCPAWorld article about the massive $267 million TCPA verdict entered against a debt collector in California. The plaintiff in that case has now sued the debt collector's insurance company XL America—through Indian Harbor Insurance Company— for a bad faith failure to settle the case within the policy's limits. According to the lawsuit, filed in the Northern District of California earlier this week:

The insurance company rejected multiple settlement offers ranging from $60,000 to $825,000, walked out of mediation without making a settlement offer, and refused to negotiate for more than two years.

The complaint continues:

During all of the relevant times herein, there was a great risk of recovery beyond the policy limits and the reasonable manner of disposing of the Lawsuit was to accept each of Plaintiffs’ settlement offers when they were made, and/or to participate in settlement negotiations in good faith rather than refusing to negotiate.

The debt collector executed an agreement with the plaintiffs to assign the cause of action against the insurance company in exchange for plaintiffs not enforcing the judgment. The plaintiff's acting as the debt collector's assignees to the judgment, post-judgment interest, and attorney fees, filed the suit against the insurance company in the debt collector's stead. 

The policy had a coverage limit of $3,000,000 with a $1,000,000 sub-limit for claims arising out of TCPA claims. The insurance company had the right to select defense counsel and had overwhelming authority regarding negotiations and settlements of covered claims. 

insideARM will follow this case as it makes its way through litigation.

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insideARM Perspective

This lawsuit could have big implications for debt collectors. On one end of the spectrum, if TCPA liability against debt collectors continue a trend of incredibly high dollar values—like the nine-figure verdict in this case—insurer might be reluctant to cover them or might significantly increase the cost of insuring such claims.  On the other end, it might encourage insurance companies to quickly resolve covered claims. With that said, there are many good-faith reasons for not engaging in negotiations and rejecting settlement offers. Especially with a statute like the TCPA, which can turn a quick buck for plaintiffs and their counsel in settlements through the practice of mass filings, the buck has to stop somewhere and endless settlements may not be the answer. Regardless of the details, this case will be interesting to watch as it unfolds.