Federal law makes it illegal to call a residential telephone number with a “telephone solicitation,” if the number has been registered on the National Do Not Call Registry (DNCR).
- A telephone solicitation is defined as a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods or services
which is transmitted to any person.
Because a REALTOR® who makes cold-calls is trying to sell their real estate services, those calls would likely fall under this definition. Brokers are therefore encouraged to maintain written procedures detailing compliance with do-not-call requirements. Policies of this nature are made even more important in that violations may not be covered by insurance.
To obtain a better understanding as to whether coverage exists for violations of the DNCR and Telephone Consumer Protection Act (TCPA), we posed this hypothetical scenario to several Errors & Omissions (E&O) carriers.
While the answers received are insightful, carriers do not make determinations of coverage unless and until an actual claim is reported. As this is not a claim that has yet been tested with carriers, we will have a better idea of how coverage is afforded once an actual claim is submitted.
Four leading E&O providers were nonetheless willing to respond to the hypothetical question posed. However, the individuals that responded on behalf of the carrier did so informally and not through counsel. Their responses reflect only their opinion on a hypothetical scenario and do not act as a formal coverage determination.
In examining the responses received, it is evident that E&O policies vary greatly and a determination as to coverage depends on the provisions within that particular policy, including conditions, limitations, and exclusions.
Additionally, the outcome would hinge on the unique particulars of each individual fact pattern. In some instances, if the claim allegations and wrongful acts arose out of “professional services,” as defined in the policy, coverage may be afforded. In other instances, the offense could be deemed a TCPA violation, and thus an illegal act, in which case coverage may not be afforded.
To complicate matters further, even if coverage is afforded, some policies pay only defense expenses, up to a predetermined amount. In such instances, damages would not be covered.
In considering the carriers’ responses, it appears as though two different scenarios exist, each of which could result in a claim. The first scenario would be a violation pursued by a government agency. Similar to how the Consumer Financial Protection Bureau (CFPB) pursues violations of the Real Estate Settlement and Procedures Act (RESPA), the Federal Communications Commission (FCC) pursues violations of the do-not-call registry.
These types of administrative claims may not be covered unless there is wording in the insurance policy similar to the following provision:
- Proceeding before any state licensing board, local real estate board OR other governmental body regulating professional conduct, alleging misconduct in providing real estate professional services however disciplinary action does not include criminal charges.
Typically, a stated sublimit (limitation on the amount of coverage available) will apply for reimbursement of defense costs which varies by carrier, ranging from $2,500 to $25,000 per complaint. It is worth noting that not all Real Estate E&O policies contain provisions of this nature.
Additionally, even if the policy affords coverage for defense of regulatory complaints, coverage would likely be for defense costs only and would not extend to fines and penalties, which are excluded under most policies.
These types of administrative claims often lead to fines as the TCPA is a strict liability statute. Each call in violation of the statute is subject to a $500.00 penalty – 47 U.S.C. § 227(b)(3)(B). If the caller willful or knowingly violates the statute, then each statutory penalty can be trebled [tripled] – 47 U.S.C. § 227(b)(3).
The second scenario is a claim brought by a third party as a result of direct contact with that individual in a real estate transaction, as opposed to an administrative complaint brought by a government agency.
Notably, the FCC provides for a private right of action, meaning that aggrieved consumers can sue if they are contacted in violation of federal law. Under this scenario, the claim may be deemed to arise out of “professional services,” as that term is defined in the policy, at which point coverage could be triggered.
Again, we cannot say definitively if there is or is not coverage and clearly it will vary by: (i) the carrier; (ii) the coverage afforded by the policy; and (iii) the nature of the allegation.
In light of heightened regulatory scrutiny with RESPA/CFPB and DNCR/TCPA, appropriate coverage could be secured in a Directors & Officers Policy. Such coverage can extend to defense costs arising out of regulatory investigations, however fines and penalties would likely be excluded.
In view of the uncertainty of coverage and potential exposure, real estate firms would be wise to treat all telephonic solicitations as falling under the purview of the DNCR. Brokers should therefore educate their agents on the risks of making unsolicited phone calls and discuss how those agents can comply with applicable federal regulations.
Guest author Lisa Robinson is the president of Pinnacle Insurance Consultants