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Insurance Lead Generation Industry Beware: Court Rules Insurer Vicariously Liable for Actions of Independent Contractors and Their Sub-Agents | Hinch Newman LLP

Insurance lead generation industry take note because an Illinois federal court recently held that Allstate violated the Telephone Consumer Protection Act as a result of the actions of its third party, independent contractors and their sub-agents with whom Allstate had no contractual relationship.

Case Background and Plaintiff’s Motion for Class Certification

Plaintiff Robert Hossfield – a known TCPA plaintiff that has feigned interest in insurance quotes using pseudonyms in an effort to gather enough information about who is calling, purportedly to get the calls to stop – filed a lawsuit against Allstate Insurance Co. alleging that he did not submit his information and that Allstate violated the TCPA by providing a telemarketer that Allstate contracted with a list of consumer leads identifying individuals such as Plaintiff who requested to be placed on Allstate’s internal ‘do-not-call’ list.

Here, two owners of Allstate agencies in Texas hired an intermediary company that, in turn, sub-contracted with another company, which placed the calls at issue. The intermediary contractor did not tell the Allstate agencies about the sub-agent.

In 2022, Plaintiff filed a motion for class certification. The Court subsequently denied Plaintiff’s motion on the grounds that Plaintiff failed to show a large enough class to make joinder impractical. In the order denying the motion, the Court omitted language stating that the denial was “with prejudice.”

Consequently, Plaintiff filed a renewed motion for class certification in 2023 seeking a judicial reconsideration of the aforementioned class certification denial. Plaintiff asserted that he “reviewed the infirmities relied upon by the Court in its original opinion denying his first motion for class certification and modified the class definitions and arguments to address them.”

Allstate moved to strike Plaintiff’s second motion for class certification, arguing that Plaintiff should not be given a “second bite at the apple.”

In January 2024, the Court issued a decision granting Allstate’s motion to strike Plaintiff’s second class certification motion. In doing so, the Court determined that Plaintiff failed to “present either newly discovered evidence or establish a manifest error of law or fact.” Additionally, the Court held that Plaintiff failed to show a “a material change of circumstances to justify revisiting the first class certification ruling.”

Cross Motions for Summary Judgment

Plaintiff and Allstate both filed motions for summary judgment. The parties focused on three questions: (i) whether consent is a defense to Hossfield’s TCPA internal do-not-call claims; (ii) whether, as a factual matter, Hossfield consented to receive the calls at issue (and thus lacks standing to sue if no concrete injury has been suffered); and (iii) whether, under agency law principles, Allstate is vicariously liable for the actions of the contractor and sub-agent despite Allstate not directly placing the calls at issue

Allstate relied upon the purported consent form Plaintiff provided to a third party lead generator, also taking the position that it cannot be liable for the actions (here, calls) initiated by a third party sub-agent of one of its own third party contractors. Plaintiff argued that the

The Court rejected Allstate’s argument and sided with the Plaintiff, who argued that based on various evidentiary facts that the consent form is inadmissible and that Allstate is liable for the actions of its agent’s own agent, regardless of whether Allstate knew of the latter.

Allstate’s Telemarketing Campaign

The Court discussed that the calls at issue here were placed as part of a marketing campaign initiated by two Allstate agents located in Texas. “Allstate gains new business through telemarketing performed by vendors that its agents engage, and with which Allstate has no direct contractual relationship.”

Allstate refers to these vendors as “Non- Contracted Telemarketers.”

During the relevant time period, Allstate permitted its agents (who were required to comply with applicable laws and ensure that the same of outside vendors) “to engage Non-Contracted Telemarketers to initiate calls to consumers for the purpose of encouraging the purchase of Allstate products and services, so long as the agent and Non-Contracted Telemarketers compl[ied] with [Allstate’]s Agency Standards and incorporated [written] Do Not Call Policy.”

Although agents were permitted to use non-contracted telemarketers during the relevant time period, Allstate also maintained a list of disapproved telemarketing vendors with which its agents were not permitted to do business.

Allstate also provided its agents with a four-page internal do-not-call policy. The intermediary contractor, in turn, provided its sub-agent that placed the calls a training manual that included a series of suggested “qualifying” questions the telemarketer should ask the prospect before deciding to which of several insurance providers to transfer the call.

According to the Court’s ruling, the intermediary or its sub-agent “purchased a list of prospective insurance customers, i.e., leads, from another company.” The other company allegedly “represented this list to be “100% opt in,” meaning that the persons on the list had consented to being called.” The “lead list contained Hossfield’s number…”

Allstate argued that Plaintiff Hossfield entered his phone number and pseudonym into a website. How Plaintiff’s number came to be on the aforementioned third party lead list is the subject of dispute.

Allstate Found Vicariously Liable for the Actions of Third Party Sub-Agents

Lead generators take note and confer with an experienced FTC attorney because the Court held that Allstate is vicariously liable for the actions of independent contractors and their sub-agents that Allstate has no direct contractual relationship with.

The TCPA affords a private right to sue to a “person who has received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of the regulations prescribed under this subsection.” The do-not-call regulations provide, “[n]o person or entity shall initiate any artificial or prerecorded-voice telephone call . . . unless such person or entity has instituted procedures for maintaining a list of persons who request not to receive such calls made by or on behalf of that person or entity.” The regulation then lists “minimum standards” the procedures must meet, such as having a written internal do-not-call policy, training of its personnel, recording do-not-call requests, identification of the caller or telemarketer and retaining records of a do-not-call request for five years.

Plaintiff argued that Allstate’s internal do-not-call policies and practices violate the TCPA and its regulations in two ways: (i) by permitting calls to be placed to a number on Allstate’s internal do-not-call list if Allstate believes that it has received prior express consent or invitation for the call; and (ii) by not providing adequately for coordination of Allstate’s internal do-not-call list with non-contracted vendors and sub-agents. Allstate maintains that nothing in the text of the internal do-not-call regulations requires it to coordinate its internal do-not-call lists with non-contracted vendors that market the services of multiple insurance companies.

Vicarious liability is a legal doctrine in which a party can be held liable for the wrongful actions and omissions of third parties, such as contractors and agents. To succeed on his agency theory, Hossfield must show: (i) a principal/agent relationship exists; (ii) the principal controlled or had the right to control the alleged agent’s conduct; and (iii) the alleged conduct fell within the scope of the agency.

An agency relationship can be created through: (i) express actual authority; (ii) implied actual authority; or (iii) apparent authority. Apparent authority exists when a third-party reasonably relies on the principal’s manifestation of authority to an agent.

The Court concluded that:

  • Allstate would be liable if the calls were placed by independent contactors or their sub-agents
  • At a minimum, the TCPA requires coordination of internal do-not-call lists where an agency relationship exists between the defendant and the third party who places a call
  • If the sub-agent acted as Allstate’s agent when it called Hossfeild, Allstate is liable for the sub-agent’s failure to honor Hossfield’s do-not-call requests to Allstate
  • Allstate’s Agency Standards include requirements for agents’ TCPA compliance (such as limiting the times of day during which agents may place calls, expressly incorporate its internal do-not-call policy, and requires its agents and their noncontracted telemarketers to adhere to both policies)
  • Allstate’s Agency Standards dictate what an agent must do when retaining a vendor to place calls to sell Allstate products and services (“[a]gencies should ensure that an external provider offering services through these channels complies with all components of these corporate policies and applicable state and federal laws and regulations. However, you [the agent] are ultimately responsible for ensuring that telephone calls, texts and emails sent by your agency, or any outside vendor on your behalf, comply with applicable federal and state laws.”
  • Allstate authorized its agents to engage outside telemarketing vendors and exercised control over their decisions
  • The intermediary company hired by the Allstate agencies had a contractual relationship which more than suffices to show that Allstate retains complete control over how an agent conducts telemarketing, which vendors an agent selects, and what telephone solicitation activity is permitted
  • A subagency theory has been recognized as a valid basis for imposing vicarious liability in TCPA litigation
  • Allstate’s internal do-not-call policy recognizes that its agents will appoint telemarketing vendors and requires the agent to ensure that they comply with Allstate’s IDNC policy

Therefore, the Court held that “Allstate’s agents appointed [the independent contractor], which in turn appointed [the sub-agent], rendering Allstate vicariously liable for their TCPA violations.”

[T]he undisputed material summary judgment evidence established that: (i) [the intermediary company] were Allstate’s agents with actual authority to hire telemarketing vendors and appoint them as subagents; and (ii) they appointed [the sub-agent]. The court need not reach the parties’ arguments under other agency theories, such as ratification and apparent authority.

Additional important findings by the Court include:

  • No genuine dispute exists that Allstate is liable for failing to honor Hossfield’s do-not-call requests in violation of 47 C.F.R. § 64.1200(d)
  • The Seventh Circuit “generally have interpreted [willful or knowing] to mean voluntary, intentional, actions, and not to require specific knowledge that the action constitutes a violation of the TCPA
  • Allstate raises what amounts to a good faith defense. It submits that it reasonably and in good faith believed that prior express consent or invitation is a defense to a TCPA internal do-not-call claim, that the list of leads on which Hossfield’s number appeared was represented to be 100% opt in, and that Allstate therefore had a good faith basis for not scrubbing the list against its internal do-not-call list. Under the interpretation of the court adopts, to be knowing and willful the defendant’s act [violating the TCPA must] be intentional or volitional, as opposed to inadvertent; it does not require a showing that defendant must have known that the conduct would violate the statute. Allstate does not suggest that the calls were non-volitional in this sense
  • The undisputed summary judgment evidence establishes that the intermediary intentionally and volitionally hired the sub-agent to place calls to sell Allstate services and that calls were deliberately placed to Hossfield’s phone number

The Court denied Allstate’s motion for summary judgment and granted Hossfield’s (on Allstate’s liability for Count II). The Court also granted Hossfield’s motion for summary judgment that Allstate’s violations were knowing and willful.

The matter is Hossfield v. Allstate, 2024 WL 1328651 (N.D. Ill. March 28, 2024).

Takeaway: Lead generators take note because the Court held that Allstate is vicariously liable for the actions of independent contractors and their sub-agents that Allstate has no direct contractual relationship with and did now know about. This decision is a good roadmap about the dangers of utilizing sub-agents and failing to proactively vet, audit and monitor the generation and origination of leads. The Court concluded Allstate had taken no steps to prevent its agents from hiring subagents to engage in marketing. Importantly, that the sub-agent was an agent of Allstate’s agents rendered Allstate was responsible for the conduct of the sub-agent. After reviewing the evidence the Court found that the sub-agent was sufficiently subject to the intermediary’s control to be deemed an agent. Consequently, Allstate was deemed liable for the conduct of all in the chain despite it having no knowledge of the hiring of the sub-agent. Consult with an experienced ecommerce lawyer with respect to the design and implementation of written do-not-call policies; how personnel involved must be informed and trained in the existence and use of do-not-call lists; and how callers must provide called parties with the name of the individual caller, the name of the person or entity on whose behalf the call is being made, and a telephone number or address at which the person or entity may be contacted.

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