Two weeks after Overstock.com’s roll-out of its new turnkey nationwide insurance agency, (See Will “Turnkey” Agencies Hurt Local Independent Agencies?) a disgruntled prospect filed a nationwide class action against the agency for secretly recording his interaction with a sales representative.
Alleged to have solicited insurance prospects and record the calls without consent
The California Division of Insurance licensed the Overstock.com Insurance Agency to do business on February 6, 2014. On May 16, 2014, a prospective California insured sued the Overstock.com Insurance Agency in a nationwide class action filed in Federal court for recording cell phone conversations without obtaining a potential customers’ assent as required by California law.
The class action plaintiff, Justin Maghen, alleges in his lawsuit that Overstock.com Insurance Agency called his cell phone on March 12, 2014, attempting to solicit his insurance business. He further alleged that he discussed “highly personal and private financial information that [he] had not openly discussed with others.” But after speaking with the insurance agency’s representative for a period of time, he inquired as to whether to phone call was being recorded and was advised that the entire conversation had been recorded. Thereafter, Mr. Maghen terminated the call with Overstock.com Insurance Agency’s representative because he was angry that the agency had been recording the call without his knowledge and without his consent.
His class action against the Overstock.com Insurance Agency followed two months later.
California’s strict cell phone recording law and ubiquitous class actions
In the last year, California law firms have filed well over a hundred class actions in both state and Federal courts alleging that companies illegally recorded cell phone conversations in the ordinary course of their businesses.
These suits have a legal basis because California, like 11 other states including Massachusetts, prohibits anyone recording telephone calls without the consent of all parties on the call. While California does limit its land-line recording prohibition to confidential communications, a separate statute in that state prohibits recording any cell phone conversations without the consent of all parties regardless of the calls content.
Under this law, a person or company secretly recording a cell phone call faces minimum statutory damages of $5,000 per call recorded.
If a defendant in one of these class actions has recorded a large number of cell phone calls in California without the consent of all parties, the potential statutory penalties can quickly total a substantial, if somewhat theoretical, number. In this case, if the Federal court allowed the suit to proceed as a class action, the $5,000 penalty per violation would potentially allow all the persons whose cell phone conversations Overstock.com Insurance Agency recorded to recover damages.
The allegations of the class action against the Overstock.com Insurance Agency do not specify the potential damages sought, other than alleging that the claim exceeds the $5 million jurisdictional threshold for filing the class action in Federal Court.
Insuritas and its affiliated agency not named in lawsuit
As related in Agency Checklists’ article of May 18, 2014, cited above “Will ‘Turnkey’ Agencies Hurt Local Independent Agencies?“, a Connecticut company, Insuritas, and its operating affiliate manage all the operations of Overstock.com’s insurance agency. So it appears likely that any non-consensual recording of the Overstock.com Insurance Agency’s customer, if it occurred, likely occurred because of Insuritas’ or its affiliate’s standard insurance marketing practices. Presently, only Overstock Insurance Agency appears as the named party in the lawsuit. However, since Insuritas operates other turnkey agencies, including at least one for a large California credit union, this type of suit if expanded to Insuritas’ other clients could possibly become a costly glitch in its present turnkey insurance agency business model.
The Massachusetts’ statute against secretly recording calls has minimum $1,000 penalty
Massachusetts, like California requires that all parties to a telephone communication consent to the call’s recording.
If a party, or anyone else, records the telephone call, the civil remedies under the Massachusetts statute in some respects exceed those of the California statute. The California statute does have greater fixed penalty ($5000) than the Massachusetts statute ($1000). However the Massachusetts statute explicitly provides for the award of both punitive damages and the recovery attorney’s fees for any proven violation.
Agency Checklists obtained a copy of Mr. Maghen’s complaint against Overstock.com Insurance Agency, United States District Court Central District of California, Civil Action, 2:14-cv-03818, entitled “Class Action Complaint For Damages And Injunctive Relief Pursuant To California Penal Code § 632.7” can be found here: Maghan v. Overstock Insurance Agency.