Judge Rules Subrogation Claim Not ‘Debt’ Under FDCPA

In a case that was defended by the team at Kaufman Dolowich & Voluck, a District Court judge in Pennsylvania has granted a motion for judgment on the pleadings filed by defendants in a Fair Debt Collection Practices Act case, ruling that insurance subrogation claims do not meet the definition of “debt” under the statute.

A copy of the ruling in the case of Chavanne v. Erie Insurance and Second Look can be accessed by clicking here.

The defendants were attempting to collect on a subrogation claim after a fire broke out at the property where the plaintiff lived and rented from one of the defendants. The defendant’s letter informed the plaintiff that it had settled the claim with the property’s owner, but that it had a private right of recovery under the terms of its policy. The letter requested that the plaintiff provide her insurance information to the defendant or contact a subrogation specialist if the plaintiff did not have any insurance.

The plaintiff hired a lawyer and the lawyer contacted the defendants, asking that all future communications proceed through counsel. The plaintiff filed suit, alleging the letters violated the FDCPA, the Fair Credit Extension Uniformity Act, and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

Looking at caselaw on whether this type of transaction meets the FDCPA’s definition of a “debt,” Judge Jeffrey Schmehl of the District Court for the Eastern District of Pennsylvania sided with the defendants that the subrogation claim was not part of the plaintiff’s contract with her landlord and therefore not a debt under the FDCPA. Ultimately, the subrogation claim in this case did not arise from a consumer purchase and therefore was not a debt as far as the FDCPA was concerned. “There was no contractual relationship” between the plaintiff and the defendants that sent the letter, Judge Schmehl noted. “Whether set intentionally or unintentionally, the damages that flow from the fire are tort damages, not contract damages,” he wrote.

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