Md. App. Holds Collection Agency License Not Required for Insurance Company Pursuing Subrogation Rights Against Consumer

In Old Republic Insurance Company v. Gordon, the Court of Special Appeals of Maryland determined that an insurance company under a credit insurance policy was not required to hold a collection agency license when it sued a consumer to enforce its subrogation rights under the policy.   At issue was the interpretation of the Maryland Collection Agency Licensing Act, Md. Code, Bus Reg. § 7-101, et seq. (“MCALA”), which defined “collection agency” to include any person engaged directly or indirectly “in the business of” collecting a consumer claim if the claim was in default when the person acquired it.  See Md. Code, Bus. Reg. § 7-101(c).  The Court concluded that the term “in the business of” was ambiguous, and, relying upon the legislative history of MCALA, determined that an insurance company pursuing subrogation rights under its credit insurance policy did not fall under the definition of “collection agency.” 

A copy of the opinion is located here


Insurance Company issued a credit insurance policy to Lender to insure payments due under a mortgage loan made to Borrower.  Following Borrower’s default, Insurance Company paid Lender pursuant to the policy.  Insurance Company then sought repayment from Borrower under subrogation rights provided in the policy.  After Borrower’s failure to pay, Insurance Company ultimately sued Borrower. 

Borrower challenged the lawsuit, claiming that Insurance Company could not obtain a judgment against her because it had acted as an unlicensed collection agency under § 7-101(c) of MCALA, rendering any possible judgment against her void pursuant to the Court of Special Appeals’ ruling in Finch v. LVNV Funding LLC, 212 Md. App. 748 (2013).  Borrower claimed that, because Insurance Company obtained the right to collect the debt after her default, it constituted a “collection agency,” which under Section 7-101(c).

The trial court agreed with Borrower, holding that under MCALA’s plain language, Insurance Company was acting as a collection agency because it was asserting a consumer claim related to a debt that it acquired while the debt was in default.  The trial court found immaterial that Insurance Company acquired the debt through a subrogation agreement rather than a debt purchase.  Consequently, the trial court granted summary judgment to Borrower and dismissed Insurance Company’s lawsuit with prejudice.  This appeal followed. 


Noting its prior holding in Finch that “a judgment entered in favor of an unlicensed debt collector constitutes a void judgment,” the Court determined that resolution of the appeal hinged on whether Insurance Company, in pursuing its subrogation rights against borrower, was a ‘collection agency’ under MCALA and required to hold a license.  Op. at 13.  Notably, the exclusions under Section 7-102, were not applicable.  Op. at 13, n. 4 (“[MCALA” specifically excludes certain persons, such as a bank and a mortgage lender.  BR § 7-102. . . . “[A]n insurance company pursuing subrogation rights is not included in this list.”).

The Court considered the language of § 7-101(c), which defined “collection agency” to include persons engaging “in the business of” collecting a consumer claims if the claim was in default when the person acquired it.  Op. at 18.  The Court determined that § 7-101(c)’s phrase “in the business of” had been interpreted differently by courts:  some considered the nature and extent of the activity, while others interpreted the phrase more broadly.   Consequently, the appellate court concluded that the phrase was ambiguous.  Op. at 18-20. 

The Court then examined MCALA’s legislative history and determined that the Legislature did not intend § 7-101(c) to target insurance companies pursuing subrogation rights.  Op. at 22.  Specifically, the expansive definition of collection agency was the result of an amendment in 2007.  The Court observed that the 2007 amendments of MCALA were specifically intended to regulate debt purchasers, who purchase debts at a discount or are otherwise compensated on a contingent basis.  Op. at 20-21.  

Given that Insurance Company was not a “debt purchaser” that purchased Borrower’s debt at a discount, the Court determined that it did not constitute a “collection agency” under the purview of MCALA.  Moreover, the Court noted that “[b]ecause an insurance company pursuing subrogation claims does not qualify as a collection agency, there wasneed to include an insurance company in the list of exclusions [from the definition of ‘collection agency’] found in BR § 7-102.”  Op. at 22, n. 9.   Accordingly, the appellate court reversed the judgment of the trial court.