That app is (obviously) called Bolt, and it is something of a hybrid between an Android dialer replacement and a competitor to apps like Facebook Messenger or Viber. The existing Bolt app allows for free calls and messaging between users, but it uses your normal contract minutes for other calls. Unsurprisingly, Bolt founder Andrew Benton is unhappy with the rumors that Instagram would release an app with the same name, and has posted on Bolt's blog to kindly ask Instagram to not cause confusion with users. He wishes Instagram success in its efforts, but also says:
Benton goes on to say that he doesn't want to take legal action, but will protect his company and its name if need be. He is even nice enough to offer to share a list of alternative names that Instagram could use for its new app, since there is still time to change the name of the app, which has yet to be officially released.
Whether or not Instagram listens is a very different conversation, though. Instagram is run separately, but is officially part of Facebook. Facebook notably doesn't care at all about stepping on existing brands, as evidenced by its recent app called "Paper", which stirred up the annoyance of the existing drawing/painting iPad app of the same name.