This is the next in a continuing series of articles reprinted from the manuscript of the author's article published by Westlaw Publishing Co., "Force-placed, Lender-placed Insurance Class Actions: Is the Lender Placement of Insurance Authorized by Law, Or Simply Beyond the Reach of the Courts?", 35 Insurance Litigation Reporter 221 (2013) © 2013 Thomson Reuters. Installments in this series will alternately be presented here and on Insurance Claims Bad Faith Law Blog. Permission to reprint from the author's manuscript is given by John K. DiMugno, Esquire, Editor-in-Chief of ILR, by Thomson Reuters Westlaw, and by the author.
The Most Frequently Alleged Claims and Causes of Action in the force-placed insurance cases.
1. Breach of Contract. The most frequently alleged claim or cause of action in the force-placed insurance cases is breach of contract.[1] Most Federal Courts in most cases have denied Rule 12(b)(6) motions to dismiss for failure to state a breach of contract claim upon which relief could be granted. Nonetheless, since these breach of contract claims were alleged for the first time, the Courts have mostly resolved several problems inherent in the claim for alleged breach of contract in these cases.
Only a party to a contract can breach it, or be the object of a breach of contract claim. It has been held that a mortgage servicer was not a party to the mortgage contract, and accordingly its motion to dismiss the breach of contract claim was granted.[2]
Illustrating the difference between the majority and minority views concerning whether a lender can force the placement of insurance at levels above the amount of the loan balance, a District Judge in another case recited that "[t]his order finds that Wells Fargo did not breach its contract with plaintiffs simply by requiring flood insurance above the minimum amount required by federal law. Plaintiffs have not alleged that the $58,000 of insurance required and purchased by Wells Fargo for their property was over and above the replacement cost value."[3]
To be continued. Have a Happy Fourth!
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[1] E.g., Lass v. Bank of America, N.A., 695 F.3d 129, 135, 137 (1st Cir. 2012)(Massachusetts law); Kolbe v. BAC Home Loans Servicing, LP, 695 F.3d 111, 121-22 (1st Cir. 2012)(New Jersey law). It is important to point out that the breach of contract claims alleged in the force-placed insurance cases are based on the same contract documents, quoted earlier and at length in this article, upon which the defendant lenders based their claims of authority to force the placement of insurance in the first place. "This language provides a basis for the claim that Defendants may force-place insurance only to the extent such insurance 'is necessary' to protect the property's value and Defendants' rights in the property." McNeary-Calloway v. JP Morgan Chase Bank, N.A., 863 F. Supp. 2d 928, 956 (N.D. Cal. 2012)(Spero, USMJ). Accord, Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *16 (N.D. Cal. December 11, 2012)(Beeler, USMJ). One District Judge has pointed out that there will be a different result, and no breach of contract or misrepresentation either for that matter, if the mortgage contract documents expressly allow a lender's "affiliated insurance agent" to "collect a commission from the [force-placed] insurer." Schilke v. Wachovia Mort., FSB, 820 F. Supp. 2d 825, 832-33 (N.D. Ill. 2011).
[2] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *22 (N.D. Cal. January 9, 2013). See McKenzie v. Wells Fargo Home Mort., Inc., 2012 WL 5372120 *20 n.12 (N.D. Cal. October 30, 2012; Spero, USMJ).
[3] Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *9 (N.D. Cal. January 24, 2013)(holding that lender's security interest included replacement cost value). [Emphasis added.]