Claims And Issues

First of the Most Alleged Defenses to FPI Claims.

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.

    In this installment, we continue our series with our first look at the most frequently alleged defenses to force-placed insurance claims.

 

      II. D. The Defenses raised in Rule 12(b)(6) motions in Federal putative class action cases of claims arising from force-placed insurance.  There are three overall groups of defenses falling under this heading.  They include preemption, the filed rate "doctrine," and a voluntary payment "doctrine".  Each will be discussed in turn.

     1.  Preemption.  Preemption by Federal statutes of conflicting State law generally centers on the National Bank Act in these cases.  It has been held that any Court must begin its analysis of this issue by considering "the conduct on which the claims are based (and not just the categories of the claims)."[1]  The National Bank Act clothes federally chartered banks with immense powers including "all such incidental powers as shall be necessary to carry on the business of banking."[2]  This includes real estate lending.[3]  However, by Federal regulation, even conflicting State laws are not preempted "to the extent they only incidentally affect the exercise of national banks' real estate lending powers," such as the law of contracts and the law of torts in a given State.[4]

     Examining first the common core of operative allegations of fact, it has been held that "kickback" allegations do not challenge premium charges.  A lender's alleged practice of selecting the insurance company to earn kickbacks for itself rather than selecting an insurance company "through a competitive bidding practice" does not state a State law claim which conflicts with nor is preempted by the NBA.[5]

     "Backdating" allegations have been held by the same Court not to constitute a challenge to the setting of insurance premiums, either, and further that the NBA accordingly does not preempt claims based upon these fact allegations, either.[6]

     Next examining the commonly alleged claims in these putative class action cases, Courts have also looked at the legal bases for the alleged claims and compared them to the legal purpose behind the NBA.  Using this analysis, Courts declare that over all, State laws of a general nature which are not directed at activities of national banks are not preempted by the NBA.  Such State laws which merely "incidentally affect the exercise of national banks' insurance activities" are not preempted by the NBA.  It has been so held in force-placed insurance putative Federal class action cases.[7]

     Thus, it has been expressly held that claims for breach of the implied covenant of good faith, and unjust enrichment, are not preempted by the National Bank Act.[8]

     In summary, preemption arguments based on the National Bank Act (and no preemption arguments have been found in these cases based on any other Federal laws) pretty uniformly fail in putative Federal class action cases of force-placed insurance claims, although such arguments are often made.  One Court recently disposed of this argument as follows:

 

     Plaintiffs also challenge Wells Fargo's charge for commission fees that it actually received through its affiliate. That is, plaintiffs have alleged a scheme whereby Wells Fargo misrepresented the nature and purpose of supposed commission fees. Pursuant to this scheme, Wells Fargo did not perform any work in procuring an insurance policy because of the bank's exclusive purchase agreements with QBE. Wells Fargo nonetheless charged as costs to plaintiffs[,] commission fees that it then received back through its affiliate. Wells Fargo essentially paid itself for work it did not do, passing through to plaintiffs an unjustified and illusory charge. Plaintiffs' claims thus do not affect Wells Fargo's ability to set fees or prices; rather, the core of the allegations is that Wells Fargo wrongfully charged plaintiffs for work that it neither actually performed nor actually paid for.[9]

To put the same observations more concisely, perhaps:

In other words, Plaintiffs' claim is not addressed at Wells Fargo Bank being "enriched" by Plaintiffs, but at it being "unjustly enriched."  The claim does not seek to impose requirements on Wells Fargo Banks' conduct; it simply seeks the return of funds unjustly paid to Wells Fargo Bank pursuant to the force-placed insurance scheme.  Courts have held similar claims not to be preempted by the NBA.[10]

 

To be Continued.  Please Read the Disclaimer.

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[1] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *8 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[2] 12 U.S.C. § 24.

 

[3] 12 U.S.C. § 371.

 

[4] 12 C.F.R. § 34.4.

 

[5] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *9-*11 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[6] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *12 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[7] The language quoted in the text comes from the Court's holding in Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *9 (S.D. Fla. October 14, 2011).  In accord with this holding are, e.g., Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *12, *13 (N.D. Cal. January 24, 2013); Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *20-*21 (N.D. Cal. January 9, 2013).

   

[8] Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *10 (S.D. Fla. October 14, 2011).  In that case, as to the plaintiffs' implied covenant claim, the Court observed that "[i]ndeed, numerous courts have recognized that this type of claim is not preempted by the NBA."  With respect to the plaintiffs' unjust enrichment claim in that case, the Court made a similar observation:  "Courts have held similar claims not to be preempted by the NBA."  Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *10 (S.D. Fla. October 14, 2011).   

 

[9] Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *13 (N.D. Cal. January 24, 2013).

 

[10] Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *10 (S.D. Fla. October 14, 2011).  [Emphasis by the Court.]

To be Continued.  Please Read the Disclaimer.

Last of the Most Alleged Force-Placed Insurance Claims.

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.

    In this installment, we continue our series by concluding our look at the most frequently alleged claims and causes of action in force-placed insurance cases.  Next up:  Defenses.

 * * *

     8.  The Federal Real Estate Settlement Procedures Act ("RESPA").     The Federal Real Estate Settlement Procedures Act contains an express prohibition against giving or taking kickbacks or any "thing of value pursuant to any agreement or understanding ... that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person."[1]  The tagline is "real estate settlement service," a term of art defined in RESPA as any service "provided in connection with a real estate settlement," in part here pertinent.[2]

     Lenders force the placement of insurance after a real estate settlement, at least as alleged in putative class action cases confronting motions to dismiss to date.  For that reason, Rule 12(b)(6) motions have been granted in such cases as to claims alleged under RESPA.[3]

     Where the defendant lender is also shown by record proof to have complied with RESPA without a genuine issue of material fact, such as where the alleging plaintiffs did not establish actual damages on the case record, summary judgment has been granted for the defendant on a RESPA claim in putative class action force-placed insurance cases.[4]

     9.  The Federal Truth-in-Lending Act.  The Federal Truth-in-Lending Act is given force by its regulations.  The well-known "Regulation Z," for example, is actually a collective reference to a set of regulations promulgated under the Truth-in-Lending Act or "TILA" by the Federal Reserve Board.  Under 12 C.F.R. § 226.18(d), for example, a lender-creditor is required to disclose a finance charge.  "Finance charge" by definition "can include a premium for property insurance.  See id. § 226.4(b)(8)".[5]  Observing that "it is not clear" how alleged failures to disclose concerning the forced placement of insurance "could constitute a violation of TILA," a District Court accordingly limited "its consideration of the TILA claim to whether there has been a violation of § 226.18(d)."[6]  The Court ultimately denied the motion to dismiss the TILA claim "to the extent it is based on a kickback or backdating theory."  The Court granted the motion to dismiss the TILA claim to the extent that it was based on "'pure' excessive coverage" allegations.[7]

     Rule 12(b)(6) motions have gone beyond arguments that legally cognizable claims, so to speak, have not been alleged on the face of the operative allegations in putative class action cases arising from the forced placement of insurance.  Rule 12(b)(6) motions in such cases have included arguments for dismissal based on defenses allegedly appearing from the face of the complaints, usually if not always premised on the plaintiffs' allegations of fact, as reasons why the complaints fail to state claims upon which relief can be granted.

To be continued, addressing the most commonly alleged defenses in force-placed insurance cases.  Please Read The Disclaimer.

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[1] RESPA § 2607(a)(2), 12 U.S.C. § 2607(a)(2).

 

[2] RESPA § 2602(3), 12 U.S.C. § 2602(3).

 

[3] E.g., Lane v. Wells Fargo Bank, N.A., 2013 WL 269133 *15 (N.D. Cal. January 24, 2013); Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *17-*18 (N.D. Cal. January 9, 2013); McNeary-Calloway v. JP Morgan Chase Bank, N.A., 863 F. Supp. 2d 928, 952 (N.D. Cal. 2012)(Spero, USMJ).  The status of the case law in April, 2013, however, did not prevent the Federal Consumer Financial Protection Bureau and four mortgage insurance companies from settling claims of improper "kickbacks" paid by the insurance companies to lenders who allegedly imposed the charges regardless of a prohibition against kickbacks in RESPA.  See, e.g., Press Release, "The CFPB Takes Action Against Mortgage Insurers to End Kickbacks to Lenders" (Consumer Financial Protection Bureau, April 4, 2013); Jim Puzzanghera, "Regulators Probing Alleged Mortgage Insurance Kickback Scheme" (Los Angeles Times Online at www.latimes.com, posted April 4, 2013).

 

[4] Webb v. Chase Manhattan Mort. Corp., 2008 WL 2230696 *13 (S.D. Ohio May 28, 2008).

 

[5] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *15 (N.D. Cal. January 9, 2013).

 

[6] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *15 (N.D. Cal. January 9, 2013).

 

[7] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *17 (N.D. Cal. January 9, 2013).  A similar holding on similar allegations that a lender placed insurance by force "in excess of the outstanding loan balance," was reached by another District Judge in the same District, in Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *14-*15 (N.D. Cal. January 24, 2013).

 

Please Read The Disclaimer.

Unconscionability and Conversion in Force-Placed Insurance.

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.

    In this installment, we continue our series by examining the most frequently alleged claims and causes of action in force-placed insurance cases.

 

 The Most Frequently Alleged Claims and Causes of Action in the force-placed insurance cases.

 * * *

     5.  Unconscionability.  Courts have doubts about whether the remaining 'equitable' claim, so to speak, in the force-placed insurance cluster of cases is really a claim at all.  Even if it is a claim or cause of action, one Court has pointed out in a particular case that it could not grant money damages because in that case the plaintiff borrowers were asking for a "refund" of all "hidden profits or other financial benefits".  Therefore the Court in that case granted a motion to dismiss the plaintiffs' "unconscionability" claim in a case involving Florida substantive law.[1]

     However, in another case involving Florida substantive law, the defendant's motion to dismiss the plaintiffs' unconscionability claim was denied under similar allegations.  A different Federal Judge held in a case filed in the same District Court that Florida law recognizes an unconscionability claim where the plaintiffs demonstrate both "procedural" and "substantive" unconscionability.  Since the plaintiffs in that case established both "procedural unconscionability"[2] and "substantive unconscionability,"[3] the defendant's motion to dismiss was denied.

     6.  Conversion.  This is the last of the torts, so to speak, the last of the common law causes of action or equitable claims which are most frequently alleged in putative class action force-placed insurance cases.  It has survived Rule 12(b)(6) motions to date which have been filed in a pair of Northern District of California cases decided in January, 2013, in which the Courts applied Arkansas law[4] and Florida law,[5] respectively, and with the same result.  In both cases, the tort of conversion was viewed by two different District Judges as being outside of the contract, in one case because the plaintiffs' "kickback" allegations raised claims involving fact issues which could not be determined short of trial or summary judgment,[6] and in the other case for two reasons, first because the conversion claim was alleged against a mortgage servicer which was not a party to the mortgage contract, and second because "the tort by Wells Fargo is independent of the breach of contract as the contract does not on its face address kickbacks or backdating."[7]

     A conversion claim in a first-party case did not survive a Rule 12(b)(6) motion in the District of Columbia, however.[8]  The District Judge gave one, or perhaps two, reasons for its ruling dismissing the conversion claim alleged in that case.  First, "[t]he Plaintiff does not allege that the Defendants exercised unlawful control over her personal property, nor does she articulate a right to any specific identifiable fund of money.  The Plaintiff fails to state a claim for conversion."[9] Later in the same opinion, the Court summarized all its holdings, and in particular with respect to the Court's holding with respect to dismissal of the alleged conversion claim in that case, the Court stated that "[a] claim for conversion is unavailable because the Plaintiff's allegations concern only the payment of money."[10]     

To be continued.  Please Read The Disclaimer.

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[1] Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *4 (S.D. Fla. October 14, 2011).

[2] "Procedural unconscionability is satisfied here because of the disparity in bargaining power between Plaintiffs and Defendant."  Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273, 1279 (S.D. Fla. 2009).

[3] "Regarding substantive unconscionability, Plaintiffs have alleged sufficient facts showing that, had they known the full extent of Defendant's permissible conduct under the contract, no reasonable person would have agreed to it.  Whether or not a reasonable person would have actually agreed to it is a factual question that cannot be decided on a motion to dismiss."  Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273, 1279-80 (S.D. Fla. 2009).

[4] Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *11 (N.D. Cal. January 24, 2013).

[5] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *24 (N.D. Cal. January 9, 2013).

[6] Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *11 (N.D. Cal. January 24, 2013).  The same plaintiffs failed, however, to adequately plead a conversion claim based on a mere conclusory allegation of "improper backdating of insurance procured for plaintiffs' property" [emphasis added], and failed to plead any claim based on such an allegation, the Court held in that case.  "Plaintiffs have not, however, sufficiently alleged that Wells Fargo engaged in improper backdating of insurance procured for plaintiffs' property."  Lane v. Wells Fargo Bank N.A., 2013 WL 269133 *11 (N.D. Cal. January 24, 2013). 

[7] Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *24 (N.D. Cal. January 9, 2013).

[8] Cannon v. Wells Fargo Bank, N.A., 2013 WL 764964 *19 (D.D.C. March 1, 2013).

[9] Cannon v. Wells Fargo Bank, N.A., 2013 WL 764964 *19 (D.D.C. March 1, 2013).

[10] Cannon v. Wells Fargo Bank, N.A., 2013 WL 764964 *19 (D.D.C. March 1, 2013).

 

Breach of Fiduciary Duties Claims in Force-Placed Insurance.

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.

    In this installment, we continue our series by examining the most frequently alleged claims and causes of action in force-placed insurance cases.

 

 The Most Frequently Alleged Claims and Causes of Action in the force-placed insurance cases.

 * * *

     4.  Breach of Fiduciary Duties.  This claim does not appear to be alleged frequently in force-placed insurance cases.  When it is alleged and when it is attacked by a motion to dismiss for failure to state a claim, an alleged breach of fiduciary duties claim tends to rise and fall with other claims based on the same common nucleus of operative facts, so to speak.

     A claim in which a plaintiff borrower alleged that her lender "had a fiduciary duty in connection with managing her escrow account," which duty was breached when the lender allegedly charged her for "excessive" insurance "and related commissions ... in an act of self-dealing," stated a claim sufficient to withstand a Rule 12(b)(6) motion to dismiss.  "Our discussions of the other claims inevitably lead to the conclusion that the dismissal of the fiduciary duty claim also was premature."[1]

     In contrast, the plaintiffs in another case failed to state a claim for alleged breach of fiduciary duties under Arkansas law, for two reasons, one legal and the other factual.  The legal reason for decision was that the Court in that case was not provided with any authority "that the mere maintenance of an escrow account for the payment of routine fees and expenses creates a fiduciary duty and gives rise to a relationship that is 'more than a debtor-creditor relationship' under Arkansas law."[2]

Moreover, in any event, the plaintiffs in that case did not allege a universally required fact element of a fiduciary relationship in that case:  They did not allege a relationship of trust.[3]

To be continued.  Please Read The Disclaimer.

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[1] Lass v. Bank of America, N.A., 695 F.3d 129, 141 (1st Cir. 2012).

 

[2] Lane v. Wells Fargo Bank, N.A., 2013 WL 269133 *11 (N.D. Cal. January 24, 2013).  Accord as to Texas law:  McKenzie v. Wells Fargo Home Mort., Inc., 2012 WL 5372120 *22 (N.D. Cal. October 30, 2012; Spero, USMJ).

 

[3] Lane v. Wells Fargo Bank, N.A., 2013 WL 269133 *11 (N.D. Cal. January 24, 2013).  Accord as to New Mexico law:  McKenzie v. Wells Fargo Home Mort., Inc., 2012 WL 5372120 *23 (N.D. Cal. October 30, 2012; Spero, USMJ).

 

 

Exclusion a is an Intentional INJURY Exclusion.

          In the case of New Hampshire Indem. Co. v. Scott, 910 F. Supp. 2d 1341 (M.D. Fla. 2012), the Court ruled consistently with Florida insurance law, New Hampshire Indem. Co. v. Scott, 910 F. Supp. 2d 1341, 1347 (M.D. Fla. 2012), and with the language of the insurance policy in the case before it, New Hampshire Indem. Co. v. Scott, 910 F. Supp. 2d 1341, 1342 (M.D. Fla. 2012), to hold that the insured driver of a two-ton truck who drove up to a pedestrian, and pulled the truck alongside her, and then proceeded to snatch the pedestrian's purse as a result of which she was injured, was excluded from coverage because the insured driver intended to cause the injuries as a matter of law applied to these facts and allegations.

          More concisely, the Court granted the insurance company's motion for summary judgment and summarized its holding in that case as follows:

Neither the policy language, nor public policy, nor precedent, nor prudence tolerates the notion that an “auto accident” includes Scott's criminal attack and that the result of an attack with a two-ton truck (or the operation of a “motor vehicle as a means to commit a robbery by sudden snatching”) is not “intentional.”

New Hampshire Indem. Co. v. Scott, 910 F. Supp. 2d 1341, 1349-50 (M.D. Fla. 2012).

 

Please Read The Disclaimer.

Pull it Off the Computer, Print it, we're done.

Canadians Wade into Sandy Losses With Their Own Computer Models, and the Insurance Information Institute (III) Estimates Too.

    Aon Benfield, based in Canada, estimates that as of May, 2013 the known and predicted losses from Sandy include "$72 Billion in total economic loss".  "Aon Benfield's cat modeling arm" estimates that total "insured losses" included in that amount "are estimated to be $30 billion.  The $30 Billion estimate of the Cat Modelers includes roughly $7.2 billion" in Flood Insurance payouts.  "$72 billion in total economic loss from Hurricane Sandy:  Aon Benfield" in "Daily News" posted online on May 14, 2013 by Canadian Underwriter.ca.

    The industry publication reports from Canada on a confusing and apparently competing array of facts.  The apparent conclusion is that Sandy may not trigger Hurricane Deductibles.  On the other hand, the computer modelers are reportedly convinced that (excluded) flood and surge caused much more damage than (covered) wind perils.

    The Insurance Information Institute reported in "The Topic" online in July, 2013 regarding "Catastrophes:  Insurance Issues".  The III posting announced a much lower estimate of insurance claims at that time as a result of Sandy, in the amount of $18.8 Billion, nearly half of the estimated Canadian Underwriter amount in May, 2013, cited above.  Total Sandy damage was also reported by the III in its post as of July, 2013 at $50 Billion, a figure clearly less than the estimated $72 Billion in total economic loss, above.

    Like the Canadian source discussed above, however, the III too concludes that most of the claimed Sandy damage is excluded and otherwise not covered under homeowner's policies or commercial policies purchased by small businesses.  Insurance Information Institute, "Catastrophes:  Insurance Issues / THE TOPIC JULY 2013," posted online at http://www.iii.org/issues_updates/catastrophes-insurance-issues.html#at_pco=cfd-1.0.

 Please Read The Disclaimer.

Legal Mad Men, Mad Women: Swimming in the Secretarial Pools.

   A Wall Street Journal article highlights the changing employment status of assistants in law firms.  (Apparently people on Wall Street, or at the Journal, still refer to assistants as legal secretaries.)  See Jennifer Smith and Joe Palazzolo, "Legal Secretary, A Dying Job" p. B1, col. 1 (Wall Street Journal, Thursday, June 27, 2013)(your browser may strip out unknown links from this Wall Street Journal hyperlink).

    The article describes a workplace innovation adopted by many law firms:  Have a group of clerical staff members work not under a lawyer but under a manager, and have the manager and not the lawyers assign the work.  In other words, have a secretarial pool, a phrase from the early 1960's which actually does not appear in the report.

    The idea apparently strikes management as too good not to take credit for bringing back.  Old saying:  Everything is changing, nothing is new.

Our next post, on Wednesday, will continue our series on Force-Placed Insurance.  Please Read The Disclaimer.

Ads Against Health Care Law.

"Americans for Prosperity, a conservative advocacy group backed by Charles and David Koch, will run television ads against the new federal law."

New York Times, Sunday, July 7, 2013.

 

          These are extraordinary times.

           There is no national election this year.  Yet reportedly in the six years between 2010 when the Affordable Care Act was signed and 2015, it is estimated that $1,000,000,000.00 or $1 billion "will be spent on ads that criticize or defend it."  Jeremy W. Peters, New York Times, p. A12, col. 1, Sunday, July 7, 2013.

           The Affordable Care Act is the law.  Yet "more" than $1,000,000.00 of the $1 billion will be spent by Americans for Prosperity, financed by David and Charles Koch.  Jeremy Peters, New York Times, supra.

           There being no election, the million+ dollars will not be spent on an election.  The law being already in place, the money will not be spent to ameliorate its effects or provide assistance to anyone who might claim to be harmed by the law in any way.

           Instead the purpose of spending more than a million dollars is to express a point of view in advertisements about a law that is already in effect.

           These are extraordinary times, to say again.

           When Mr. Koch and Mr. Koch buy newspapers, such as the newspapers they are reportedly prepared to make offers on, including The Chicago Tribune, The Los Angeles Times, The Baltimore Sun, and other related newspapers, at least they won't have to pay for ads.  Their fervent interest in expression will find its outlet in their editorials.  And since they will own the newspapers, their editorials will be without further cost, to them.

 

Please Read The Disclaimer.

Frequently Alleged Claims in the force-placed insurance cases.

 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!

Please Read The Disclaimer.

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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.]

 

 

Force-placed insurance: Why anyone thinks placing unnecessary policies is good.

 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.

This post includes a little of the post which it continues.

   In contrast, the minority doctrine or contrary view has it that instead it is in the lender's best interest for the loan not to be repaid; the longer the loan is outstanding and unpaid, the more money the lender can make with its investment, and the property exists for the purpose of providing the lender with a return on its investment paid for by the borrower in addition to the loan amount plus interest for which the lender and borrower contracted.  This position was advanced and quoted at great length in a fairly recent decision, for which we are indebted to the U.S. Magistrate Judge who took the time to quote this lengthy passage from Wells Fargo's Reply in Support of Defendants' Motion to Dismiss in the case of McKenzie v. Wells Fargo Home Mortgage, Inc.[1]:

   In McNeary–Calloway [v. JP Morgan Chase Bank, N.A., 863 F. Supp. 2d 928 (N.D. Cal. 2012)], the Court did not explore the outer limits of the lender's discretion to set the type and amount of required hazard insurance, and it need not do so in this case, either—even assuming that New Mexico and Texas law impose the same implied limitation on the lender's discretion as California and New Jersey law do.

   Outer limits need not be explored here because wherever the outer bounds are, replacement cost coverage falls well within them....

   Furthermore, even apart from the agencies' recommendation, it is reasonable for a lender to require replacement cost value flood insurance. As FEMA explains, any lower coverage “may be insufficient to cover the cost of repairing the building”—thus, leaving the borrower homeless if a flood destroys the dwelling.

...

   Also, a lender's economic interest in a performing loan extends beyond immediate repayment of the principal balance—as would occur if a flood destroys the home and insurance benefits are only sufficient to repay the loan. A lender wants a performing loan or asset, not immediate repayment. A performing loan pays the lender interest at the rate set in the promissory note. That interest rate may well exceed the rate the lender can obtain if the loan is repaid and the lender must make a new loan at current interest rates. A lender also incurs loan origination costs to make a new loan replacing the repaid loan. There is a lost opportunity cost as well. Absent the prepayment, the new loan might have been funded with the lender's other capital, giving the lender two, not just one, performing loans. For all these reasons, many loan agreements contain prepayment penalty clauses to discourage borrowers from repaying their loans early.

...

Because replacement cost value flood insurance is a reasonable economic choice from both the borrower's and the lender's point of view, it cannot be an abuse of the lender's broad, if not unlimited, discretion to choose insurance in that amount.

 

   The U.S. Magistrate Judge to whom these remarks were addressed, agreed with Wells Fargo's argument that this is a legally recognized basis for allowing lenders to require borrowers to pay the higher premiums of replacement-cost force-placed insurance:

Plaintiffs argue that Defendants breached the covenant by force-placing insurance in excess of the lender's interest and the mortgage contract's terms, and by engaging in the kickback scheme with the insurer. As noted above, Plaintiffs' argument that insurance covering the replacement cost value exceeds the lender's interest in the property is unavailing; such coverage benefits the lender because it better insures that the loan continues as a performing asset. Additionally, because the Court has already found that the contract afforded Defendants discretion to set the amount of coverage above the minimum, Defendants' exercise of that discretion does not necessarily constitute bad faith or contravene the reasonable expectations of the parties.[2]

 

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[1] McKenzie v. Wells Fargo Home Mort., Inc., 2012 WL 5372120 *11-*12 (Spero, USMJ, October 30, 2012)(quoting Wells Fargo's Reply in Support of Defendants' Motion to Dismiss).  [Emphasis added.]  Authorship of the quoted passage has been attributed to the U.S. Magistrate Judge instead of to the Wells Fargo Memorandum.  Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *12 (N.D. Cal. January 9, 2013).

 [2] McKenzie v. Wells Fargo Home Mort., Inc., 2012 WL 5372120 *20 (N.D. Cal. October 30, 2012; Spero, USMJ).  [Emphasis added.]