Not Mr. Rothstein, of course, but the case which bears his name decided on July 22, 2015: Rothstein v. Balboa Ins. Co., 794 F.3d 256 (2d Cir. 2015).
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This decision has drawn a lot of attention. In Rothstein, a panel of the Second Circuit applied its understanding of the filed rate doctrine to bar claims alleged by mortgagors. The case was filed against many defendants, including mortgage lenders and their servicers and insurance companies. All defendants other than the insurance companies settled with the plaintiffs.
The Rothstein decision came in an appeal from a denial of motions to dismiss filed by the insurance companies which provided force-placed insurance policies to the lenders' servicers. The insurance companies charged premiums which allegedly included unauthorized discounts to the lenders' servicers in exchange for their exclusive business, but which were included in the force-placed insurance premiums charged to the plaintiffs-mortgagors. Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713 (2d Cir. July 22, 2015).
By the time this appeal reached the Second Circuit panel, only the insurance companies and the plaintiffs were left in the case, all the other defendants having settled with the plaintiffs. Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *1-*2 (2d Cir. July 22, 2015).
At times, the panel decision appears to over-reach. It often reads as though the defendants-appellants who claimed the immunity of the filed rate doctrine were not the ones who filed for the insurance premium rates, but they are. Still, the panel purported to rule irrespective of the parties in the appeal before them:
We hold that a claim challenging a regulator-approved rate is subject to the filed rate doctrine whether or not the rate is passed through an intermediary. The claim is therefore barred if it would undermine the regulator's rate-setting authority or operate to give the suing ratepayer a preferential rate. Applying this analysis, we conclude that Plaintiffs' claims are barred and, accordingly, reverse and remand for dismissal of the case.
Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *1 (2d Cir. July 22, 2015).
The panel based this ruling on an understanding that to the extent the filed rate doctrine depends on a principle of "nonjusticiability … it is squarely for the regulators to say what should or should not be included in a filed rate." Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *4 (2d Cir. July 22, 2015). The panel repeated this understanding with the observation that "under the nonjusticiability principle, the question is reserved exclusively to the regulators." Rothstein v. Balboa Ins. Co., 794 F.3d 256, 2015 WL 4460713, *4 (2d Cir. July 22, 2015). The panel's result may or may not have been correct in that case, but if it was the correct result, it was a lucky one with all respect. The reasons given for the result are incomplete.
The question of reasonable and nondiscriminatory rates is "reserved exclusively to the regulators" only if the enabling statute provides the regulators with the power to approve or decline rate requests. For example, the insurance regulators in North Dakota are not given those powers and so the filed rate doctrine has been held inapplicable in insurance cases there. In other jurisdictions, it is an open question whether the filed rate doctrine applies to insurance rates at all. To paraphrase the Rothstein panel, the question of whether a rate is immunized by the filed rate doctrine is reserved exclusively until after an examination of the enabling statutes in the given jurisdiction. If the statutes enable the regulators to approve and deny rates including the rates at issue, then courts apply the filed rate doctrine and decline to entertain the case; if the statutes do not enable the regulators to do so, then the courts decline to apply the filed rate doctrine and entertain the case. See Rios v. State Farm Fire & Cas. Co., 469 F. Supp. 2d 727, 735-36 (S.D. Iowa 2007).
The panel did not discuss the regulators' powers in Rothstein. The insurance company defendants contended that their lender force-placed insurance premium rates included the unauthorized charges at issue, and that the charges were approved by the Texas Department of Insurance, the New Hampshire Insurance Department, and the New York State Department of Financial Services. None of the rate filings seems to have been reviewed in Rothstein. Similarly, none of these regulators' powers were mentioned and none of their enabling statutes were discussed by the panel in Rothstein. Parenthetically, the panel did mention a New York regulation "restricting the practice" of "loan tracking services" charged by force-placed insurance providers, but the panel did not address the New York regulator's authority to issue the regulation other than to recite that the regulation was issued.
Instead, the Rothstein panel fixated on whether the filed rate doctrine could be raised to bar the claims of people who are not the "ratepayers," i.e., who are not the people who paid the filed rates. The panel in Rothstein lost sight of the main legal issue of whether the filed rates actually were within the power and authority of the regulators to approve (and the factual issue of whether the charges at issue were actually included in each of the rate requests that were filed in Texas, New Hampshire, and New York). The panel's reasoning is consistent with applying the defendant insurance companies' affirmative defense to the claims alleged by the plaintiffs in Rothstein and then finding that the Rothstein plaintiffs had failed to meet their newly 'force-placed' burden of proof to prove a negative, i.e., that the filed rate doctrine should not be applied.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015). All Rights Reserved. No Claim to Original U.S. Government Works.