Claims And Issues

THE CONDUCT OF INSURERS IN LENDER FORCE-PLACED INSURANCE ….

…. CAN GET THEM IN TROUBLE.

The following is reprinted with the permission of Thomson Reuters West from the manuscript of the author's 2015 Supplement chapters in “Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters” ©2015 by Thomson Reuters West:

 

In addition to lenders and their servicers allegedly requiring and force-placing insurance companies allegedly paying “kickbacks” in exchange for the insurance companies’ placement on the lenders’ and servicers’ approved lists for providers of force-placed insurance policies,^[1] other components of these alleged “pay-to-play” types of alleged schemes include alleged purchase of force-placed policies dated retroactively, “captive reinsurance arrangements, and subsidized loan servicing costs.”^[2]

          When there is a loss of or to the property securing the mortgage loan, the core set of allegations about which homeowners-borrowers complain focuses sharply in that instance on the contention that lenders including their alleged agents the mortgage servicers, are not applying insurance proceeds to reduce the unpaid balance of the mortgage loan, or to repair or replace the property, before commencing foreclosure proceedings.^[3]

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[1] In addition to the cases previously discussed in the text, see, e.g, Perryman v. Litton Loan Servicing, LP, No. 3:14-cv-02261, 2014 WL 4954674, *11-*12 (N.D. Cal. October 1, 2014)(plaintiff stated claim for, among other things, alleged breach of implied covenant of good faith and fair dealing by alleging that mortgage servicers conspired with insurers “to fix an artificial ‘cost’ of acquiring insurance,” whether or not these or similar alleged costs might accurately be characterized as “kickbacks”); Gorsuch v. Financial Freedom, No. 3:14 CV 152, 2014 WL 4675453, *4 (N.D. Ohio September 18, 2014)(granting motion to dismiss on several grounds while denying motion to dismiss claim under which relief can be granted for unjust enrichment under Ohio law where force-placed insurance was obtained by defendants on plaintiff’s behalf and “[d]efendants therefore received a ‘kickback’ in connection with Gorsuch’s mortgage.”).

[2] See, e.g., Persaud v. Bank of Am., N.A., No. 14-21819-CIV, 2014 WL 4260853, *13 (S.D. Fla. August 28, 2014); Dennis J. Wall, “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 Ins. Lit. Rptr. 221, 224-28 (2013).

[3] E.g., Sullivan v. Bank of Am., N.A., No. 3:14-CV-1386-G, 2014 WL 6977093, *4-*5 (N.D. Tex. December 10, 2014)(such allegations stated claim for alleged breach of contract of standard mortgage provision section or paragraph 5, but did not state a claim for alleged breach of fiduciary obligations under Texas law); Christie v. Bank of Am., N.A., No. 8:13-cv-1371-T-23TBM, 2014 WL 5285987, *2-*5 (M.D. Fla. October 15, 2014)(these and related allegations stated claims under Florida law for alleged bad faith and unfair dealing, unjust enrichment, and breach of fiduciary duty, and also alleged claims for violations of the Florida Deceptive and Unfair Trade Practices Act, and violations of the Federal Real Estate Settlement Procedures Act).

 

 

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WHEN COVENANT IMPLIED IN CONTRACT, BUT NOT AN INSURANCE CONTRACT.

    The conduct of insurance companies has for a long time exposed insurance companies to the extracontractual liability of insurer bad faith.

    It is not nearly as widely known that the conduct of insurance companies can expose other parties to newly developing extracontractual and tort liability.  For example, mortgage servicers accused of conspiring with insurance companies to impose higher premiums on homeowners facing the forced placement of insurance by lenders have been required to defend themselves against such claims.  See, e.g., Perryman v. Litton Loan Servicing, LP, No. 3:14-cv-02261, 2014 WL 4954674, *11-*12 (N.D. Cal. October 1, 2014).  In that case the Court held that the plaintiff stated a claim for, among other things, alleged breach of the implied covenant of good faith and fair dealing.

    The plaintiff in that case alleged that the defendant mortgage servicers conspired with insurers, who were apparently not themselves sued under this count of the complaint.  The only defendants under the implied covenant count alleged in this case appear to have been the mortgage servicers.  The gist of all the claims alleged in this case was that the defendants allegedly combined "to fix an artificial ‘cost’ of acquiring insurance.”

The author is at work on a book on "Lender Force-Placed Insurance" scheduled by the American Bar Association for publication this Spring.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

TORTIOUS INTERFERENCE LIABILITY OF INSURER OFFERING FORCE-PLACED POLICIES.

   One of the least concerns of insurance companies offering to sell force-placed insurance policies to lenders and servicers, has been the idea that somehow the insurance companies’ sales practices constitute actionable interference with the preexisting business relationship between the lenders, on the one hand, and the borrowers-homeowners, on the other hand.  There is now heightened reason for concern on that issue.

   In the case of Persaud v. Bank of America, N.A.[1], the Court held that a borrower-homeowner stated a claim upon which relief can be granted under Florida substantive law for tortious interference with a business relationship:

 

[T]he breach of a business relationship does not specifically require the relationship be severed or the contract not be executed, even though these facts may be indicative of breach and resulting damages….

   Plaintiff alleges [Insurance Company] entered into an exclusive relationship with BOA [Bank of America] and/or U.S. Bank to force-place insurance on Plaintiff's property at inflated and unnecessary premium rates. [Insurance Company] allegedly provided compensation to BOA and/or U.S. Bank in exchange for exclusivity, and purposefully and knowingly charged Plaintiff exorbitant premiums in contravention of his rights under the Mortgage. Under this practice, the cost of insurance was allegedly up to ten times more expensive than borrower-placed insurance. These allegations are sufficient to show [Insurance Company], in executing the force-placed insurance scheme, acted in bad faith to interfere with BOA and/or U.S. Bank's business relationship with Plaintiff….  Accordingly, Plaintiff sufficiently alleges [Insurance Company's] actions were not justified and constituted a breach of the business relationship. Likewise, Plaintiff has adequately pleaded he suffered damages in the form of unnecessary and inflated premiums.[2]

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[1] Persaud v. Bank of Am., N.A., No. 14-21819-CIV, 2014 WL 4260853 (S.D. Fla. August 28, 2014).

 

[2] Persaud v. Bank of Am., N.A., No. 14-21819-CIV, 2014 WL 4260853, *15-*16 (S.D. Fla. August 28, 2014).

 

Reprinted with the permission of Thomson Reuters West from the manuscript of the author's 2015 Supplement chapters in “Catastrophe Claims:  Insurance Coverage for Natural and Man-Made Disasters” ©2015 by Thomson Reuters West.

 

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WILL CITIZENS BRIDGE THE FORCE PLACED "GAP"?

"It's probably not addressed as much as it needs to be, but it is a real problem."

Mr. Archie Grant, South Broward (Florida) Board of Realtors, quoted by Dan Sweeney, Sun Sentinel (Ft. Lauderdale), December 16, 2014.

    Mr. Grant was testifying before Florida State Representatives from Broward County, Florida (Ft. Lauderdale) who are members of an insurance subcommittee in the Florida House of Representatives.  He told them about people whose homeowner's insurance policies supposedly lapsed and whose lenders force-placed insurance on them with much higher premiums.   In some cases, Mr. Grant observed, the lenders controlled the force-placing insurance carriers.

    A member of the Broward delegation to the Florida House (and a very scarce commodity in Broward County, a Democrat), reportedly suggested that perhaps Citizens Property Insurance Corporation "'can help bridge that gap until that person can get back into the private marketplace'."  Id.

    The lawmakers are planning to meet with Citizens' representatives this month to discuss their ideas about the increasing costs of wind and flood insurance for Florida residents.

The author is at work on a book on "Lender Force-Placed Insurance" which the American Bar Association has scheduled for publication this Spring. 

The author wishes to thank Mr. Dan Luby of Orlando for alerting me to this story.  Mr. Luby is an avid reader of this insurance blog and his input is always gratefully appreciated.

Copyright 2015 by Dennis J. Wall.  All rights reserved.

THEY WERE AGAINST IT BEFORE THEY WERE FOR IT: Fladell, THE THIRD PART.

The Third and final Part of the article that follows continues from the First and Second Parts posted, respectively, on Insurance Claims and Issues Blog and on Insurance Claims and Bad Faith Law Blog.

The entire article is the result of a forensic investigation into the electronic Court Files of a class action settlement.     

          They were against it before they were for it.

          The defendants in a Federal class action case in Florida, Fladell, et al., Plaintiffs  v. Wells Fargo Bank, N.A., et al., Defendants (S.D. Fla. Case No. 13-cv-60721), argued against class certification of the lender force-placed insurance (“LFPI”) claims alleged against them and against certification of any of the classes urged by the plaintiffs in that case.  Two months later the defendants settled the Fladell case and urged the Federal Judge presiding over that case to approve more claims and more classes than the plaintiffs themselves sought to certify, which he eventually did.

          Even before their settlement agreement was judicially approved, the same defendants successfully raised the very fact of settlement negotiations as a bar to other LFPI claims in other States, or as a way to shift the burden of proof to the plaintiffs in those cases to prove that their cases are not included in the settlement in Florida.  See, e.g., Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 *2-*3 (W.D. Wash. November 25, 2014)(granting “limited injunction” against defendants foreclosing on plaintiffs’ home so as to allow the plaintiffs to prove that their case is not included in the Fladell settlement); Ali v. Wells Fargo Bank, N.A., 2014 WL 819385 *2 (W.D. Okla. March 3, 2014)(granting defendants’ motion to stay LFPI claims of plaintiffs who were not parties in the Florida case, unless those plaintiffs could prove that their claims were not settled in  Fladell); Ursomano v. Wells Fargo Bank, N.A., 2014 WL 644340 *1-*2 (N.D. Cal. February 19, 2014)(granting defendants’ motion to stay LFPI claims alleged by people who were not parties to the Florida case because the Fladell settlement might bar them).

          The Federal Court in Florida never considered let alone adjudicated any of the issues raised by the plaintiffs’ motion for preliminary certification of a class in Fladell.

          The Court never addressed any of the defendants’ objections, either.  What follows is taken mainly from the defendants’ own Response in Opposition to Plaintiff’s’ Motion for Class Certification in Fladell, which the defendants filed in December 2013: All three parts continued on Thomson Reuters' Legal Solutions Blog, here, here, and here.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  No claim to original Thomson Reuters Works.

TODAY IS NEW YEAR'S EVE!  HAPPY NEW YEAR TO ALL IN ALL OF 2015!

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THEY WERE AGAINST IT BEFORE THEY WERE FOR IT: Fladell, THE SECOND PART.

THEY WERE AGAINST IT BEFORE THEY WERE FOR IT: Fladell, THE FIRST PART.

          What you are about to read is the result of a forensic investigation into the electronic Court Files of a class action settlement.  A Federal Court approved it and its Order and Final Judgment are now on appeal.  Even before the Order and Judgment, the very fact of settlement negotiations without more has caused Courts to stay other class actions and to put the burden of proof on plaintiffs that their cases are not precluded by the class action settlement.

          The Order was written by the same defendants who initially opposed class action certification.  The plaintiffs’ motion for certification and the defendants’ opposition in that case were not adjudicated.  The defendants settled the case before the Court ruled.

   

          They were against it before they were for it.

 

 

Continued on Thomson Reuters' Legal Solutions Blog, posted on December 17, 2014.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  No claim to Original Thomson Reuters Works.

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POSNER AND SEVENTH CIRCUIT SET STANDARDS, REJECT CLASS ACTION SETTLEMENT.

This continues articles posted on Insurance Claims and Bad Faith Law Blog on Tuesday, December 2, 2014 and on Thursday, December 4, 2014.

               In Pearson v. NBTY, Inc., ___ F.3d ___, 2014 WL 6466128 (7th Cir. November 19, 2014), Judge Richard Posner wrote for a unanimous Seventh Circuit panel.  The Court set standards for evaluating Federal class action settlements that are likely to be applied in the great majority of other Federal Circuits, in Federal District Courts, and in most State Courts with class action rules which are in any way similar to the Federal Class Action Rule, Fed. R. Civ. P. 23.

               The Pearson appeal involved a collection of cases brought under State Consumer Protection Laws.  The suits were collectively settled and the settlement was rejected by the Seventh Circuit.  Judge Posner’s opinion in the Pearson case is nothing less than a tour de force.

               The Seventh Circuit listed at least a dozen factors which the Court considered in rejecting the class action settlement in this matter:

1. Only 0.25% of class members received compensation under the proposed settlement;
2. The District Court’s valuation of the settlement was based on potential value to the class rather than actual value as required;
3. The District Court’s calculation of “value” to class members,  moreover, improperly included such things as administrative costs and attorney’s fees;
4. The total actual compensation to class members would have been “$865,254 to the 30,245 class members who submitted claims”;
5. The District Court revised the attorney’s fees request downward and still the District Court’s award of fees represented 69% of what the class members would receive, at an average rate of $538/hour for each attorney at every level of practice and for each paralegal;
6. The proposed settlement was reached in a case involving no fund and no litigated judgment;
7. No reasonable expectation existed that more class members would submit claims than actually did submit claims before the deadline;
8. The process of submitting claims on the class action settlement appeared to be structured in such a way as to discourage, not encourage, potential class members to submit claims;
9. There was no legitimate benefit to be found to the class for the settlement agreement’s injunction against misleading claims;
10. The settlement agreement contained a “reversion” or a “kicker clause,” identified by the Court, under which any unclaimed funds that were originally contributed to the settlement amount would revert back to the defendant;
11. The settlement agreement included an award of $1,130,000.00 to a laudable orthopedic foundation, an award which, however laudable the recipient organization is, would have been an award which neither benefitted the class nor was truly a cy pres award; and last but not least,
12. In sum the benefits of this proposed settlement agreement did not actually accrue to the class:

And for conferring these meager benefits class counsel should receive almost $2 million?

The factors considered by the Court appear throughout the Court’s opinion.  The quote immediately above ends the Court’s discussion and can be found at Pearson v. NBTY, Inc., ___ F.3d ___, 2014 WL 6466128 *9 (7th Cir. November 19, 2014).

               Class action settlements are submitted to Judges and approved on a regular basis in many kinds of litigation, including lender force-placed insurance cases and products liability cases.  The Pearson decision represents the loudest rocket if not the first to be launched in a burst of judicial activity requiring more than mechanical approval of class action settlements.

The author is at work on a book on “Lender Force-Placed Insurance” which the American Bar Association is scheduling for publication in the Spring of 2015.

Please Read The Disclaimer.  ©2014 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

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"DECEPTIVE PRACTICES" AND LENDER FORCE-PLACED INSURANCE: NEW YORK'S EXAMPLE.

    The role that New York's Deceptive Practices Act is playing in recent lender force-placed insurance ("LFPI") cases is on display in two parts on Thomson Reuter's Legal Solutions Blog.  Both are entitled "'Deceptive Practices' and Lender Force-Placed Insurance:  New York's State of Mind".  Here is Part 1, and here is Part 2.

    Check them out.  The New York statute is a lesson in progress on how to prosecute and defend LFPI claims under State Unfair and Deceptive Practices Acts.

The author is at work on a book on "Lender Force-Placed Insurance" to be published by the American Bar Association in the Spring of 2015.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved.  No claim to Original Works produced for Thomson Reuter's Legal Solutions Blog.

PROFESSIONAL LIABILITY COVERAGE FOR LENDER FORCE-PLACED INSURANCE KICKBACKS?

    The Court in the case of QBE Americas, Inc. v. ACE American Ins. Co., 44 Misc. 3d 1224(A), 2014 WL 4250089, 2014 N.Y. Slip Op. 51330(U)(N.Y. Sup. Ct., New York County August 27, 2014)(table, text in Westlaw), concisely described the nature of that lawsuit:

 

Background

    This is an insurance coverage action in which QBE seeks indemnification for its participation in alleged kickback schemes involving forced-placed insurance. QBE claims it is entitled to coverage in approximately 40 lawsuits and a state government investigation, though other lawsuits and investigations may be pending.

 

However, the Court carefully stated several times that the present, unofficially reported ruling ostensibly did not reach QBE's Professional Liability Insurance Coverage claims.  The only issue it was deciding at this time, said the Court, was "QBE's entitlement to defense costs from its primary carriers, AIG and Darwin, during the pendency of this action."

    The Court determined that AIG had no duty to advance defense costs under its policy, but Darwin does have such a duty at least with respect to "pending litigation for which Darwin has consented to advance defense costs," in the words of the Court in this case.   AIG's policy requires the exhaustion of a self-insured retention, and QBE provided no evidence that it exhausted its self-insured retention.  Darwin in contrast "has a duty to defend.  Hence, Darwin (under New York, California, and Georgia law [the jurisdictions potentially implicated in choice-of-laws governing interpretation of Darwin's policy]) is obligated to advance all of QBE's llitigation costs so long as each lawsuit presents the possibility that any of the QBE entities or any of the claims asserted might be covered."  [Emphasis in original.]

    The ideas that the duty to defend is determined by comparing the claims alleged against the insured with the terms of the policy, and that Courts will hold that there is a duty to defend so long as any of the alleged claims are potentially covered, are universal.  These tests are applied generally, but they do not ordinarily translate into a concomitant determination that the duty to defend includes a duty to advance defense costs particularly, as in this case, while the insured and the carrier contest all coverage.

    "An informed coverage determination simply cannot be made at this juncture."  This limitation on the Court's decision is clear and concise.  There may be a question though whether it disguises the coverage determination that the Court has apparently already made applying the Darwin Professional Liability insurance Policy to cover its insured's lender force-placed insurance kickbacks.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All righs reserved.  No claim to original U.S. or New York State Government works. 

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LENDER FORCE-PLACED INSURANCE LINEUP OF DECISIONS.

   The lineup of decisions on issues of lender force-placed insurance ("LFPI") now includes an en banc First Circuit decision in the Kolbe case.  Some Courts cite this as controlling authority or precedent in favor of allowing certain LFPI practices.  A closer look at the en banc decision in Kolbe shows that it is neither controlling authority nor precedent for LFPI business practices.

   The Kolbe case has a confusing story to tell.  The story began when a U.S. District Judge dismissed claims alleged by one Kolbe under New Jersey law.  Mr. Kolbe alleged in his complaint that he incurred damages as a result of lender force-placed insurance.

   Next, a panel of the First Circuit reversed on appeal.  The reasons cited were similar to those already written in another case decided by the same panel on the same day, in a case decided under Massachusetts law:  Lass v. Bank of America, 695 F.3d 129 (1st Cir. 2012).

   Then came the en banc review in question.  Three judges on the First Circuit looked away from the law of the forum state, New Jersey.  They expressed their interest instead in the national economy and national policy.  In their three-fold view, national concerns simply trumped Mr. Kolbe's concerns over his mortgage and the LFPI practices to which Mr. Kolbe -- and allegedly many others similarly situated -- was subjected as a result of his mortgage contract.  Kolbe v. BAC Home Loans Servicing, LP d/b/a Bank of America, 695 F.3d 111 (1st Cir. 2012), overruled by an equally divided First Circuit en banc, 738 F.3d 432 (1st Cir. 2013).

   Describing the second or en banc appearance of Kolbe in the First Circuit Court of Appeals as the decision of "an equally divided Court," may also tend to be confusing.  Until you take a look at what it means.  Here, it means that the entire en banc panel of First Circuit Judges was a total of six (6) people.  (For comparison, most State Supreme Courts have at least seven (7) Justices.)  Three (3) of the First Circuit Judges voted to affirm the District Judge, and three (3) voted to affirm the panel that decided the original appeal and reversed the District Judge.  The District Judge's decision was the deciding vote, if you will,  and so the order of dismissal was reinstated in this case.  Concerning LFPI claims and defenses, see generally 2 Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" Sections 9:33, 9:35 and 11:25 (West Publishing Co. 3d Edition and 2014 Supp.)

   Not much of a controlling decision.  Nothing precedential to see here.  If this were an accident scene, the police would say, "Move along."

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

 

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LENDER FORCE-PLACED INSURANCE: WHEN IS THERE COVERAGE FOR HOMEOWNERS?

          In a decision that tends to reflect the majority view, in general terms there is no viable claim to insurance coverage on the part of a homeowner-borrower against a lender's force-placed insurance policy. See Christie v. Bank of America, N.A., 2014 WL 805882 *2 (M.D. Fla. February 28, 2014).

          However, expressing great dissatisfaction with what it described as a "shotgun complaint" -- 60 pages long, with every count or claim incorporating every previous allegation, leading to a complaint which in the end incorporates every allegation and claim into every subsequent claim for relief -- the Court in this lender force-placed insurance case gave the plaintiffs leave to amend their complaint.  "The complaint, which disputes against a lender and an insurer claims resulting from a simple mortgage default on a single-family residence, should not require sixty pages -- or even half of sixty pages."  Christie v. Bank of America, N.A., 2014 WL 805882 *3 (M.D. Fla. February 28, 2014).

          The Court gave the plaintiffs in this case until March 21, 2014 to "amend the complaint."  Watch this space.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

NONBANK MORTGAGE SERVICERS: "SUCCESSORS AND ASSIGNS" BOUND BY NATIONAL MORTGAGE SETTLEMENT?

          Many of the same mortgage servicing practices which drew loud complaints when they were previously conducted by banks, are now the subject of new complaints against nonbank mortgage servicers which have taken over some of the business.  These allegedly deceptive and unfair practices may include alleged robo-signing meaning signing or affirming testimony without reading it or knowing what it says, as well as "improper fees and lost paperwork."  Michael Corkery, "New York Demands Mortgage Firm's Data" p. B3, col. 6 (New York Times Nat'l ed., "Business Day" Section, Thursday, March 6, 2014).

          Banks are not offloading all of their mortgage servicing business, however.  Banks which are also in the business of mortgage servicing are selling their subprime mortgage servicing to nonbank mortgage servicers also called "specialty" servicers.  Id. (pointing out that "traditional banks seek to exit the business of servicing subprime mortgages."  [Emphasis added.])

          How, you might well ask, could nonbank or specialty mortgage servicers not be bound by the National Mortgage Settlement?  The NMS ostensibly resolved the very unfair and deceptive practices in mortgage servicing that are now complained of when nonbank mortgage servicers practice them.  So, if the nonbanks bought mortgage servicing business from banks, should the nonbanks not be bound by the National Mortgage Settlement entered into by the five (5) largest bank mortgage servicers in the U.S. at the time?

          This question was raised in "HELP WANTED:  MUST HAVE EXPERIENCE PRACTICING INSURANCE, SETTLING CLAIMS / Interested parties please apply to the United States Department of Justice," an article published here on February 26, 2014.  Clearly the nonbank, specialty servicers do not consider themselves bound.  And it is not because they are not regulated like banks, but because they think they are not bound by the National Mortgage Settlement.

          All five bank mortgage servicers agreed to separate Consent Judgments as a part of the National Mortgage Settlement.  All five Consent Judgments contained the same Exhibit A which used the same language to identify the successors and assigns which will be bound by the settlement including the agreement to suspend if not terminate many of the alleged deceptive and unfair mortgage servicing practices:

References to Servicer shall mean [fill in the name of one of the five bank mortgage servicers] and shall include Servicer's successors and assignees in the event of a sale of all or substantially all of the assets of Servicer or of Servicer's division(s) or major business unit(s) that are engaged as a primary business in customer-facing servicing of residential mortgages on owner-occupied properties.  The provisions of this Agreement shall not apply to those divisions or major business units of Servicer that are not engaged as a primary business in customer-facing servicing of residential mortgages on owner-occupied one-to-four family properties on its own behalf or on behalf of investors.

 

Pages A-41 to A-42, in voluminous Exhibit "A," the parties' "Settlement Term Sheet" attached to all five Consent Judgments (all five were entered under date of April 4, 2012), in United States of America, et al. v. Bank of America Corp., et al., Dkt. Nos. 10, 11, 12, 13 and 14 (D.C.D.C. Case No. 1:12-cv-00361).

            Banks are not offloading their entire business of mortgage servicing.  They are only selling off the business of servicing subprime mortgages.  Michael Corkery, New York Times, March 6, 2014, supra.

          And so the nonbanks do not consider themselves bound by the National Mortgage Settlement even when the nonbanks buy subprime mortgage servicing rights from the five bank mortgage servicers who agreed to it:

1. Bank of America;
2. JPMorgan Chase;
3. Wells Fargo;
4. Citigroup; and
5. Ally Financial.

 

See the article posted here on January 30, 2012 shortly after the terms of the National Mortgage Settlement were publicly announced, which lists the five bank mortgage servicers and begins to describe many of the settlement's terms and background in the first of a series.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

SETTLEMENTS STOP SOME LENDER FORCE-PLACED INSURANCE PRACTICES ... FOR AWHILE.

          Lenders and their mortgage servicers, and the insurance companies they use to issue insurance policies to protect their interests under residential mortgages at the mortgagors' expense, have developed an interesting relationship.  They have all been accused of arrangements in which the insurance companies pay to play, so to speak, by paying money to lenders and their mortgage servicers in exchange for their place on an approved list which the lenders and servicers use to select the insurance company to issue their lender force-placed insurance.

          It is often difficult to tell from the terms of any given settlement agreement whether lenders, their mortgage servicers, and their force-placed insurance companies, are completely changing all of their pay-to-play behavior.  In general terms, the payments are most often called "commissions" or "reinsurance premiums".  But what they are called is not the issue to be discussed here.  Rather, the issue under discussion here is for how long these practices will stop.

          The so-called National Mortgage Settlement was based on five servicers' agreements, brought forward in Consent Judgments against each of the five, that they would stop asking for money from force-placed insurance companies in exchange for placing the insurance companies on their approved lists.  They did not agree to a prohibition of their practices for all time, however.  They agreed only to a moratorium for awhile.

          They agreed to stop their allegedly bad practices for four (4) years.

          Defendants settling lender force-placed insurance claims likewise do not agree to stop their pay-to-play practices forever.

          They agree on average to stop doing these allegedly bad things  for six (6) years.

          Such is the case in the most recent settlement approved by a Federal Court, which came on Friday, February 28, 2014.  Download Saccoccio v. JP Morgan Chase Bank, N.A., Order Granting Final Approval of Class Action Settlment, and Service Awards, and Attorney's Fees and Expenses (SD Fla 02.28.14).

          All lawyers and Judges know the risks of going to Trial.  In general, that is a big reason why so many lawsuits are settled.  Specifically, in the case of lender force-placed insurance practices, no lawsuit has been found which has ever gone to Trial against the lenders or their mortgage servicers or their lender force-placed insurance companies.

          If, and perhaps that is a big "if" as they say, one of these cases went to Verdict and Judgment in which these alleged pay-to-play commissions and other payments were found illegal, then it might be easier to obtain settlement agreements in which the lenders and their servicers and their approved-list-force-placing insurance company partners would agree to stop these practices forever.

          Until then, expect more of the same.

 

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

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MR. WATT, TEAR DOWN THIS FHFA WALL!

Support the Fannie Mae updates to its Guidance for Residential Mortgage Servicers.  Now!

           Fannie Mae, one of two mortgage-buying government sponsored enterprises keeping the mortgage book of business open in this country (the other GSE being Freddie Mac), attempted to rein in "commission taking" by lenders from insurance companies which issue lender-force-placed insurance.  For all intents and purposes, Fannie was acting both for itself and for Freddie in this respect. Allegedly, a sizeable number of the insurance companies which issue lender-force-placed insurance were or are paying commissions to lenders or their mortgage servicers in exchange for being placed on the lenders' lists of insurance companies they approve to force-place insurance on residential homeowners.

          Fannie Mae attempted to control commission practices in lender force-placed insurance such that Federal Taxpayers would not pay for "pay-to-play" commissions paid by insurance companies involved in the forced placement of insurance.  Fannie made it clear that its authority extended only to mortgage loans which Fannie buys or guarantees.

          Fannie's and Freddie's Conservator or overseer, the Federal Housing Finance Agency, rejected this ban.  The FHFA instead asked for comments on its own plan concerning "appropriate administration of Fannie Mae and Freddie Mac (the Enterprises) guaranteed loans" which involve "lender place insurance".[1]  In other words, the FHFA was weighing in on the same practices that Fannie and Freddie had previously tried to address in the context of loans they guarantee.

          Many people responded to the FHFA's call for comments, including the author.   After the period for public comments expired, the FHFA issued a press release that it was directing Fannie and Freddie "to prohibit servicers from being reimbursed with expenses associated with captive reinsurance arrangements."[2]

          No official record of the FHFA action has been found to date, other than the FHFA's press release.

          The press release mentioned only one of the two concerns addressed by FHFA's previous proposal, namely, reinsurance premiums.  The press release did not even mention let alone prohibit the commission-taking which Fannie and Freddie were trying to rein in, by which insurance companies allegedly bought their way onto approved lists of insurance companies which would issue force-placed insurance.

          One month after the FHFA's press release last year, Fannie Mae issued an "update" to its "Fannie Mae Single Family Servicing Guide" for servicing the mortgages which Fannie will guarantee.  If the FHFA leaves this update to Fannie's and Freddie's mortgage servicing guidance intact, then under the Servicing Guidelines Fannie and Freddie will not pay the amounts of reinsurance premiums which were paid by lender-placed insurance companies to captive reinsurers owned by the mortgage sellers and servicers, and in addition they will not pay the amounts of sales commissions collected by the mortgage sellers and servicers in exchange for selecting favored lender-placed insurance companies.

          As of the day that this article is written, the FHFA has apparently not taken any action one way or the other on the December, 2013 update to Fannie's  Servicing Guide.  However, the FHFA has taken a position which seems to renounce FHFA's and Fannie's and Freddie's authority over banks, mortgage lenders, or servicers, in any respect.  On Friday, January 24, 2014, the FHFA advised the author in an EMail as follows:

Please be advised that neither FHFA nor the Enterprises have regulatory or supervisory authority over banks, mortgage lenders, or servicers. 

"The Enterprises" referred to by the FHFA are of course Fannie Mae and Freddie Mac, for which the FHFA is the Conservator as was previously mentioned.  The quoted position taken by the FHFA puts in doubt not only Fannie's December, 2013 update to Fannie's mortgage servicing guide, but it also draws into question all of the standard contract provisions which Fannie and Freddie have published and which mortgagors, mortgagees, sellers and servicers and others have been required to use before Fannie and Freddie will consider guaranteeing the mortgage loans.

 AN OPEN LETTER TO THE HON. MEL WATT.

          Since the FHFA wrote its November, 2013 press release and its January, 2014 EMail, Mr. MEL WATT has been confirmed as its new Director.

          Mr. Watt, the FHFA should now publicly announce its support of Fannie Mae's updates to its Guidance for Residential Mortgage Servicers.

          Fairness and finance both demand that you now take this action.

         

A related article on this subject was previously published on Insurance Claims and Bad Faith Law Blog on January 26, 2014.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

 

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[1] FHFA Notice No. 2013-N-05, "Lender Placed Insurance, Terms and Conditions," 78 Fed. Reg. 19263 (March 29, 2013).

 

[2] FHFA News Release, "FHFA Directs Fannie Mae and Freddie Mac to Restrict Lender-Placed Insurance Practices" (released November 5, 2013).

NEXT WEEK IS MARCH MORTGAGE MADNESS!

    Mortgage March Madness will be here next week!

    Every article published here next week will take a look at some of the many pressing insurance issues presented by our residential mortgages and Lender Force-Placed Insurance.

    Mortgage March Madness is coming!  Don't be left off the Court!  See you here, next week.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

MORTGAGE MARCH MADNESS!

    Mortgage March Madness is Coming!

    Next week every article published on this Insurance Claims and Issues Blog will focus exclusively on the latest developments in Lender Force-Placed Insurance issues and residential mortgages.

    Mortgage March Madness is coming next week!

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

Related articles

Community banks bailing on mortgage lending

 

HELP WANTED: MUST HAVE EXPERIENCE PRACTICING INSURANCE, SETTLING CLAIMS.

Interested parties please apply to the United States Department of Justice.

          Investment banks are increasingly assigning contracts for mortgage servicing to "specialty" servicers, which are businesses which exist for the purpose of servicing mortgages.  In basic and simple terms, a mortgage servicer is a party which stands between the mortgagor-borrower and the mortgagee-lender.

          Borrowers have a lot more contact with the current servicer of their mortgage than they will ever have with the lender or the lender's current stand-in.  The servicer collects the monthly mortgage payments, applies proceeds from escrow toward taxes and insurance, force-places insurance at the borrower's expense and on the lender's behalf, and initiates foreclosure against the borrower on behalf of the lender.

          The spark that set off the so-called National Mortgage Settlement, was certain attention-getting conduct of the 5 investment banks which were released.  The conduct which drew national attention originally was how the 5 investment banks conducted themselves in their roles as mortgage servicers.

           In 2012, an election year, the idea of a national settlement agreement was pushed hard by the United States represented by the Department of Justice and HUD.  See, for example, the articles posted here on January 25, 2012, and the four-part series which concluded on February 2, 2012 on Insurance Claims and Bad Faith Law Blog with  links to the other articles in the series.

          The Department of Justice and HUD pushed an agreement to settle and release potential claims including claims involving lender force-placed insurance, which the Federal Government held against the 5 mortgage servicers.  (The settlement agreement eventually expanded to also include mortgage lending activities by the 5 investment banks.  See the article posted on Insurance Claims and Bad Faith Law Blog on July 26, 2012, for example, in addition to the articles linked above.)  The U.S. Attorney General and the Secretary of Housing and Urban Development pressured many States to join in settling and releasing potential claims held by the States.

          The DOJ, HUD, and the States all were represented by legal counsel in this effort.

          They may have forgotten to require that the settlement agreement should be binding on the released mortgage servicers' successors and assigns.

           The investment banks are selling their mortgage servicing contracts in greater numbers to specialty servicers, as noted above.  The specialty servicers are reportedly now doing the same allegedly bad things that drove the investment banks into the so-called National Mortgage Settlement.  The specialty servicers are not inhibited let alone restrained by that settlement, to which they were not parties and in which they were apparently never foreseen.  See Jessica Silver-Greenberg and Michael Corkery, "Loan Complaints by Homeowners Rise Once More / Old Abuses, New Front / Taking Over For Banks, Mortgage Servicers Sidestep Rules" p. A1, col. 6 (New York Times Nat'l ed., Wednesday, February 19, 2014).

          The reports have it that the successors or assignees to these mortgage servicing contracts are repeating the same alleged abuses as were supposedly settled by the investment banks, "because" the banks are regulated and the specialty servicers are not.  The reporters have it wrong.

          Specialty mortgage servicers are engaging in allegedly bad behaviors, including force-placing insurance abuses on behalf of lenders, simply and completely because they do not see themselves as bound by any agreements the investment banks made with the United States or the States which participated in the "National Mortgage Settlement".

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

MORTGAGE MADNESS COMING IN MARCH!

    Mortgage Madness Coming in March!

    Insurance Claims and Issues Blog will present a series of articles on one and only one subject the first week in March.  Next week every article published here will be devoted exclusively to Lender Force-Placed Insurance issues in residential mortgage situations.

    Be sure not to miss the Mortgage Madness news on Lender Force-Placed Insurance issues!

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

 

DID MORTGAGE SERVICERS AGREE NOT TO REPEAT PREVIOUS INSURANCE TACTICS?

          "Specialty" mortgage servicers are businesses whose business purpose is to make their money by servicing mortgages. Specialty mortgage servicers are now reportedly engaging in the same allegedly unfair mortgage servicing practices which investment banks settled.  See Jessica Silver-Greenberg and Michael Corkery, "Loan Complaints by Homeowners Rise Once More / Old Abuses, New Front / Taking Over For Banks, Mortgage Servicers Sidestep Rules" p. A1, col. 6 (New York Times Nat'l ed., Wednesday, February 19, 2014).

          Investment banks have settled potential claims over their mortgage servicing activities in the so-called National Mortgage Settlement, and they have settled actual claims in suit in individual litigated cases over their allegedly unfair mortgage servicing practices including lender force-placed insurance.

          Did they agree not to do it again by other means?

          Did they agree to bind the parties to which they sold their contracts for mortgage servicing?

          Putting it another way, did the investment banks agree, when they settled their mortgage servicing practices, that their agreement would be binding on specialty mortgage servicers to which they sold their servicing contracts?

 

          This is a very important issue especially for future mortgage servicing activities involving lender force-placed insurance.  More to come on this subject.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

FHFA: 'No Authority to Regulate or Supervise Mortgagees or Servicers.'

   The Federal Housing Finance Agency ("FHFA") has just announced that it and the debt-ridden Government Sponsored Enterprises for which it is the Conservator, Fannie Mae and Freddie Mac, have no regulatory or supervisory authority over mortgagees and servicers.

   In an EMail to the author on Friday, January 24, 2014, the FHFA advised as follows:

Please be advised that neither FHFA nor the Enterprises have regulatory or supervisory authority over banks, mortgage lenders, or servicers.

EMail of Friday, January 24, 2014 to the author from [email protected], Consumer Communications, Federal Housing Finance Agency.

   There is an extended discussion of the context and potentially far-reaching ramifications of the FHFA's position in an article on the subject posted on Insurance Claims and Bad Faith Law Blog on Sunday, January 26, 2014. 

Please Read The Disclaimer.  I will be writing from the Orlando site of the 15th Annual Windstorm Insurance Conference this week.  If you are attending the Conference, I would be glad to meet you.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

HOMEOWNER STATES COVERAGE CLAIMS UNDER FORCE-PLACED INSURANCE POLICY.

Federal Court denies Balboa Insurance Company's motion to dismiss for failure to state a claim.

           In a ground-breaking decision, a landowner's/homeowner's claims under a force-placed insurance policy will be allowed to proceed in Paulino v. Balboa Insurance Co., 2013 WL 4845919 (M.D. Fla. September 10, 2013).

          The plaintiff homeowner, Ms. Sagrada Paulino, alleged two claims:  Breach of contract and declaratory judgment.  The claims are "against Defendant Balboa Insurance Company related to a lender-placed policy of insurance.  Count I of the complaint alleges a breach of contract claim for Balboa's failure to pay damages related to loss and damage to the subject property arising from sinkhole activity, a covered loss."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1  (M.D. Fla. September 10, 2013).

          Until now, a homeowner has had no recognized legal rights under a force-placed, lender-placed policy of insurance.  FPI is not substitute homeowner's insurance protecting the homeowner.  The interests protected by FPI are the interests of the lender exclusively.  The total premium for an FPI policy, however, is paid by the homeowner.

          Balboa accordingly argued that Ms. Paulino "does not have third-party standing to assert her breach of contract claim because the subject policy was placed with the lender."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).  The Federal Court in this case denied Balboa's motion and ordered Balboa to file an answer within 14 days of the date of the Order, Paulino v. Balboa Insurance Co., 2013 WL 4845919 *2 (M.D. Fla. September 10, 2013), or by Tuesday, September 24, 2013.

          The Court also denied Balboa's motion to dismiss Paulino's second alleged claim, her declaratory judgment claim.  She based that claim on what the Court called "an actual controversy," contrary to Balboa's argument in favor of dismissal that there was no controversy and the declaratory claim was "subsumed by the breach of contract claim" according to Balboa.  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).  The "actual controversy" ripe for declaratory judgment is Paulino's alleged claim that Balboa should have "meaningfully consulted" with her "on the selection of the expert to perform subsidence testing and remediation recommendations."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).

          The Court addressed this claim as raising a question for the Court to declare an answer, "is she bound by Balboa's expert to determine the extent of the damages? ...  This issue is not subsumed by the breach of contract claim," the Court held, "because it must be separately determined before the extent of any breach can be determined.  In other words, the extent of Balboa's obligation under the subject policy to meaningfully consult with Paulino in the selection of the expert is a separate issue from the issue of whether Balboa breached the subject policy by failing to pay damages."  Paulino v. Balboa Insurance Co., 2013 WL 4845919 *1 (M.D. Fla. September 10, 2013).

          The Paulino case bears close watching, I think.  I will be monitoring it from here on out.  Beyond September 24, 2013 when Balboa's answer is due to be filed, I have no doubt.

Please Read The Disclaimer.

Class Action Superiority of Insurance-Related Issues?

  The class action certifying factor of "superiority" is number 6 on a standard list of factors for Courts to consider, particularly for Federal Courts to consider, in deciding whether to grant an action class action status.  The Federal Class Action Fairness Act, or "CAFA," may also be a consideration in an appropriate case.

   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 look first at "superiority," the last of the factors Courts usually consider in determining whether to grant class-action status to a lawsuit.  Next we look at CAFA, the Federal Class Action Certification Act.

 * * *

6.   Superiority.  As might be expected, a national class action of force-placed insurance plaintiffs has been found not to be superior to individual determinations of individual claims under the laws of different jurisdictions,[1] whereas a Florida class of plaintiffs with the same types of claims has been affirmatively found to be superior to individual resolutions of those claims in separate and discrete lawsuits.[2]

 

B.  FEDERAL CLASS ACTION FAIRNESS ACT ("CAFA").

     Plaintiffs who do not wish to have their putative class actions filed in state courts treated involuntarily as Federal class actions, and defendants who do wish to have such putative class actions filed in state courts decided in Federal District Courts instead, should all be aware of the Federal "Class Action Fairness Act" or CAFA.  Congress added a so-called "Class Action Fairness Act" to what previously was the statute which authorized Federal Courts to exercise original jurisdiction in cases between citizens of different States, in basic and simple terms.[3]

CAFA authorized the District Courts to assume original jurisdiction in class actions "if the class has more than 100 members, the parties are minimally diverse, and the 'matter in controversy exceeds the sum or value of $5,000,000.'"[4]  To determine whether a given controversy exceeds the sum of $5,000,000.00, "'the claims of the individual class members shall be aggregated.'"[5]

     No force-placed insurance case has yet been found in which CAFA issues were raised or addressed.  Given the relatively small amounts at issue in force-placed insurance cases -- for example, the monthly premium payments for force-placed insurance of $276.00,[6] or an additional monthly charge of $237.00,[7] or $1,743.00 for six months of premiums,[8] or $1,575.00 added to a total loan balance due,[9]which were all sums that were previously mentioned in this article -- it seems likely that the classes of plaintiffs would have to include as many as half a million people or more in order to satisfy the CAFA requirement of a sum in controversy which exceeds $5,000,000.00.

     Further, a recent case which did not involve force-placed insurance but did involve somewhat analogous issues is instructive.  In Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Insurance Co.,[10] a District Court dealt with the defendant insurance company's removal of a class action from Illinois State Court.  The proposed class consists of some seven hundred (700) lodges against the former insurance company.  "The complaint alleges that Philadelphia Insurance overcharged the lodges for insurance contracts that it issued to them."[11]

     With regard to the in-excess-of-$5,000,000.00 jurisdictional requirement of CAFA, the Court pointed out that the only evidence before it as to the recoverable total amount of the plaintiffs' claims is what they alleged in their complaint and amended complaint, or a total of some $750,000.00.  Therefore CAFA does not apply in such a case, the Court held.[12]

 

 

Next:  The Conclusion of the series.  Please Read The Disclaimer.

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[1] Gordon v. Chase Home Finance, LLC, 2013 WL 436445 *11 (M.D. Fla. February 5, 2013).

 

[2] Williams v. Wells Fargo Bank, N.A., 280 F.R.D. 665, 675 (S.D. Fla. 2012).

 

[3]CAFA is found in 28 U.S.C. § 1332(d)-(e).

 

[4] Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 1348 (U.S. 2013).

 

[5] Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 1348 (U.S. 2013).  It was unanimously held in Standard Fire that the plaintiffs and the defendants cannot confer original jurisdiction on a District Court under CAFA simply by stipulating that the amount in controversy exceeds the sum of $5,000,000.00.

 

[6] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *2-*3 (N.D. Cal. December 11, 2012).

 

[7] See Kolbe v. BAC Home Loans Servicing, LP, 695 F.3d 111, 114-15 (1st Cir. 2012)(case involved New Jersey substantive law).

 

[8] Williams v. Wells Fargo Bank N.A., 2011 WL 4901346 *2 (S.D. Fla. October 14, 2011)(referring to 'putative' class representative Plaintiff Ray Williams).

 

[9] Hofstetter v. Chase Home Finance, LLC, 2010 WL 3259773 *2 (N.D. Cal. August 16, 2010).  "The Hofstetters have refused to pay the $1,575 principal balance on their account and have only paid interest charges to prevent defendants from taking steps to collect on this 'debt' and affect their credit rating," they alleged in their complaint. Hofstetter v. Chase Home Finance, LLC, 2010 WL 3259773 *2 (N.D. Cal. August 16, 2010).

 

[10] Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675 (N.D. Ill. April 4, 2013).

 

[11] Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675 *1 (N.D. Ill. April 4, 2013).

 

[12] Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675 *1 (N.D. Ill. April 4, 2013).  The Court further held in that case that the amounts recoverable under the individual plaintiffs' claims cannot be aggregated for "ordinary" or non-CAFA purposes.  Under that calculation, no individual plaintiff's claim meets the $75,000.00 threshold for diversity jurisdiction.  Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675 *2-*4 (N.D. Ill. April 4, 2013).  "The court therefore concludes that it lacks subject matter jurisdiction and must remand the case to Illinois state court."  Cicero-Berwyn Elks Lodge No. 1510 v. Philadelphia Ins. Co., 2013 WL 1385675 *6 (N.D. Ill. April 4, 2013).

Next:  The Conclusion of the series.  Please Read The Disclaimer.

 

Voluntary Payment 'Doctrine' Applies Only When Payment is Voluntary.

The Voluntary Payment Defense was addressed in yesterday's post on Insurance Claims and Bad Faith Law Blog.  Today, a very recent example of how that affirmative defense is (not) applied comes in the case of Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 (D. Minn. August 5, 2013), a case previously posted for another ruling here on Monday, August 12, 2013, "'Common sense' reason for dismissal of FPI claims is neither."  When a case offers many good opportunities for discussion, take the opportunities.

          GTIA is Green Tree Insurance Agency, Inc.  It is the captive insurance agency of Green Tree Servicing, LLC which serviced the mortgage on Jared Rapp's condominium in Michigan.  Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *1 (D. Minn. August 5, 2013).  Green Tree force placed insurance on Rapp.  In the process, GTIA received what it labeled a "commission" from the insurance company, American Bankers Insurance Company ("ABIC").  Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *5 (D. Minn. August 5, 2013).

          Mr. Rapp sued GTIA and others as a result of the FPI, the force-placed insurance.  Unjust enrichment was one of several claims he alleged against GTIA.  In turn, GTIA requested dismissal of the unjust enrichment claim, in part on the basis of the so-called voluntary payment doctrine.  Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *8 (D. Minn. August 5, 2013).  GTIA contended that Mr. Rapp was notified of the FPI, that he was notified that Green Tree had used GTIA to purchase the insurance, that Rapp was also notified that  ABIC paid GTIA a commission, and that "Rapp permitted Green Tree to withdraw the premium payments from his bank account for several months."  Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *8 (D. Minn. August 5, 2013).

          The Minnesota Federal District Court, applying Michigan law, held that the doctrine of voluntary payment was simply inapplicable here as a matter of law.  Accepting Mr. Rapp's allegations in his amended complaint as true in deciding GTIA's motion to dismiss, Mr. Rapp did not have full knowledge of the facts of the transaction as required in order for voluntary payment to be a recognized defense under Michigan (and generally applicable) law:

According to Rapp, the money taken from his bank account was used to pay not only for insurance, but for a kickback.  Obviously, no one ever informed Rapp that his money was being used to finance a kickback scheme involving Green Tree, GTIA, and ABIC.  [Citation to Michigan law omitted.]  The voluntary-payment doctrine therefore does not bar Rapp from pursuing his unjust-enrichment claim against GTIA.

Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *9 (D. Minn. August 5, 2013).

          The voluntary payment 'doctrine,' such as it is, requires that payment be voluntary.  If payment is not made voluntarily, payment is not a defense.  No good will come of making the idea more complicated than that.

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

"Common sense" reason for dismissal of FPI claims is neither.

          In a recent case in Federal Court in Minnesota, a Federal Judge applied Michigan law to an unjust-enrichment FPI claim alleged against the insurance company and its parent.  The Court dismissed that claim in part on the announced ground of what the Court understood to be "common sense" in that FPI case:

    But Rapp is comparing apples to oranges. Common sense suggests that force-placed policies expose insurance carriers to more substantial risks than voluntary policies. After all, force-placed policies are sought only when a homeowner has failed to maintain insurance on his own property, which typically indicates that the homeowner is in financial distress or that something else is amiss. Property owned by homeowners under such circumstances is more vulnerable than property owned by homeowners who maintain their own insurance. It is thus entirely unsurprising that a force-placed policy costs a lot more than a similar policy purchased by a homeowner. In short, by merely pleading that the policy issued by ABIC was a lot more expensive than a policy that he could have purchased on his own, Rapp has not pleaded a plausible claim that Assurant and ABIC unjustly retained some portion of an overcharge.

Rapp v. Green Tree Servicing, LLC, 2013 WL 3992442 *11 (D. Minn. August 5, 2013).  [Emphasis added.]  Homeowners lack any opportunity to purchase an insurance policy similar to any force-placed insurance policy.  Force-placed insurance is not replacement homeowner's insurance coverage.  FPI protects only the lender's interest and it only provides certain forms of Property Insurance Coverage to the lender.

          For those reasons, "common sense" would instead reflect that to the contrary, the premium rate on FPI coverage should by all rights be less than Homeowner's Insurance which provides more than Property Coverage and which generally protects the interest of the lender and the borrower-homeowner.  FPI does not protect the insurable interest of any borrower or homeowner.

          "Common sense" ought not to be allowed to displace reality, particularly when it is neither common nor the true sense of how things really are.

          An appropriate lesson to draw from the particular case of Rapp, regardless, is that an FPI claim of unjust enrichment against the insurance company is all but certain to be dismissed if the plaintiff borrower alleges no more than that the FPI "was a lot more expensive than a policy that [the plaintiffs] could have purchased on [their] own".  Expense alone has never been recognized as a legitimate basis for any FPI claim in any Court.

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

FILED RATE DOCTRINE NO REASON TO DISMISS ALL FPI CLAIMS.

          Where the plaintiff did not challenge the rates charged by insurance companies for force-placed insurance, the filed rate doctrine did not apply to bar any and all claims the plaintiff-mortgagor alleged.  Gallo v. PHH Mortgage Corp., 916 F. Supp. 2d 537 (D.N.J. 2012).

          The filed rate doctrine was addressed in detail earlier in this space, in the most recent installment of a continuing series on force-placed insurance.  The District Judge in New Jersey followed established Third Circuit precedent naturally enough in Gallo, explaining the filed rate doctrine as follows:

 

A. The Filed Rate Doctrine

   As explained by the Third Circuit, “[t]he filed rate doctrine provides that a rate filed with and approved by a governing regulatory agency is unassailable in judicial proceedings brought by ratepayers.” Alston v. Countrywide Fin. Corp., 585 F.3d 753, 763 (3d Cir.2009) (citing Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir.1994)). The filed rate doctrine applies in circumstances where a plaintiff is challenging the “reasonableness or propriety of the rate[s]” themselves. Alston, 585 F.3d at 765.

Gallo v. PHH Mortgage Corp., 916 F. Supp. 2d 537, 543 (D.N.J. 2012).

          However, in the eyes of the District Judge in Gallo, the plaintiff's allegations in his thirty-one page complaint and one hundred one paragraphs, did not put the rates or the rate-making at issue; the issue, rather, was the conduct of the mortgagee:

Rather, Plaintiff is challenging the lawfulness and purpose of payments that PHH Mortgage received in the form of commissions, kickbacks, reinsurance premiums, or other financial benefits, pursuant to several alleged pre-arranged agreements designed to maximize profits for Defendant. Defendant, the party bearing the burden to show dismissal is warranted under this doctrine, has not presented any authority to demonstrate that such pre-arranged side agreements are similarly filed with, approved by, or regulated and monitored in some way by a governing regulatory agency, such as the Department of Insurance, much like the filed rates for hazard insurance policies themselves.

Gallo v. PHH Mortgage Corp., 916 F. Supp. 2d 537, 546 (D.N.J. 2012).

          In a stinging rebuke that may find its way into other opinions as well as legal memorandums and briefs, the Court rejected the defendant's arguments invoking the filed rate doctrine as being based on "overgeneralizations" of the allegations in the amended complaint at bar:

[I]t appears to the Court that Defendant has lost sight of the forest for the trees. A full and fair reading of the entirety of Plaintiff's Amended Complaint, on the other hand, manifestly demonstrates that Plaintiff complain[s] of the manner and method Defendant PHH Mortgage utilized in purchasing force-placed hazard insurance through pre-arranged agreements with providers like American Security, which allegedly resulted in improper financial benefits to Defendant PHH Mortgage.

Gallo v. PHH Mortgage Corp., 916 F. Supp. 2d 537, 547 (D.N.J. 2012).

          The filed rate doctrine in short did not apply to bar all force-placed insurance claims alleged by the plaintiff.  The Gallo plaintiff's claim for breach of an implied covenant of good faith and fair dealing withstood the motion to dismiss.  The District Judge granted the motion to dismiss the plaintiff's two other alleged claims, one for breach of contract and the other for unjust enrichment.

          However, the filed rate doctrine was no basis for dismissal of any of plaintiff's force-placed insurance claims in Gallo.

Please Read The Disclaimer.  Copyright © 2013 Dennis J. Wall.  No claim to original U.S. Government works.

The Affirmative Defense of the Filed Rate Doctrine.

   The affirmative defense of the filed rate doctrine is frequently raised against force-placed insurance claims.  Increasingly, the defense is making its way into many 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.

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

 * * *

                   2.  Filed Rate Doctrine.  The filed rate doctrine arose in the context of utilities regulation.  Where a utility is required by law to charge its rates after filing for and receiving the approval of a ratemaking regulatory authority, the Courts have constructed a doctrine of immunization for such utilities from suits based on allegations that the utilities rates are unreasonably high.[1]

     Further, Courts have transferred this "filed rate doctrine" into the insurance arena.  Where insurance companies must receive the approval of State Insurance Commissioners and their equivalents for the rates which the insurance companies are permitted to charge, many Courts apply the filed rate doctrine to hold that such insurance companies are immune from suits based on allegations that insurance rates are too high.[2]

     "Thus," in a putative class action case involving force-placed insurance, the question raised by the filed rate doctrine "is whether [the plaintiff] Ellsworth's claims challenge ASIC's ratemaking authority.  They do not."[3]  Where the plaintiffs do not challenge the rates or the premiums paid for force-placed insurance, but instead challenge "the alleged kickbacks," it has been held that the filed rate doctrine accordingly does not apply.[4]  In such a case, "Plaintiffs are not complaining that they were charged an excessive insurance rate, they are complaining that the defendant bank acted unlawfully when it chose this particular insurance company and this particular rate."[5]

     Further, in the insurance context including the forced placement of insurance by a lender, the defendant lender cannot claim the immunity afforded by the filed rate doctrine.  It has been held that the filed rate doctrine simply does not apply to a bank in that context.[6]

     Further, the filed rate doctrine has been held not to apply to immunize a mortgage servicer in that context, either:

[W]here a plaintiff is not challenging a rate as excessive, but rather the manipulation of the rate, the filed-rate doctrine does not apply. This reasoning is persuasive. For example, if insurance were available from a number of carriers at different rates—all subject to filed-rates—the filed-rate doctrine would not protect a loan servicer who chooses a carrier and a policy with a rate higher than others simply to receive a kickback not available from other carriers. A claim of manipulation could lie irrespective of the fact that the rate charged by the carrier is protected under the filed-rate doctrine.

     Accordingly, the Court rejects Wells Fargo's argument that the filed-rate doctrine is a bar to the kickback claims asserted against it.[7]

     In short, in the force-placed insurance, putative class action cases decided by Federal Courts to date, the filed rate doctrine has met with a lack of success in the Courts' disposition of Rule 12(b)(6) motions, certainly and clearly with regard to the class of kickback allegations upon which the plaintiffs base their claims.[8]

To Be Continued.  Please Read The Disclaimer.

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[1] See, e.g., Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *12 n.10 (N.D. Cal. December 11, 2012); Morales v. Attorneys' Title Ins. Fund, Inc., 983 F. Supp. 1418, 1426 (S.D. Fla. 1997).

 

[2] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *13 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[3] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *13 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[4] Ellsworth v. U.S. Bank, N.A., 2012 WL 6176905 *14 (N.D. Cal. December 11, 2012)(Beeler, USMJ).

 

[5] Abels v. JPMorgan Chas Bank, N.A., 678 F. Supp. 2d 1273, 1277 (S.D. Fla. 2009).  Accord, Cannon v. Wells Fargo Bank N.A., 2013 WL 132450 *9 (N.D. Cal. January 9, 2013).

 

[6] Abels v. JPMorgan Chas Bank, N.A., 678 F. Supp. 2d 1273, 1277 (S.D. Fla. 2009).

 

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

 

[8] In the case of Webb v. Chase Manhattan Mort. Corp., 2008 WL 2230696 (S.D. Ohio May 28, 2008), the Court was faced with a summary judgment motion, not a Rule 12(b)(6) motion.  Further, the Court in that case seemed to be for applying the filed rate doctrine before it was against applying it, as they say; the Court seemed to express a view, at first, that the filed rate doctrine applied in that case but then the Court wrote that it was "unnecessary to reach such a conclusion" because of the nature of the plaintiff's arguments in that case.  Webb v. Chase Manhattan Mort. Corp., 2008 WL 2230696 *21 (S.D. Ohio May 28, 2008).

To Be Continued.  Please Read The Disclaimer.

 

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).