This article is part of a series begun here on Sunday, November 11, 2012, "Two Decisions on Bad Faith and Force-Placed Insurance." The series continued here on Tuesday, November 13, 2012 with "NEW JERSEY BAD FAITH LAW, FEDERAL CLASS ACTION, FORCE-PLACED FLOOD INSURANCE."
The second of the two class actions involves Massachusetts law: Lass v. Bank of America ["BOA"], 695 F.3d 129, 132 (1st Cir. September 21, 2012).
THE Lass FEDERAL CLASS ACTION: FORCE-PLACED FLOOD INSURANCE AND MASSACHUSETTS BAD FAITH LAW.
The Lass case involved similar allegations as were alleged in the operative Complaint under New Jersey law in the Kolbe case, also in a class action, this one against a Lender and its Mortgage Servicer. It was held in the Lass case that under Massachusetts law the operative Complaint stated Bad Faith Claims upon which relief could be granted against both Defendants here.
The Mortgage is a “standard form” issued by Freddie Mac and Fannie Mae “for single-family mortgages in Massachusetts.”
The form mortgage contract put at issue by Ms. Susan Lass here, specifically required the Borrower to have hazard Insurance against “floods or flooding, for which Lender requires insurance.” In other words, the Mortgagor-Borrower contractually agreed to obtain hazard Insurance against floods or flooding, at the Lender’s discretion.
At the time of closing -- which was in 1994 -- the Lender did require Flood Insurance. The amount, however, “was specified in a separate document labeled ‘Flood Insurance Notification’ (‘the Notification’).” The Notification specified that the amount of Flood Insurance would be the amount of the principal of the mortgage, “or the maximum amount available, whichever is less.” The amount of Flood Insurance was then the amount of the principal, or $40,000.00. Lass v. BOA, 695 F.3d 129, 132 (1st Cir. 2012).
NOW, THE REST OF THE STORY, AS THEY SAY. Lass v. BOA, 695 F.3d 129, 132-33 (1st Cir. 2012).
Ms. Lass maintained at least the required policy limits of $40,000.00 in Flood Insurance on her Property continously since 1994, except that after a time she increased the Coverage to $100,000.00.
Until a new Lender acquired the rights to Ms. Lass’s mortgage.
Then, the Lender (BOA) told her “that she needed an additional $145,086.00” in Flood Coverage which would be the “replacement value,” or the Lender would force-place the Flood Insurance and send her the Premium.
Lass declined, BOA purchased new Flood Insurance 3 times in 14 months, billed Lass each time, a TV station aired the story, and BOA ‘refunded’ Lass 2 of the 3 Premiums.
Susan Lass sued anyway.
THE HOLDINGS OF MASSACHUSETTS BAD FAITH LAW IN THE Lass FORCE-PLACED FLOOD INSURANCE CLASS ACTION.
The First Circuit held that Ms. Lass stated claims upon which relief can be granted under Massachusetts Bad Faith law in this case, including:
- The Lender demanded more Flood Insurance than required by Federal law or by the Mortgage.
- The Lender in this case “backdated” insurance and charged Lass for it.
- The Lender charged Lass and other “borrowers for commissions or ‘other compensation’ for itself or its affiliates.”
Lass v. BOA, 695 F.3d 129, 138-40 & 139 n.19 (1st Cir. 2012).
JUDGES DECIDE LAWSUITS, NOT QUESTIONS WHICH YOUR MOTHER AND FATHER MAY HAVE DECIDED FOR YOU BACK IN THE DAY.
As in the Kolbe case decided under New Jersey Bad Faith law by the First Circuit in a 2-to-1 decision issued on the same day, the First Circuit in Lass did not see addressing the arguments for and against purchasing Flood Insurance as a part of its job, whether before or after flooding. That is not a part of the Judges' job description. Instead, the First Circuit focused on what the contract documents and the law applicable to them authorized and whether the law of the forum State -- which in Lass was Massachusetts, whereas in Kolbe it was New Jersey -- as applied to what the law and the contract documents authorized, additionally authorized a Claim or Claims upon which relief could be granted for Bad Faith. These two cases being Federal Class Actions, the holdings that the respective Complaints stated Bad Faith Claims upon which relief could be granted, resonates far beyond the relief thereby afforded to Ms. Lass and to Mr. Kolbe.
Dennis Wall is a featured speaker at this year's National Forum on Bad Faith Litigation in Orlando, Florida on November 28 and 29, 2012. Readers of this blog can receive a discount on registration through I believe November 15, 2012 it is, by mentioning my name as a Speaker at this Forum at the time of registration. Here is the American Conference Institute's website: www.americanconference.com/badfaith.
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