Claims and Bad Faith Law Blog

LAW OF LIABILITY INSURANCE, THE AMERICAN LAW INSTITUTE, AND Powell.

    The American Law Institute is at work on a Restatement of the Law of Liability Insurance.  At this time, the ALI’s drafts do not apparently include any reference to the Powell rule, or if there is one, at least one that is easily found.  The thrust of this article is to show why it should.  An explicit statement of the Powell rule in the Restatement would do much to protect liability insurers from frivolous setups and to protect policyholders from unreasonable insurer settlement conduct.

    The Powell rule addresses situations in which an injured or damaged claimant does not make a settlement demand.  The Powell rule is so important and pervasive in the experience of settlement negotiations that the responsibilities of a liability insurer in this situation should be addressed in the Restatement:

 

A liability insurance company has a duty to initiate settlement negotiations when:

1. Liability of the policyholder is clear, and
2. The injuries of the claimant are so serious that a judgment in excess of the policy limits is likely.

 

    This provision mandates that a liability insurer initiate settlement negotiations in such a situation if the insurer is going to be held to make a reasonable settlement decision.  What constitutes the initiation of settlement negotiations will depend on what is already set out in the draft Restatement’s current requirement of reasonable settlement decisions.

    This rule is most commonly called the “Powell rule,” named after the case which is best known for stating it:  Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review denied, 598 So. 2d 77 (Fla. 1992).  The so-called Powell rule was not announced in a vacuum, however; other Courts enunciated it in other cases and applied it there.  Many of these cases are cited in Powell itself.  In addition, Powell has been followed by Courts in other jurisdictions.  Nonetheless, the Powell rule is a minority rule, although for the reasons submitted below, it represents the better rule in cases in which the policyholder’s liability is probable, and damages are great meaning that damages are likely to exceed the policy limits.

    Among the advantages which ought to recommend it to liability insurers and their lawyers, is that the Powell rule provides a clear statement of the limits of the liability insurer’s extracontractual exposure or risk.  Opposing counsel frequently argue to Courts and, when allowed by Courts,  argue to juries that the liability insurer has a duty to actually settle the case because the policyholder’s liability is probable and the claimant’s damages are great.  The liability insurer does not have to settle in such a case, it only has to initiate settlement negotiations.  No Court has ever held otherwise to my knowledge.

    Claimants certainly do not have to make a settlement demand in any case.  Sometimes claimants not only refuse to make a settlement demand, but they refuse to settle.  It takes more than a liability insurer to settle a claim against its policyholder; the claimant’s willingness to settle is required too.

    The Powell rule makes it clear that the liability insurer is not going to be held strictly or absolutely liable if a given case is not settled, but that it is exposed to extracontractual liability if it does not initiate settlement negotiations in a case in which liability is probable and damages are great.

    A specific provision declaring the Powell rule as a part of the Restatement will also address the situation of the so-called “bad faith setup.”  This concept is frequently raised in some of the legal literature, but when it is raised in litigated cases it is a failure as a defense.  I am aware of no case in which a “bad faith setup” by the injured claimant was ever recognized as a defense to extracontractual, bad faith liability in excess of policy limits.  Courts have always viewed settlement duties as duties which belong exclusively to the insurance carrier.

    Further, Courts have abandoned the old rule which required a judgment in excess of the carrier’s policy limits (the “judgment rule”) in favor of a rule of liability allowing the carrier to be held responsible to pay sums in excess of its policy limits when the carrier could have acted reasonably and attempted to settle the underlying case even in the absence of a judgment against the policyholder, such as where the underlying case has settled.

    The Powell rule reaches the corollary situation in which the carrier could have acted reasonably and taken steps in an effort to attempt to settle the underlying case even in the absence of a demand from the injured claimant.  This provision reinforces the concept prevailing in the Restatement that the standard of liability to be applied to the liability insurer’s conduct is reasonableness.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.  No Claim to Original U.S. Government Works.

 

ENFORCING DIRECTORS’ DUTIES OF COMMUNICATION: FIDUCIARY LAW CAN PROVIDE MEANS.

    The New York Times’ Gretchen Morgenson considers “Time to Coax The Directors Into Talking” in her “Fair Game” column in today’s New York Times.  Ms. Morgenson compares and contrasts the behavior of directors in American corporations and in their European counterparts.

   Directors of U.S. corporations often do not, for example, communicate with the corporations’ shareholders.  The directors of U.S. corporations are apparently concerned that they will be overwhelmed with what they see as “frivolous” shareholder communications.  Less than half of the directors in a recent poll had communicated with shareholders about how the shareholders can approach them to discuss corporate business.  In fact, a recent series of reforms to the bylaws of several major U.S. corporations will expand the shareholders’ opportunity to nominate directors at the corporations’ annual meetings – so long as the shareholders hold at least 3% of the corporations’ shares for at least 3 years.  Id.

   In contrast, some European corporations are required by law to invite their five largest stockholders to become members of the corporations’ committees which nominate the corporations’ directors.  In another European country, a corporation’s chairman of the board is required by law to “supervise the communication process with shareholders.”  Id.

   It is difficult to reconcile U.S. director silence with adequately fulfilling fiduciary law’s requirements of good faith and fair dealing.  Fiduciary duties generally also include duties of information, i.e., keeping the corporation informed of significant developments which affect the corporation.  It will be interesting however to see how directors reconcile these two seeming opposites under applicable fiduciary law.

   It will be equally interesting to see whether and to what extent the directors’ fiduciary duties including the duty of information are extended to the corporation’s shareholders.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

 

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BOOKS FOR BOOK REVIEWS: “LENDER FORCE-PLACED INSURANCE PRACTICES”.

               The first 3 people to send me an EMail that they would like a complimentary copy of my forthcoming book, “Lender Force-Placed Insurance Practices,” can have one if they are willing to follow these easy steps.

                First, be a person whose mailing address and other contact information I can confirm, and send me an EMail with the words that I will be looking for in the subject line, requesting a complimentary copy of my book, “Lender Force-Placed Insurance Practices.”  (All this will be explained further on April 5 and 6, 2015.)

                Second, tell me that you agree to write a book review of my book that meets the publisher’s criteria.  The publisher will be either a respected legal periodical or a respected law blog with  nationwide distribution.  Tell me that if you receive your complimentary book that you agree to write a book review of my book and that within 2 weeks after you receive the book, you will EMail attach your review of “Lender Force-Placed Insurance Practices” to the publisher I have selected.  (No promises that the publisher will publish your book review of “Lender Force-Placed Insurance Practices,” but all we can do is our best whatever we do.)

                Third, follow the instructions that will be posted on Insurance Claims and Issues Blog and on Insurance Claims and Bad Faith Law Blog on the Monday and Tuesday after Easter, April 5 and April 6, 2015, respectively.  That’s it!  Easy as 1-2-3.

               “Lender Force-Placed Insurance Practices” is still in the process of publication, so right now the books are at the Book’s Publisher.  I will be able to distribute the complimentary copies after publication, of course.  Copies of my book should be available to me to distribute by April 5, so when the instructions are posted on April 5 and April 6, is about the time that I expect printed copies of my book to be on hand.

                At the risk of repetition, it is as simple as that!  Watch here for any further updates and watch for the easy-to-follow steps that will be posted on April 5 and April 6, 2015 in order to receive your complimentary copy of “Lender Force-Placed Insurance Practices”!

 Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

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THE 3% SETTLEMENT: WHERE WERE NEW JERSEY’S $45 MILLION LAWYERS?

    Past articles on New Jersey’s settlement with Exxon for 3% of what New Jersey demanded were posted here and on Insurance Claims and Issues Blog.  To concisely sum up what was previously known, New Jersey sued Exxon for 11 years over pollution damage allegedly caused by Exxon.  New Jersey demanded $9 Billion in round numbers, some $2.5 Billion for cleanup and some $6.5 Billion for “loss of use” damages for New Jersey residents’ loss of use of the land polluted by Exxon.  New Jersey understandably hired outside counsel experienced in environmental litigation, a firm from New Orleans which reportedly will receive $45 Million from a $225 Million settlement announced by the Governor Chris Christie Administration after several weeks of published reporting on the settlement.  The outside counsel must have been good; New Jersey obtained a judgment in its favor after a trial on Exxon’s liability.  Then the outside counsel presented New Jersey’s case for an award of $8.9 Billion.  The damages trial concluded and the parties and their counsel were awaiting the Judge’s decision on how much to award in damages – until, to all appearances, the case was abruptly settled.

    Now, after we heard reports that Governor Christie’s people elbowed their way into the settlement negotiations and settled for 3% of New Jersey’s demand, leaks from the Chris Christie Administration have reported a new scenario.  Supposedly, the Christie Administration has been negotiating a settlement of New Jersey’s 11-year lawsuit with Exxon since about 2012.  Their negotiations have, so the story goes, involved the New Jersey Attorney General and other appropriate officials of course.  See Benjamin Weiner and Kate Zernike, “New Jersey’s Exxon Deal Was Years in the Making,” p. A24, col. 1 (New York Times Nat’l ed., Friday, March 20, 2015).

    Even if we accept this leaked reporting from the Governor Chris Christie Administration at face value, people experienced with litigation and settlements will note that New Jersey’s outside counsel, its 45 Million lawyers as it were, have said nothing.

    Under this scenario, we are expected to believe that it was the lot of these outside lawyers to be humiliated by arguing for $8.9 Billion in damages when all the time their client was supposedly negotiating a settlement for 3 years of 3% of that amount.

    If taking 3 cents on the dollar is a good deal, we have a right to expect that these private lawyers who are experienced in environmental litigation (which, to say again, is why New Jersey retained them) would “say grace” over the settlement.  They would be rightly expected to give this deal their blessing.

    Yet their silence remains.

    Not only have New Jersey’s outside lawyers not said anything publicly about New Jersey’s 3% deal, but to my knowledge there have not been any reports even mentioning that these lawyers were involved in the settlement negotiations.

    So, if this is such a good deal for New Jersey, where are New Jersey’s outside lawyers?  Why were they not involved in the settlement negotiations that culminated in this “good deal”?  Or if they were involved, why have we not heard from them?

    Something stinks.  And this time it wasn’t something left by Exxon.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All Rights Reserved.   

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CLAIM PRECLUSION OPPORTUNITY TO BE HEARD ON JUNE 11, 2015.

HAPPY ST. PATRICK’S DAY!  And best wishes of The Day for a better Day than in 2014!  

               Claim preclusion or res judicata based on the payment of money in class action settlements is following a pattern.  These efforts are being greeted with some success so far when used by Wells Fargo in lender force-placed insurance (“LFPI”) cases, for example.  See ST. PATRICK’S DAY, 2014:  THE DAY THAT BARRED ALL CLAIMS, supposedly.

               Now the efforts are being followed by a provider of force-placed insurance, American Security Insurance Company or ASIC and a mortgage servicer, Ocwen, and their related affiliates and subsidiaries and partners.  Following in the footsteps of Wells Fargo in this regard, ASIC and Ocwen have also obtained settlements and immunity orders in one case pending in the United States District Court for the Southern District of Florida.  The Court Orders were again entered on orders proposed by the parties after the parties settled their alleged class action in an LFPI case.  The Court Orders purportedly provide immunity, i.e., res judicata, to preclude every LFPI claim in every other lawsuit filed against the defendants ASIC and Ocwen et al. anywhere in the United States.  This fairly describes the huge settlement class that was certified in the Miami case of Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, *4 (S.D. Fla. Report and Recommendations of U.S. Magistrate Judge Jonathan Goodman, January 13, 2015), report and recommendations adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015 Order by USMJ Jonathan Goodman sitting by consent of the parties after his report and recommendations were made 10 days earlier).

               However, class settlement certification can be attacked.  One recognized ground for a collateral attack is inadequate representation on issues common to the class which is certified for settlement.  See Hecht v. United Collection Bureau, Inc., 691 F.3d 218, 221-24 (2d Cir. 2012), and cases cited in it.  See generally the outstanding article by Georgene Vairo, “Is the Class Action Really Dead?  Is That Good or Bad for Class Members?” 64 Emory L.J. 477 (2014).

            In the Lee case filed against ASIC and Ocwen, et al., the class certified for settlement consists of “[a]ll borrowers in the United States who within the Settlement Class Period [of January 1, 2008 through January 23, 2015] were charged by Ocwen under a hazard, flood, flood gap or wind-only LPI Policy for residential property ….”    Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, *3 (S.D. Fla. January 13, 2015 Report and Recommendations of U.S. Magistrate Judge Jonathan Goodman), report and recommendations adopted by USMJ Jonathan Goodman sitting by consent of the parties, 2015 WL 309441 (S.D. Fla. January 23, 2015 Order by USMJ Jonathan Goodman).  Essentially the settlement class certified in Lee is “all borrowers within the United States.”

            Any common questions of law or fact there may be in Lee do not predominate over individualized determinations required for various potential claims of nonparties.  As good as the Lee plaintiffs’ attorneys undoubtedly are at their profession, they are only from 3 States:  New Jersey, New York, and Florida.  Their clients, the plaintiffs in the Lee lawsuit in Miami, provide an additional 4 States, at least according to the First Amended Complaint, Docket No. 106 filed 12.01.14; the plaintiffs in the FAC are from Florida, Massachusetts, Illinois, New Jersey, New York, Texas, and Virginia.  Among their alleged claims are claims for damages for Florida unjust enrichment and tortious interference, breach of fiduciary duty, violation of the implied covenant of good faith and fair dealing, and alleged violations as well of the Florida Deceptive and Unfair Trade Practices Act.

            Claims alleged for unjust enrichment under Florida law and the law of other States, together with alleged violations of Florida’s implied covenant of good faith and fair dealing, were previously held to make a nationwide class of lender force-placed insurance plaintiffs, i.e., homeowners-mortgagors, uncertifiable as a matter of law because differences between the States in their application of these laws require individualized determinations of fact, thus predominating over any questions of law or fact in common in the settlement class.  This holding was reached in an earlier lender force-placed insurance practices case in the same Southern District of Florida:  Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2013 WL 139913, *7-*10 (S.D. Fla. January 10, 2013).

            The same holding has been reached concerning claims alleged under the  Florida Deceptive and Unfair Trade Practice Act in the Southern District in another earlier case, although that case did not involve lender force-placed insurance practices.  The holding in that case was that “[g]iven the significant variation in unfair trade practices statutes throughout the country, and the lack of a showing by [plaintiff] to the contrary, the Court finds that [plaintiff] has failed to establish that common issues predominate with respect to the unfair trade practices claims.”  Karhu v. Vital Pharmaceuticals, Inc., No. 13-60768-CIV, 2014 WL 815253, *10  (S.D. Fla. March 3, 2014)(the Court in the Karhu case also held, for the same reasons, that the putative class action plaintiff did not meet his burden of establishing that common issues predominate “with regard to the unjust enrichment claims of the Proposed Classes”), dismissed without prejudice by Order filed on March 27, 2014, notice of appeal filed on April 15, 2014 regarding denial of class certification and dismissal.  (As of this writing, the appeal in Karhu is still pending.)

            In determining the settlement class in Lee, the Magistrate Judge cited a precedent which held that the Court is not endorsing any evidence or arguments in that process.  However the Magistrate Judge also purported to make determinations that the settlement class in Lee should be certified in part because “[t]here are questions of law or fact common to the members of the Settlement Class.”  The Court in Lee made this determination without ever mentioning what those common questions are, let alone making any attempt to identify even one of them as “predominant”. 

            The Magistrate Judge also certified the settlement class in Lee in part because “Plaintiffs’ claims are typical of the claims of the other members of the Settlement Class.”    Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, at p. *3, ¶ 5 (S.D. Fla. January 13, 2015 Report and Recommendations of Goodman, USMJ), adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015; Goodman, USMJ).  The claims of the Lee plaintiffs are not typical, and neither the plaintiffs nor their settlement class attorneys can possibly represent the claims of the other members of the class under the laws of the 40+ States which they cannot invoke.  See, e.g., Karhu v. Vital Pharmaceuticals, Inc. (S.D. Fla. March 3, 2014); Kunzelmann v. Wells Fargo Bank (S.D. Fla. January 10, 2013), both cited and discussed above.

            At the time of the Magistrate Judge’s recommendations on the Lee plaintiffs’ motion to certify, the Court also confronted objections to preliminary approval of the settlement by nonparties in Lee who were parties in a separate pending case in the Central District of California, Valdez v. Saxon Mort. Serv’s, Inc., No. 2:14-cv-03595-CAS-MAN (C.D. Cal.).  The Court in Lee overruled the objections of the nonparties from the Valdez case in California.  However, the Lee Court ruled that if the Valdez parties want to object at the final settlement hearing in Lee, then they can do so, provided of course that they file their written objections in the Lee Court file no later than 30 days before the final hearing, and provided that they also file a notice of intent to appear in person, and provided also that they serve on Lee counsel their respective notices with all of their evidence attached to it, among other things.

            In the Lee case, the trial judge ruled that the parties could not appeal if the settlement were finally approved unless they followed the preliminary certification order’s instructions faithfully.  The Magistrate Judge held in Lee that if an objecting person does not obey these instructions to the letter, then that person “shall be foreclosed from seeking any review of the Settlement or the terms of the Agreement by appeal or other means ….”  Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, at p. *7, ¶ 12 (S.D. Fla. January 13, 2015 Report and Recommendations of Goodman, USMJ), adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015; Goodman, USMJ).

            In sum, the preliminary settlement order submitted by the parties and signed by the Magistrate Judge in Lee contemplates that objections to the settlement and to the Preliminary Order approving the settlement will be considered at the Final Approval Hearing.  The final hearing, now rescheduled by Court Order (Dkt. No. 127), is due to be held in Miami on June 11, 2015.  Objections presented in compliance with the Court’s preliminary Order are due to be entertained at that time.  Please be governed accordingly.

The author’s forthcoming book on “Lender Force-Placed Insurance Practices” is scheduled for publication this Spring by the American Bar Association.

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

 

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STANDING TO SUE AND CLASS ACTION PROCEDURES: Part 2 of 2.

BANKS WRONGLY DECLARING “INSUFFICIENT” INSURANCE IMMUNIZED UNDER U.S. PROPOSAL.

Homeowners May Pay Bankers’ Future Bonuses, Courtesy of a New Regulation Proposed by the Consumer Financial Protection Bureau.

             Under a proposal made by the U.S. Government, banks and other mortgage servicers would be empowered to decide whether homeowner’s insurance on mortgaged homes is “insufficient”. These same banks reportedly earn money by declaring that a homeowner’s insurance is “insufficient” and requires lender force-placed insurance. Further, the banks earn more money if the homeowner cannot afford the exorbitant higher premiums of lender force-placed insurance, and so the banks foreclose on the homeowner’s mortgage.

             Under the pending proposal, written by the Consumer Financial Protection Bureau, the banks and other mortgage servicers would be immunized if they are wrong. Whether the homeowner had “sufficient” insurance coverage is at the heart of most lawsuits over lender force-placed insurance practices; if the banks are immunized for being wrong about that, they may be exposed to significantly less scrutiny by juries and judges in LFPI lawsuits. Certainly, that is what the banks at least will argue.

             The official period for comments expires on Monday, March 16, 2015. As these words are written, there is time to register your own observations on the CFPB proposal. On Friday, March 13, 2015, the author filed his own comments and for your convenience, they are repeated here including the information necessary for the Government to process your comments including the CFPB Docket Number and the Regulatory Information Number (“RIN”) . Please take advantage of this unique opportunity, whether or not you agree with the following comments of this writer.

March 13, 2015

BY POSTING TO FEDERAL eRULEMAKING PORTAL

AND BY PDF ATTACHMENT TO EMAIL

Federal eRulemaking Portal:  http://www.regulations.gov.

Email: [email protected].

Re:         Docket No. CFPB-2014-0033.

               RIN 3170-AA49.

To the Consumer Financial Protection Bureau:

               These Comments concern certain amendments or changes to regulations and related forms proposed by the CFPB.  The Bureau’s proposed amendments are not authorized by Congress.

               The Consumer Financial Protection Bureau can act only with authority delegated by Congress.  Here, the Bureau’s cited Legal Authority does not authorize the CFPB to issue a regulation that in turn authorizes a mortgage servicer to demand “evidence that the borrower has hazard insurance that provides sufficient coverage”.

                These Comments address in particular the Bureau’s proposed changes to 12 C.F.R. § 1024.37(c)(2)(v)(A) and (B).  The CFPB’s proposed changes to the regulation also implicate changes proposed by the CFPB to Forms in Appendix MS-3 including (A) and (B).

               The CFPB’s cited “Legal Authority” for these changes references certain sections of the Real Estate Settlement Procedures Act (RESPA):

These proposed amendments and clarifications to § 1024.37 implement sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA.

               The proposed amendments addressed here do not implement the cited sections of RESPA.  (The sections relied on by the CFPB are codified in 12 U.S.C. § 2605.)

            Section 6(m), or subsection 2605(m), does not authorize anything like requiring evidence that the borrower has hazard insurance that provides “sufficient” coverage.

               Sections 6(k)(1)(A) and (2), or subsections 2605(k)(1)(A) and (2), refer to “the loan contract’s requirements to maintain property insurance” [emphasis added].  In that way, these two subsections of the enabling statute, taken together, allow mortgage servicers to obtain force-placed hazard insurance only when there is a reasonable  basis to believe that the borrower has failed to comply with the loan contract’s requirements to maintain property or other hazard insurance.  There has been no change to the provisions of the enabling statute.  There is no resulting authority for changing the regulation written to implement the statute’s provisions.  The proposed amendment to Section 1024.37, referencing authority conferred upon mortgage servicers to require and accept evidence of “sufficient” property or other hazard coverage, is without authority.  Unless and until determined to the contrary by a Court of competent jurisdiction, the proposed amendment would as a result be void at inception because it would be issued without the required authority which has not been extended by Congress to the Bureau.

               There is no arguable basis for the proposed amendment to the regulation, under Section 6(l) or subsection 2605(l), either.   This provision of the statute does not authorize a change to the regulation, it has not been changed itself, and issuing such a regulation as that proposed by the Bureau would not, in this instance, implement the statute in any conceivable way.

               To the contrary, paragraph 6(l)(2) which is codified as paragraph (2) of subsection 2605(l), prohibits the proposed regulatory change by implication.   It provides:

                (2) Sufficiency of demonstration

A servicer of a federally related mortgage shall accept any reasonable form of written confirmation from a borrower of existing insurance coverage, which shall include the existing insurance policy number along with the identity of, and contact information for, the insurance company or agent, or as otherwise required by the Bureau of Consumer Financial Protection.

              There is nothing in the statute about who makes the determination of what is or is not “sufficient” coverage.  There is nothing in the statute about what qualifies as “sufficient” coverage.  The statute simply does not address the concept of “sufficient” coverage at all.

               The statutory scheme selected by Congress is reasonably clear:  A servicer is required to accept all reasonable forms of evidence of “existing insurance coverage.”  Thereafter, the borrower and the servicer can each determine for themselves whether a Court of competent jurisdiction would hold that the evidence provided of “existing” coverage is evidence of “sufficient” coverage required by the mortgage loan contract.

               Otherwise, the mortgage servicer’s demand under the proposed amended regulation for evidence of “sufficient” coverage may be immunized under the Interpretations promulgated by the CFPB concerning compliance with all CFPB regulations.  See 12 C.F.R. 1024, Supp. I, unnumbered “Introductory Paragraph.”

               The genesis of the proposed amended regulation may lie in the Bureau’s regulation which addresses the sufficiency of Flood Insurance policy limits.  See Dennis J. Wall, “Lender Force-Placed Insurance Practices,” a book forthcoming later this March, in which the Bureau’s regulatory activity in the arena of Flood Insurance is discussed along with many other issues arising from lender force-placed insurance practices.

               However, the source of authority for the Flood Insurance regulation is the National Flood Insurance Act, as amended.  RESPA does not convey any similar authority upon the Bureau.

 CONCLUSION

               The proposed regulatory changes which are the subject of these Comments are the Consumer Financial Protection Bureau’s proposed amendments to12 C.F.R. § 1024.37(c)(2)(v)(A) and (B).  The CFPB’s proposed changes to the regulation also implicate changes proposed by the CFPB to Forms in Appendix MS-3 including (A) and (B).

            In proposing the amendments addressed in these Comments, the Consumer Financial Protection Bureau relies on sections 6(k)(1)(A), 6(k)(2), 6(l), and 6(m) of RESPA [codified as 12 U.S.C. § 2605(k)(1)(A), (2), (l), and (m)].   The Bureau’s cited Legal Authority does not authorize the CFPB to make the subject changes which the Bureau proposes to make to the regulation.  In particular, the enabling statute – RESPA – does not authorize the Bureau to issue regulations that in turn authorize a mortgage servicer to determine what may constitute “sufficient” insurance coverage and receive immunity for its decision, including immunity for a servicer’s demand for “evidence that the borrower has hazard insurance that provides sufficient coverage”.

               Thank you for your consideration.

Sincerely Yours,

/S/

Dennis J. Wall

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

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CHRIS CHRISTIE DISCOVERS DAMAGES, SETTLES MORE FOR LESS.

             This story started out with a possible insurance connection.  New Jersey’s reported settlement with Exxon of an environmental contamination lawsuit over two sites was addressed on Insurance Claims and Issues Blog on March 2, 2015, “NEW JERSEY, CHRIS CHRISTIE, EXXON AND ... INSURANCE?”.

                The story of New Jersey’s settlement moved here because frankly the possible insurance connection has been overtaken by events.  What started out as a reported $250 Million settlement began changing shape as soon as it was pulled into daylight.

               First, the amount involved began shrinking.  The amount Exxon would pay – in a case in which its liability was already determined and all that remained was for the Court to assess damages after another trial, this one on damages  – went south, as they say, from $250 Million to $225 Million.  To put that amount in perspective, New Jersey argued at the damages trial for $8.9 Billion.  New Jersey supported its $8.9 Billion damages argument with the evidence including expert testimony.  See Benjamin Weiser, “Top Officials in New Jersey Praise a Deal With Exxon” p. A23, col. 6 (New York Times Nat’l ed., Friday, March 6, 2015).

           Then the amount shrank even further.  It went from a reported $225 Million to about $180 Million because New Jersey owes its outside lawyers in the case about $45 Million on a $225 Million settlement.  See Benjamin Weiser, "Chunk of New Jersey's Money From Exxon Settlement is to go to Legal Fees" (New York Times Online, posted March 9, 2015).  Still, this was good for New Jersey said people appointed to their jobs by Governor Christie, see Weiser, New York Times March 6, 2015, supra, and so said Governor Christie himself.  See Kate Zernike and Benjamin Weiser, "Christie, Defending Exxon Deal, Says Damage Will be Repaired" p. A21, col. 5 (New York Times Nat'l ed., Wednesday, March 11, 2015)(this reporting repeats the previous description, before deducting attorney's fees, of "the $225 million deal").

              Governor Christie offered the explanation that Exxon had already agreed to pay for the cleanup in 1991.  In 2014, New Jersey asked for $2.5 Billion or $2.6 Billion to be awarded in its suit against Exxon for damages to clean up the two sites involved in the lawsuit.  (Different reporting yields different numbers.  Let's use the $2.5 Billion figure for talking purposes.)

                It does not seem probable that lawyers who now reportedly have an attorney’s fees claim for $45 Million could forget the previous deal in 1991, even as they appeared before the Court to argue for $2.5 Billion instead.  Even if New Jersey’s lawyers in 2014 somehow overlooked an agreement in 1991 to supposedly pay for cleaning up those two same sites, that would still leave some $6.4 Billion in “loss of use” damages for lost use of the polluted lands unaccounted for, an amount which New Jersey also requested in the 2014 damages trial against Exxon.

               So what does the $2.5 Billion include?  So where did the $6.4 Billion go?  Time will tell.

               In the meantime, it has come to light that the settlement was arranged with the involvement of Governor Christie’s office.  There is no reporting of which I am aware, that tells what if anything New Jersey’s $45 Million outside lawyers had to say about the deal.  Once again, their absolute lack of anything to say is improbable.

               It has also come to light that the settlement also includes additional Exxon sites in New Jersey that were not involved in New Jersey’s contamination lawsuit.  These claims are described by New Jersey officials as “relatively minor”.  See Kate Zernike and Benjamin Weiser, New York Times, supra.

               In sum, New Jersey is facing a deal to give up more for less money.  Lawyers charged with negotiating a settlement, indeed anyone tasked to negotiate a deal involving liability and damages, will appreciate the enormity of the circumstances confronting Governor Christie’s administration in this case:  Liability was determined in your client’s favor, damages were already tried, and your client was asking for $8.9 Billion for damaged property at two locations.  If you settled that case so that your client would release the defendant from liability for more damage and less money, what would you report about why you did it?

               Perhaps we will get an opportunity to see what the people who arranged this deal will say about why they did it.  As previously reported, this may not be a “done deal.”  Reportedly, two things remain:  (1) comments on the State’s settlement (comments by whom, exactly, is still unclear) and (2) approval by the Court in the case in which the contamination lawsuit is still pending before Judge Michael J. Hogan.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

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Insurance Claims And Issues: NEW JERSEY, CHRIS CHRISTIE, EXXON AND ... INSURANCE?

ROBOSIGNING VIOLATES LAW, SO DOJ REQUIRES ... PAY MONEY, NO SANCTIONS.

FAILING TO OBEY EVEN COURT RULES WOULD NOT RESULT IN SANCTIONS IMPOSED BY COURT. 

    The United States Department of Justice has a history of settling claims against large financial institutions rather than trying them.  Moreover, it is apparent that the DOJ also has a policy not to accuse individuals at large financial institutions of wrongdoing.

    These strains of policy came together in a matter involving the U.S. Trustee Program and the Bankruptcy Courts of the United   States.  The inappropriate result in this case is the central focus of this article.

    The Trustee Program took certain "actions ... in districts around the country concerning [J.P. Morgan] Chase's improper practices in bankruptcy cases, including robo-signing."  This is the DOJ's description in a press release announcing that the DOJ has settled the U.S. Trustee Program's "actions."  Press Release, Department of Justice Office of Public Affairs, Tuesday, March 3, 2015.  These actions and the announced "robo-signing" deserve a little closer look.

    First, the announced offense.  Statutes and Court Rules require that affidavits and declarations under oath shall be submitted to Judges based on the declarant's personal knowledge, if they are supposed to be considered by the Courts as evidence.  "Robosigning" means that the persons testifying to their personal knowledge actually did not have personal knowledge.  It means that these same persons had no idea what was in the documents that they swore they knew all about.

    "Robosigning" never involves what might be called schoolyard bragging.  The robosigned affidavits and declarations  -- so-called because they are signed so fast that the declarants swear and sign them like robots -- are always submitted as evidence.  Otherwise there is no purpose to them.

    Chase "acknowledged," i.e., admitted , according to the DOJ's press release, "that it filed in bankruptcy courts around the country more than 50,000 payment change notices that were improperly signed, under penalty of perjury, by persons who had not reviewed the accuracy of the notices."  [Emphasis added.]  Chase even outsourced some of the 'signings' to "individuals employed by a third party vender on matters unrelated to checking the accuracy of the filings."

    So, the United States Department of Justice was presented with a case in which 50,000 persons allegedly committed perjury.  These 50,000 people signed false or incomplete papers which falsely declared that persons in bankruptcy should be subjected to payments for mortgage debts, so-called "payment change notices."

    Not one of the 50,000 people involved in this practice faces any sanctions, or at least the DOJ does not mention any in its press release.  The only thing achieved in this perjury settlement is that Chase will pay some money.

    That is not enough.

    That is not sufficient to maintain the integrity of the Courts including the Bankruptcy Courts of the United States.  No-one should ever be permitted to declare the truth of something under oath which they know not to be true.  Declarants committing perjury should still suffer the consequences of their perjury for the sake of preserving the integrity of the judicial system -- and for preserving the willing obedience of every member of society to the rules and rulings of the Courts.  This settlement does not even come close to serving that purpose.

    The DOJ's settlement on behalf of the U.S. Trustee Program has reportedly been submitted for approval to the United States Bankruptcy Court in the U.S. District Court, Eastern District of Michigan.  The DOJ press release does not provide the case number.  An Internet Search by the author does not reveal it either, although the author's search did turn up many places in which the terms of the DOJ's press release are either repeated or summarized.

    Here is the contact information for the National Association of Bankruptcy Trustees.  These people should be able to provide that missing case number so that the Court Files can be accessed and objections can be filed:

      NABT HEADQUARTERS

One Windsor Cove, Suite 305 Columbia, SC 29223

      (803) 252-5646 • 800-445-8629 Fax (803) 765-0860

• [email protected]

 

    The readers of this column are invited to register their comments in accordance with the rules of the Court.

 

    PRAYER FOR RELIEF.  The Court in that case is respectfully requested to impose sanctions and require more than the payment of money in this settlement, which is all that the Department of Justice was content to require, if this settlement proceeds at all.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall.  All rights reserved.

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JP Morgan settles with DOJ over robo-signing

Secret Insurance Bad Faith: Presumptions, Rebuttals and ... Stipulations.

SECRET INSURANCE BAD FAITH: PRESUMPTIONS, REBUTTALS AND ... STIPULATIONS.

    The presumption that Court files will be open to the public is fraught with exceptions, each of which allow for the presumption to be rebutted and secrecy to govern.  These principles have been explored more or less as they exist in the abstract, in the lawyer's mind.

    How these principles are applied and work out in decided cases is sometimes another matter entirely.  This subject has recently been explored on Legal Solutions Blog and links are provided here for your ease of reference to those articles:

The presumption of openness as practiced by judges and parties February 12, 2015; and 

The presumption of openness as practiced by judges and parties (Part 2 of 2) February 19, 2015.

Please Read The Disclaimer.  Copyright 2015 by Dennis J. Wall.  All rights reserved.  No claim to Original Works of the Legal Solutions Blog or of Thomson Reuters and West.

WITHDRAWN EXPERT CAN BE CALLED AT TRIAL BY OPPOSING PARTY.

               In a case which involved an issue of valuing property rather than insurance bad faith, a Federal Court applied law applicable to all experts in Commonwealth Land Title Ins. Co. v. Sun Valley Credit, LLC, No. 1:13-CV-00113-EJL, 2015 WL 807055 (D. Idaho Feb. 26, 2015).

               In that case, Commonwealth identified one Janoush as an expert witness who would testify to the issue of appraisal.  Commonwealth produced Mr. Janoush’s expert report accordingly.  “By doing so, Commonwealth gave up the protections of Rule 26(b)(4)(D).”  Commonwealth Land Title Ins. Co. v. Sun Valley Credit, LLC, No. 1:13-CV-00113-EJL, 2015 WL 807055, *10 (D. Idaho Feb. 26, 2015).

            Federal Rule of Civil Procedure 26(b)(4)(D) “essentially creates a non-testifying expert privilege or safe harbor allowing a party the right to keep ‘facts known or opinions held’ by its non-testifying expert secret, i.e. protected from discovery, similar to the work product doctrine.”  Commonwealth Land Title Ins. Co. v. Sun Valley Credit, LLC, No. 1:13-CV-00113-EJL, 2015 WL 807055, *9 (D. Idaho Feb. 26, 2015).  Commonwealth attempted to sail into this safe harbor after Mr. Janoush’s report had already left the pier, so to speak, by thereafter withdrawing Mr. Janoush as a testifying expert.  This tack did not succeed.

               The Commonwealth Court treated Commonwealth’s release of Mr. Janoush’s report as a waiver of whatever “privilege” or “safe harbor” is afforded by Rule 26(b)(4)(D).  “Thus, the Court finds Rule 26(b)(4)(D) does not preclude Credit from calling Mr. Janoush at trial.”  Commonwealth Land Title Ins. Co. v. Sun Valley Credit, LLC, No. 1:13-CV-00113-EJL, 2015 WL 807055, *10 (D. Idaho Feb. 26, 2015).

               In announcing this holding, the Commonwealth Court did not mention that Commonwealth had previously identified Mr. Janoush as an expert likely to testify at trial.  The only fact that was important to this holding was that Commonwealth knowingly and voluntarily produced Mr. Janoush’s report containing his opinions.

               The central holding of this case is that the act of producing an expert witness’s report continuing the expert’s opinions is a waiver where the retaining party “knowingly and voluntarily discloses the non-testifying expert’s opinions.”  This waiver can allow the opposing party to discover facts known or opinions held by the non-testifying expert, or as in this case, allow the opposing party to call the expert at trial in its own case.  Commonwealth Land Title Ins. Co. v. Sun Valley Credit, LLC, No. 1:13-CV-00113-EJL, 2015 WL 807055, *10 (D. Idaho Feb. 26, 2015).

            This holding has application to all Federal cases in which an expert’s report is voluntarily and knowingly produced, including in insurance bad faith cases. 

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

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Pay No Attention to the Settlement Behind the Curtain.