The Federal Judge in New York had a tough job in the case of Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621 (S.D.N.Y. December 21, 2015). He was faced in particular with two hard questions about the plaintiffs' breach of contract claims, and he had to apply Florida law to answer them.
Both questions arose as a result of Green Tree Servicing's motion to dismiss. The first question was whether Green Tree's mortgage servicing was "reasonable and appropriate" under the mortgage when Green Tree charged the plaintiffs for backdated insurance.
Now, here is what the plaintiffs alleged when they claimed that Green Tree was not authorized to force them to pay premiums for backdated insurance. The plaintiffs argued that the mortgage loan servicer did not have this power because of the nature of insurance.
In other words, even if the plaintiffs breached the mortgage by not keeping collateral protection insurance in effect at all times, still the servicer could not force-place backdated insurance because there is no such thing as "insurance" which is "backdated":
Plaintiffs' assertion that there was “no risk of loss” during the lapse in coverage (FAC ¶ 31) and, therefore, no need to backdate the force-placed insurance because “the purpose of insurance is to protect against future risks” (Opp'n at 9), misconstrues the nature of hazard insurance and the risks that accompany lapses in insurance coverage.
Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621, at *7 (S.D.N.Y. December 21, 2015) (emphasis added).
We may never know what the Federal Judge in New York meant by this, because he did not explain how or why anybody but him misconstrued the nature of insurance. He turned instead to cases decided under Illinois, Minnesota, and New York law on an issue common to all of those cases as well as to this case: The issue of whether it is plausible for a plaintiff to allege that no loss occurred during the period when the collateral protection insurance purchased by the plaintiffs lapsed.
That was not the issue the judge said he was addressing. The issue which he did address has nothing to do with the purpose of insurance which is to protect against future risks, and the cases he cited have nothing to say about the purpose of insurance.
At any rate, the judge in this case ruled that under Florida law, Green Tree Servicing acted reasonably and appropriately in charging the plaintiffs-homeowners for backdated insurance. Unfortunately, that ruling is missing any support from Florida case law, or otherwise.
The second issue on the plaintiffs' alleged claim for breach of contract concerned their allegations that Green Tree breached the mortgage by taking back "commissions" through its insurance subsidiary, and including them in the force-placed insurance premiums that Green Tree charged the homeowners. The "commissions" were allegedly payments that Green Tree took back from the insurance carrier after it placed the policy through that carrier.
Finding several cases decided in Florida in addition to citing cases decided in California and distinguishing a case decided in Minnesota offered by Green Tree, the New York Federal Judge denied Green Tree's motion to dismiss the plaintiffs' breach of contract claim with respect to Green Tree's taking "commissions" for the insurance it force-placed on the plaintiffs. Purifoy v. Walter Investment Mgt. Corp., No. 13-cv-937 (RJS), 2015 WL 9450621, at *7-*8 (S.D.N.Y. December 21, 2015).
Insurance. What you don't know can hurt you.
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