Claims and Bad Faith Law Blog

The Second Part: LENDER FORCE-PLACED INSURANCE PRACTICES: UNFAIR TRADE PRACTICES.

This is the second of two parts.  The first part of this article was published on Wednesday, April 28, 2021, LENDER FORCE-PLACED INSURANCE PRACTICES:  RESPA AND UNFAIR TRADE PRACTICES.

In a decision that was just published on Westlaw, a federal judge in the U.S. District Court for the District of South Carolina decided that Mary Beth Jeffords plausibly stated both a state unfair trade practice claim, and a federal RESPA or Real Estate Settlement Procedures Act claim.  Ms. Jeffords's claims arose over the forced placement of insurance.  The federal judge's decision in her case is now published in Jeffords v. U.S. Bank National Association.[1]

          Ms. Jeffords sued U.S. Bank "as servicer of her federally-related mortgage loan[.]"[2]  She alleged that U.S. Bank "failed to pay her insurance premium from her escrow account as it became due," that her insurance policy lapsed as a result, that U.S. Bank force-placed insurance on the property, that she was charged the premium for the force-placed insurance, that she also had to obtain a replacement policy for the one that had lapsed (for which she obviously had to pay another premium), and that she incurred a loss from water damage that the replacement policy did not cover.[3]

---------------------------------------------------------------------------------------------------           

         As to the SCUTPA claim, U.S. Bank's line of attack was to argue for dismissal on the ground that Jeffords failed to allege an injury to the public interest as distinct from a merely private dispute, which is a requirement of the SCUTPA cause of action.[1]  The Court again disagreed with U.S. Bank and denied the bank's motion to dismiss the SCUTPA claim:

Plaintiff alleges that she met this low bar by alleging that “Defendant has an established and documented pattern of repetition (including previously unfairly assessing force place[sic] insurance against 139,000 members of the public).” Am. Compl. at ¶ 58.  The court agrees with Plaintiff.[2]

The Court denied the bank's motion to dismiss on this ground, and on one other:

And second, Plaintiff alleges that “Defendant profits ... for assessing forced place[sic] premiums” and “has an established and documented pattern of repetition” of this process. [Am. Compl.] at ¶ 58. Taken together, these allegations are more than mere conclusory allegations that this court customarily finds insufficient to support the third [or public interest] element of a SCUTPA claim.^{3] 

To put it in the affirmative, these allegations are legally sufficient to support an unfair trade practice claim, in the eyes of this federal judge in South Carolina.

Force-placed insurance cases including the Jeffords case are discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:33 - 9:35 (West 3d ed., 2021 Supplements in process), and in Dennis J. Wall, Lender Force-Placed Insurance Practices, published by American Bar Association Publishing.  A frequently refreshed selection of Chapters and Sections from these and other books is freely accessible at www.dennisjwall.com.

 

(Photo of Litigation and Prevention of Insurer Bad Faith volumes courtesy of Thomson Reuters West Publishing.  Photo of Lender Force-Placed Insurance Practices book ©Donna M. Bruno and Dennis J. Wall.)

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

[1] Jeffords, 2020 WL 9348167, at *2 n.3.

[2] Jeffords, 2020 WL 9348167, at *2.

[3] Jeffords, 2020 WL 9348167, at *2.

LENDER FORCE-PLACED INSURANCE PRACTICES: RESPA AND UNFAIR TRADE PRACTICES.

 

In a decision that was just published on Westlaw, a federal judge in the U.S. District Court for the District of South Carolina decided that Mary Beth Jeffords plausibly stated both a state unfair trade practice claim, and a federal RESPA or Real Estate Settlement Procedures Act claim.  Ms. Jeffords's claims arose over the forced placement of insurance.  The federal judge's decision in her case is now published in Jeffords v. U.S. Bank National Association.[1]

          Ms. Jeffords sued U.S. Bank "as servicer of her federally-related mortgage loan[.]"[2]  She alleged that U.S. Bank "failed to pay her insurance premium from her escrow account as it became due," that her insurance policy lapsed as a result, that U.S. Bank force-placed insurance on the property, that she was charged the premium for the force-placed insurance, that she also had to obtain a replacement policy for the one that had lapsed (for which she obviously had to pay another premium), and that she incurred a loss from water damage that the replacement policy did not cover.[3]

          Her amended complaint survived the bank's motion to dismiss her RESPA claim, which the bank seems to have filed on one ground:  that Ms. Jeffords "failed to allege any damages tied to U.S. Bank's actions[.]"  The District Judge disagreed:  "The court finds that Plaintiff adequately pleaded damages sufficient to survive dismissal."[4]

          More specifically, the Court listed some six allegations or groups of allegations of damages, "at least some" of which which the Court in this case held "alleged a plausible connection [with] U.S. Bank's alleged failure to pay the insurance premium when due":

1. lost insurance benefits which her prior insurance policy would have provided, "'including but not limited to the cost of repairs less her deductible';"
2. delay damages from the time it took to effectuate repairs;
3. an apparently higher premium for the replacement policy than she paid for her original policy;
4. the bank's charge for force-placing insurance;
5. "'miscellaneous costs including postage expenses and lost time';" and
6. emotional distress damages apparently including but not limited to "'worry, anxiety, frustration and lost time.'"[5]

As noted, the allegation of these damages alleged "a plausible connection between U.S. Bank's alleged failure to pay the insurance premium when due and at least some of the above-listed actual damages alleged by Plaintiff in her pleading.  U.S. Bank's motion to dismiss the RESPA claim is denied."[6]

To be continued ....  Force-placed insurance cases including the Jeffords case are discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:33 - 9:35 (West 3d ed., 2021 Supplements in process), and in Dennis J. Wall, Lender Force-Placed Insurance Practices, published by American Bar Association Publishing.  A frequently refreshed selection of Chapters and Sections from these and other books is freely accessible at www.dennisjwall.com.

To be continued ....  Force-placed insurance cases including the Jeffords case are discussed in 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:33 - 9:35 (West 3d ed., 2021 Supplements in process), and in Dennis J. Wall, Lender Force-Placed Insurance Practices, published by American Bar Association Publishing.  A frequently refreshed selection of Chapters and Sections from these and other books is freely accessible at www.dennisjwall.com.

 

(Photo of Litigation and Prevention of Insurer Bad Faith volumes courtesy of Thomson Reuters West Publishing.  Photo of Lender Force-Placed Insurance Practices book ©Donna M. Bruno and Dennis J. Wall.)

 

[1] Jeffords v. U.S. Bank Nat'l Ass'n, No. 3:20-cv-00393-SAL, 2020 WL 9348167 (D.S.C. Oct. 13, 2020).

[2] Jeffords, 2020 WL 9348167, at *1.

[3] Jeffords, 2020 WL 9348167, at *1.

[4] Jeffords, 2020 WL 9348167, at *2.

[5] Jeffords, 2020 WL 9348167, at *2.

[6] Jeffords, 2020 WL 9348167, at *2.

LENDER FORCE-PLACED INSURANCE PRACTICES IN 2016 ACTIONABLE UNDER RESPA.

(Image ©Donna M. Bruno and Dennis J. Wall)

Wilson Richard sued his mortgage lender, Finance of America Mortgage LLC (FOA), which later became his mortgage servicer and allegedly let Richard's homeowner's insurance lapse, substituting "a lender force-placed insurance policy on this [Richard's] property."

    Specifically, Richard alleged that he "was harmed by a course of conduct that resulted in the cancellation of his original homeowner's insurance and the substitution of a lender force-placed insurance policy in 2016, which provided him with less coverage at the time that he experienced property damage losses in 2016 and 2017."  Richard v. Fin. of Am. Mort., LLC, No. 3:18-CV-559, 2020 WL 6274822, at *1 (M.D. Pa. Oct. 26, 2020) (Carlson, USMJ).

    Richard sued globally so to speak, joining as defendants "his mortgagee; a mortgage servicing company; two insurance companies; and an insurance agency, seeking damages he claims he is owed for water damage to his home[.]"  Richard, 2020 WL 6274822, at *1.

    As against FOA, Richard alleged two claims:  first, that "FOA violated the Real Estate Settlement and Procedure Act (RESPA), 12 U.S.C. § 2601, et seq., and second, a claim for breach of contract."  The Court in this case joined with "the majority view" that "RESPA provides a private right of action for persons injured both by violations of the statute and its implementing regulations."  Richard, 2020 WL 6274822, at *5 (emphasis added).

    Applying the majority view of the applicable law to the undisputed facts in the record of this case, the Court rejected FOA's assertion that in giving notice in accordance with RESPA, it was insulated from "any liability under RESPA."  The Court denied FOA's motion for summary judgment accordingly, holding:

 Under RESPA, we do not deem the duty of a loan servicer to entail simply providing notice to a borrower prior obtaining force-placed insurance. The statute and its implementing regulations impose a far more fundamental duty on loan servicers like FOA— a duty to timely pay hazard insurance premiums in order to avoid a lapse in coverage and the necessity of securing inferior force-placed insurance.

    It is this fundamental duty that FOA is alleged to have violated, and it is this alleged failure to protect Richard's interests by timely paying the hazard insurance premium out of the existing escrow account balance, that forms the gravamen of Richard's RESPA claim. Viewed in this light, FOA cannot avoid liability for this greater failure on its part to make timely hazard insurance payments by simply pointing to the fact that, after it is alleged to have harmed Richard when its inaction led to the loss of hazard insurance on this property, it subsequently complied with RESPA's force-placed insurance notice requirements. Because FOA's claimed defense does not relate to, or excuse, its prior alleged RESPA violations, FOA's motion for partial summary judgment fails and will be denied.

Richard, 2020 WL 6274822, at *8.

     Lender force-placed insurance in 2016.  Duties allegedly unfulfilled under the RESPA statute and its attendant regulations.  Denial of a mortgage servicer's immunity defense based on notices that complied with RESPA.  "As we have noted," the Court said in the first sentence of its opinion, "this case presents a homeowner's nightmare scenario."

     What the Court did not emphasize was so obvious that it did not need to be emphasized:  Lender force-placed insurance practices continue today.  The gist of the Court's holding, on the other hand, was emphatic:   A mortgage servicer's claim to compliance with "the letter of the law" does not confer immunity from RESPA claims.  Providing the statutorily required notice under RESPA does not "relate to, or excuse, its prior alleged RESPA violations" of its "fundamental duty," namely, "a duty to timely pay hazard insurance premiums in order to avoid a lapse in coverage and the necessity of securing inferior force-placed insurance."  Richard, 2020 WL 6274822, at *8.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved. 

DECIDING NO "PLAUSIBILITY," JUDGE REPLACES JURY. TRIAL NO LONGER NECESSARY.

Here is yet another example of how deciding that claims are not "plausible" is actually a substitute for deciding the entire case at the pleading stage, when a lone judge replaces six to twelve jurors.

In this example, once again a judge was not convinced for whatever reason that there actually is a case.  The State of Illinois's complaint was dismissed against a supposed reinsurance company that, the complaint alleged, effectively paid kickbacks through a captive reinsurance agreement the defendant had with a primary or ceding insurance company that issued Private Mortgage Insurance ("PMI").

The fault, dear Illinois, was that a lone federal judge, acting with the authority of the federal government and the Roberts Court, dismissed the People of Illinois' claim because they had not alleged kickback damages to the satisfaction of the particular judge.

Here is how the complaint offended the judge's perception of "plausibility," right or wrong, in part, as in so many cases:

As Defendant points out, Plaintiff's only allegation relating to damages is that “[a]s a result of the breach of [the Reinsurance Agreement], Plaintiff has suffered, and will suffer damages of a pecuniary nature.” (Id. (quoting R. 37, First Am. Compl. ¶ 46).) Defendant argues that this allegation is inadequate because it is too conclusory, and that in any event it is not plausible that Triad was injured in any way by Defendant's alleged failure to disclose the reinsurance arrangement to borrowers.  (Id.) Plaintiff responds that her one-sentence allegation is sufficient and that “[w]hether [she] can prove the damages is not for the court [to] consider at this time.” (R. 50, Resp. at 6-7 (emphasis added).)

This was not enough for the judge in this case.  Not at all.  "The Court concludes that Plaintiff has not adequately alleged damages. To state a claim, Plaintiff must plausibly allege damages resulting from Defendant's alleged breach."  People of Illinois ex rel. Hammer, Acting Director of Insurance v. Twin Rivers Ins. Co., No. 16 C 7371, 2017 WL 2880899, at *5 (N.D. Ill. July 5, 2017).

We are now living out the jurisprudence of a movie called Cool Hand Luke.  What we have here is failure to communicate. 

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

RESPA TECHNICAL VIOLATION: "THE LIGHTS WERE ON THE WHOLE TIME."

RESPA, the Real Estate Settlement Procedures Act, requires lenders and servicers to provide information in response to borrowers' letters or other "Qualified Written Requests."  12 U.S.C. § 2605(e).  However, the statutory duty to respond does not include a duty to respond to every inquiry.

There are actually only two types of written requests that trigger a statutory response:

Rather, the statute covers only written requests alleging an account error or seeking information relating to loan servicing....  So a qualified written request can't be used to collect information about, or allege an error in, the underlying mortgage loan.

Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *4 (7th Cir. January 11, 2017).

Mr. Perron and Ms. Jackson sent several written requests to Chase for information about their mortgage.  Chase serviced the Perron-Jackson note and mortgage.  As noted above, "RESPA requires mortgage servicers to correct account errors and disclose account information when a borrower sends a written request for information."   Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *1 (7th Cir. January 11, 2017).

Even in those two instances, RESPA does not require a reply when the borrowers already have the information.  In this case, Mr. Perron and Ms. Jackson already had the information in Chase's past replies to their past written requests for information.  There came a time when Chase did not provide all the information it had already provided, when Chase was faced with responding to the most recent Perron-Jackson written request.

Perron and Jackson sued Chase for damages for failure to comply with RESPA, in pertinent part, including alleged damages for wrecking their marriage.  The District Court granted Chase's motion for summary judgment.  On appeal, the Seventh Circuit Court of Appeals affirmed because none of the damages they alleged -- including their divorce -- was caused by Chase's noncompliance with RESPA in this instance, and the damages simply were not substantiated with record evidence sufficient to raise a genuine issue of material fact:

    But of course Perron and Jackson already knew that information; the bank had supplied it in earlier correspondence. So even if Chase's response fell slightly short of full compliance as a technical matter, the couple cannot show that they suffered any actual damages “as a result of” any failure to comply with RESPA response duties. § 2605(f)(1)(A).

* * *

Simply put, Perron and Jackson weren't harmed by being in the dark because the lights were on the whole time.

Perron ex rel. Jackson v. J.P. Morgan Chase Bank, N.A., No. 15-2206, 2017 WL 104466, at *4 (7th Cir. January 11, 2017).

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

Related articles

Bank's Alleged Bad Faith Withholding New Jersey Fire Insurance Proceeds.