Fla. appeals court rejects force-placed insurance case
TALLAHASSEE, Fla. – Oct. 3, 2018 – A divided federal appeals court rejected class-action lawsuits filed by Florida homeowners who said they were charged too much for property insurance after leaving it to mortgage companies to buy coverage.
Last week's ruling by a three-judge panel of the 11th U.S. Circuit Court of Appeals dealt with "force-placed insurance," which occurs when people with mortgages do not buy property-insurance coverage or allow their current policy to lapse. Lenders then buy coverage and pass along the costs through the borrower's mortgage payments.
Four Florida residents and a Pennsylvania resident filed class-action lawsuits in 2015 against two mortgage-servicing companies and American Security Insurance Co., alleging a scheme that led to inflated charges for force-placed insurance. In part, they alleged that Specialized Loan Servicing LLC and Caliber Home Loans Inc. received rebates from American Security Insurance, the force-placed insurer, but didn't pass along those rebate savings to borrowers, according to the ruling.
The lawsuits, which became consolidated, included a series of allegations, including breach of contract, racketeering, violation of the Federal Truth in Lending Act and violation of the Florida Deceptive and Unfair Trade Practices Act.
But the appeals court, in a 28-page majority opinion, upheld decisions by a U.S. district judge in South Florida to dismiss the cases. The opinion centered on state regulators approving the rates charged by American Security Insurance – and a legal concept, known as the filed-rate doctrine, that seeks to keep courts out of rate-making decisions.
"The plain language of the complaints … shows that the plaintiffs are challenging the reasonableness of ASIC's (American Security Insurance's) premiums; and since these premiums are based upon rates filed with state regulators, plaintiffs are directly attacking those rates as being unreasonable as well. … Because the plaintiffs should be understood as meaning what they say, we find that they have challenged ASIC's filed rate. As such, there can be no doubt that their causes of action are barred by the filed-rate doctrine," said the majority opinion, written by Judge Danny J. Boggs and joined by Judge Frank Hull.
But Judge Adalberto Jordan wrote a 36-page dissent that said the federal appeals court should send the issue to the Florida Supreme Court and the Pennsylvania Supreme Court for guidance about how the states view the filed-rate doctrine. He also took issue with the majority's interpretation of the facts in the cases.
"ASIC and the lenders argue that the filed-rate doctrine bars the homeowners' claims because they amount to generalized grievances that ASIC's insurance rates are unreasonably high and seek only to force the defendants to sell (in ASIC's case) or bill for (in the lenders' case) insurance at lower rates," Jordan wrote. "But that argument misreads the homeowners' claims. The homeowners assert that, regardless of the insurance rate ASIC charged, the lenders are contractually obligated to charge only the amount of insurance they actually paid. By engaging in side agreements with ASIC for 'commissions,' 'reinsurance,' and other kickbacks – transactions that are of course, unregulated – the lenders found a way to discount their insurance costs. Given that the mortgage contracts between the homeowners and the lenders required the lenders to charge the homeowners for only 'the cost' of insurance, the lenders breached those contracts by demanding more than the discounted cost they paid ASIC."
Source: News Service of Florida, Jim Saunders
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