Claims Decided by the Courts and Statutes

• Author: Dennis J. Wall
• Pages: 143-204

This chapter examines possible solutions from the courts in decided cases.

It is not the author’s intent to present denitive lists of the elements

of these claims. The claims are discussed instead in the context of the

lender force-placed insurance cases in which they were alleged.

5.1 Breach of Contract Claims in Cases

Do you have a contract?

The claim most often alleged in lender force-placed insurance (LFPI) cases

is breach of contract. The success of these claims in surviving a motion to

dismiss depends on the defendant. The identity of the defendant largely

determines whether the plaintiff has a contract with it. In simple terms,

if there is no contract, a court is unlikely to recognize a claim for breach

of contract.

Breach of contract claims are generally allowed against lenders, whether

the claims are factually based on allegations that the lenders charged kick-

backs, took commissions, or accepted backdated insurance policies.1 It

follows that breach of contract claims are also allowed against those par-

ties that effectively stand in the shoes of the lenders, such as the lenders’

assignee or the purchasers of the lenders’ interests.2

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Claims Decided by the

Courts and Statutes

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Since many lenders-mortgagees and many parties that purchase the

original lenders’ loan rights to be paid by the mortgagors also service the

mortgages at issue themselves, the case law can be confusing about whether

some defendants are sued for breach of contract in their capacity as mort-

gagees or in their capacity as mortgage servicers. In general terms, where

the plaintiff cannot allege a contract with a defendant mortgage servicer,

the courts have not allowed a breach of contract claim to proceed. They

have instead granted the defendant mortgage servicer’s motion to dismiss

in cases in which the plaintiff cannot plausibly allege a contract with the

mortgage servicer in that case.3 The same result is obtained whenever breach

of contract claims are alleged in LFPI cases against the insurance companies

providing the force-placed insurance.4

On the other hand, the alleged factual basis for breach of contract claims

has led to denial of a motion to dismiss led on behalf of a defendant

that was both the plaintiff’s lender and its own mortgage servicer.5 In that

case, breach of contract claims were allowed to the extent that they were

based on kickback allegations. On the other hand, the breach of contract

claims were dismissed to the extent that they were based on allegations

that force-placed insurance was placed in higher amounts (and thus with

higher premiums) than necessary and to the extent that they were based

on allegations that the LFPI was backdated.6

In yet another case, the original lender transferred one Mr. Casey’s mort-

gage to a purchaser that acted as its own mortgage servicer, replacing the

previous mortgage servicer hired by the original lender.7 An alleged class of

plaintiffs based their various claims on a common nucleus of operative fact

allegations involving kickbacks, commissions, and policy limit amounts in

connection with lender force-placed ood insurance.

8

The court upheld all

alleged breach of contract claims of Mr. Casey against his original lender,

the original mortgage servicer, and the purchaser-mortgage servicer.9

One important point of departure for viability of breach of contract

claims in some courts is worth noting again here. The point of departure

concerns lender force-placed ood insurance, specically, the amount or

policy limits of LFPI ood insurance that mortgagees, their assigns, or their

agents are legally permitted to obtain. This dichotomy was addressed at

greater length earlier in this book,10 but it is worth mentioning again here

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because it bears on the success or failure of pleading breach of contract

claims in LFPI ood insurance cases.

The point of departure concerns whether ood insurance can permis-

sibly be force-placed in an amount (i.e., with a policy limit) greater than

the unpaid remaining balance of the mortgage loan. In a case in which a

class of homeowners seeking class certication alleged that some plain-

tiffs-homeowners already had ood insurance in place at the time that

ood insurance with greater policy limits was forced upon them and their

properties, which also consisted of some people who did not have ood

insurance coverage in place before ood insurance was forcibly placed,

the defendants included the mortgage servicer and the “owner” of the

mortgage (presumably meaning that that party purchased the rights to

payment under the mortgage loan from the mortgagee).11 The plaintiffs

alleged common claims of fact that the defendants received kickbacks,

charged commissions, charged reinsurance premiums, force-placed back-

dated insurance coverage, and forced the placement of unnecessary policies,

all in addition to force-placing ood insurance in policy limits greater

than the plaintiff’s remaining unpaid mortgage loan balances.12 Once the

court ruled in that case that higher policy limits are authorized on LFPI

ood insurance policies in amounts greater than necessary to protect the

unpaid loan balance, the court had no difculty in dismissing all claims

with prejudice, including the claims alleged for breach of contract on the

basis that LFPI ood insurance was obtained in amounts greater than

necessary to protect the creditors’ rights to repayment of the unpaid bal-

ances of the mortgage loans.13

5.2 Good Faith and Fair Dealing

They probably have to treat you in good faith and deal fairly with you: LFPI

in the cases.

The courts of the United States are in agreement that in every contract

there is an implied covenant of good faith and fair dealing and that the

implied covenant requires that all parties to a contract deal fairly with

one another and in good faith on everything covered by their agreement.14

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