LFPI Recognized Possible Wrongs and Legitimate Grievances

• Author: Dennis J. Wall
• Pages: 51-124

This chapter focuses on recognizing the factual predicates for LFPI claims

and defenses—that is, what to look for in the facts of potential claims

and defenses over lender force-placed insurance practices.

3.1 Secrecy First, and Then Settle

A review of dozens of court les from courts across the United States reveals

a business plan at work in force-placed insurance cases. No lawsuit over

lender force-placed insurance (LFPI) practices has been found that has ever

gone to trial.

The way in which this litigation is defended shows a strategy of gener-

ally requiring borrowers’ attorneys to agree to secrecy of the lenders’ and

mortgage servicers’ practices at issue and then, depending on the judge’s

preliminary rulings, to settle the force-placed insurance cases.

This litigation strategy is followed because a great many force-placed

insurance cases have been led across the nation. Not every case is led

against the same defendants, and not every case features the same plaintiffs.

force-placed insurance lawsuits are for the most part led against lenders

and mortgage servicers, although cases also often include insurance compa-

nies that provide force-placed insurance and occasionally insurance agents

and brokers.

51

Chapter 3

LFPI Recognized Possible Wrongs

and Legitimate Grievances

Wall_LFPI_20150320_08-12 Final Pass.indd 51 3/20/15 8:13 AM

While individual defendants may vary from case to case, of course, there

are enough lawsuits led against the same recurring groups of defendants

that these discrete groups are following the same defense strategy in all

of them.

As it happens, the total defendants’ group strategy in defending force-

placed insurance cases is very much the same: secrecy and settle.

The rst part of the model is secrecy. It derives largely from the huge

nancial disparity between the defendants and the plaintiffs in these cases

and their relative abilities to fund the litigation. Invariably, toward the begin-

ning of the typical LFPI case, lenders, their mortgage servicers, and their

force-placing insurance companies will propose condentiality agreements

to attorneys representing cash-strapped plaintiffs. The defendants’ institu-

tional capacities can make the cost of litigating LFPI practices beyond the

reach of most homeowners.1

The homeowners-plaintiffs and their attorneys may also have an incentive

to keep their own nancial information private. Lenders-defendants, after

all, have a lot of private nancial information in their les concerning the

homeowners, and they may not otherwise be constrained from disclosure

of that information in discovery if they were so inclined.

By observing a procedure of secrecy, the defendants may offer a seeming

compromise with a common interest, namely, keeping sensitive nancial

information secret. However, no matter how much a homeowner may wish

to keep his or her nancial information condential even if it is led in

a public record, the lender’s interest in condentiality is innitely greater.

The defendants in LFPI cases require the plaintiffs and their attorneys

to agree that no information that the defendants deem condential will be

shared with other plaintiffs or their attorneys in other lawsuits. More than

this, defendants require an agreement that no such information will be made

available to the public such as testimony under oath.2 In some LFPI cases,

the public is not even able to identify what the plaintiffs are alleging against

the defendants. Any motion for leave to amend the original complaint is

redacted, and the proposed amended complaint is led completely out of

the public eye under seal.3

In other LFPI cases, some secrecy stipulations contain the parties’ agree-

ment that if testimony and documents produced in other lawsuits are marked

CHAPTER 352

Wall_LFPI_20150320_08-12 Final Pass.indd 52 3/20/15 8:13 AM

“CONFIDENTIAL” then attorney-client privilege and work product immu-

nity can be raised in the current litigation—even if no such objection was

made in the other lawsuit.4

This approach to condentiality goes beyond the usual constraints on

disclosure of information in litigation. There are already laws that pro-

hibit disclosure of a person’s social security number or other information

that could be used in identity theft if it were not protected, for example.5

Courts in LFPI cases do not seem to examine the secrecy stipulations put

before them. They may be too busy to do so in an age of overloaded dock-

ets, a fact that is known to the defendants and their attorneys who propose

these agreements.6

The settlement prong of this two-part defense strategy in litigating force-

placed insurance cases is the apparent result of litigation procedure in civil

cases on the one hand and economics on the other hand.

Legal procedure comes into play with practical consequences. Very few

force-placed insurance cases are led as individual actions in the sense that

they involve one person or plaintiff suing because of alleged wrongs in the

forced placement of insurance. The amounts involved in each individual

case are too small to attract legal representation.

The opposite is true when the plaintiffs who bring force-placed insur-

ance cases request that their lawsuits be accepted as class actions by the

courts. Attorneys frequently consider the potential fee recovery associated

with a class action to be an attractive draw for representing large numbers

of people who collectively may present a case of potentially large damages

but whose individual claims might involve very small potentially recoverable

damages. As a rule, attorneys who represent a class of plaintiffs can only lose

on fees if the judge dismisses their class action that presents potentially large

damages. Attorneys recover fees if anything else happens to the class action,

namely, if the class action settles or if it succeeds in obtaining judgment.

The overall risk that attorneys must evaluate before they undertake the

requested legal representation is always the same: whether they are to be

paid for their legal representation. The risks of dismissal of a potential

client’s claim are a part of that evaluation. The risks of dismissal must be

estimated in every case—that is, the risks of failure on the law or on the facts

that can be proven must be evaluated in every case. The risks of dismissal

53LFPI RECOGNIZED POSSIBLE WRONGS AND LEGITIMATE GRIEVANCES

Wall_LFPI_20150320_08-12 Final Pass.indd 53 3/20/15 8:13 AM