The Defendants Defend
| Author | Dennis J. Wall |
| Pages | 205-250 |
This chapter examines the defenses raised to complaints in lender force-
placed insurance (LFPI) cases. The defenses to be considered here are
in addition to the defects raised in the allegations and in the chosen
claims and causes of action reviewed in previous chapters. This chapter
does not renew that discussion except to the extent it may be necessary
to understand the legal and factual issues raised by LFPI defendants
and considered by the courts on independent grounds (i.e., on bases for
dismissal other than or in addition to defects in the alleged claims).
The procedural posture of LFPI cases at this time necessarily involves
a review of the courts’ consideration of defenses as directed to the
allegations of the plaintiffs’ complaints. Most if not all of these defenses
are raised in Rule 12(b)(6) or “failure to state a claim” motions to dismiss
in the federal cases where the great majority of claims arising from force-
placed insurance are to be found. A few cases represent decisions on a
motion or motions for summary judgment.
If LFPI cases proceed further, the development of these defenses may
proceed further as well, of course.
6.1 Preemption
The rst defense we consider in this chapter is preemption. This is a defense
that is raised independently of alleged defects in the plaintiffs’ claims in
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the LFPI cases, even when it is raised in the same motion with them, which
it often is.
All preemption analysis begins by considering the conduct on which the
claims are based, not just the categories of the claims. If the conduct on
which the claims are based falls within the scope of the statute or regula-
tions issued under the statute, then the legal duty that the plaintiffs claim
to arise from that conduct is preempted, in basic terms.1
The main source of federal-state preemption in LFPI cases is the National
Bank Act (NBA). The NBA governs federally chartered banks. Under it, feder-
ally chartered banks are given “all such incidental powers as shall be necessary
to carry on the business of banking.”
2
The powers of federally chartered
banks include real estate lending.
3
This broad grant of statutory authority
is matched by a broad grant of authority from a regulation promulgated by
the governing administrative agency, which is the Ofce of the Comptroller
of the Currency. Preemption by regulation under the NBA extends even to
collateral protection insurance if state laws are contrary to “[t]he ability of a
creditor to require or obtain private mortgage insurance, insurance for other
collateral, or other credit enhancements or risk mitigants, in furtherance of
safe and sound banking practices; . . . [or] terms of credit.”4
On this ground of express preemption, at least one court has ruled that
the NBA preempts all claims of every kind in an LFPI case based upon cer-
tain allegations against a federally chartered bank. The defendants in that
case presented their motion to dismiss as to all of the plaintiffs’ fourteen
alleged counts or claims to the extent the defendants’ motion was premised
on NBA preemption. In other words, the defendants invited the court to
examine the underlying conduct in order to determine if the legal predicate
of a claim, any claim, could be based on that alleged conduct or if instead
each particular claim or all claims based on those allegations was or were
preempted by the NBA:
This issue is not conned in a single claim or cause of action, but is
instead a recurring theme throughout the Second Amended Complaint.
Indeed, plaintiffs’ assertion that defendants engaged in wrongdoing
by force-placing hazard insurance in excessive coverage amounts for
plaintiffs’ home is sprinkled throughout many of the Selmans’ 14
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asserted causes of action as part (but not all) of the legal and factual
basis for each of those claims.5
Accepting the defendants’ argument that all claims based upon the alleged
conduct that conicted with the NBA were preempted and failed to state
a claim upon which relief could be granted by the court in that LFPI case,
the court held that the NBA preempted all claims based on the alleged
conduct of the federally chartered bank defendant to the extent either that
the force-placed insurance was excessive or that the subject defendant con-
ducted itself so as to obtain kickbacks or commissions:
In light of the foregoing analysis, the Motions to Dismiss are granted,
and plaintiffs’ claims are dismissed, insofar as the Selmans seek to
bring state-law claims challenging CitiMortgage’s conduct of obtain-
ing force-placed insurance for the Selmans’ residence in an amount
that plaintiffs contend was excessive or in some way motivated by
a desire to maximize kickbacks or commissions. Those claims are
preempted by the National Bank Act and cannot be pursued herein.6
The district court applied the quoted ruling to all three defendants’ motions
to dismiss in that case. The court described the three defendants in these
words:
CitiMortgage, Inc. (servicer of the Selmans’ loan), Federal National
Mortgage Association (“Fannie Mae,” owner of the benecial inter-
est in the Selmans’ loan), and American Security Insurance Company
(“ASIC,” the insurer with which CitiMortgage force-placed insurance
coverage on the Selmans’ residence for a ve-month period commenc-
ing in September 2010).7
CitiMortgage qualied for NBA preemption, the court wrote, because under
the law prevailing at the time it acted, CitiMortgage was a subsidiary of a
national bank.8
The other two defendants, Fannie Mae and ASIC, received the benet
of NBA preemption without discussion from the court in this case. Clearly,
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