(CN) - A federal judge has certified a broad class of homeowners to challenge U.S. Bank's practice of force-placing insurance through its vendor, American Security Insurance Co.
The Friday order from U.S. Magistrate Judge Laurel Beeler certifies multistate classes of borrowers spanning 40 different states to pursue breach of mortgage agreement claims, and classes of borrowers in California and New Mexico to pursue claims of unjust enrichment, unfair business, practices, and bad faith.
Stephen Ellsworth is the lead plaintiff in the class action alleging that U.S. Bank received kickbacks for having clients purchase force-placed flood insurance from American Security Insurance Co. (ASIC).
U.S. Bank allegedly purchased flood insurance coverage that was significantly backdated and then charged borrowers for expired coverage, even when there was no damage to the borrowers' property during the backdated coverage period.
Additionally, Ellsworth claims that the coverage predated any notice that their coverage had lapsed or was deficient.
The collusive scheme allegedly brought U.S. Bank and ASIC extra income, while borrowers paid grossly inflated amounts for flood insurance coverage that provided them little to no benefit.
Among the three multistate classes Beeler certified, the lender-placed class and qualified-expense-reimbursements (QER) class challenge the alleged kickbacks U.S. Bank received. The third class challenges the alleged backdating.
Each class also has two subclasses, one for states with contract laws similar to California's contract law and one for states with contract laws similar to New Mexico's contract law.
Separate classes were also certified for the noncontract state-law claims under California and New Mexico law based on the same three theories. These classes have limitations that exclude borrowers whose force-placed flood insurance charges were refunded or extinguished through bankruptcy, foreclosure or any other means.
Beeler found that commonality exists in the classes, as the homeowners allege that they had identical form contracts, the policies were applied uniformly, and form notices were sent about the force-placed insurance and the charges.
Furthermore, they "allege a common scheme to force place insurance on borrowers in a way designed to increase kickbacks to U.S. Bank from a captive insurance provider (ASIC) in the form of QERs or discounted tracking services, and to maximize costs collected from borrowers by force-placing LPFI policies that were backdated more than 60 days," the 56-page ruling states.
Beeler also pointed out that the "challenged practices are the same, the insurer ASIC is the same, and the legal issues generally are the same: were the practices lawful under the standard mortgage contract or under state laws regarding the implied covenant of good faith and fair dealing, unjust enrichment, or unfair competition."
Purported variations in state laws do not preclude certification of the multistate classes, as the contract laws of the various states are capable of being organized into groups with similar legal regimes, according to the ruling.
The multistate breach-of-contract claim will advance as well, Beeler said, finding that the named plaintiffs have standing to assert the claim based on an identical form contract on behalf of class members in states with similar contract laws.
Though U.S. Bank highlighted a recent amendment to the National Flood Insurance Act clarifying that borrowers can be charged for backdated coverage, Beeler refused to grant it judgment on the pleadings regarding the backdating claims.
The amendment is ambiguous as to whether insurance can be force-placed back to the beginning of a 45-day notice period, and in this case, the homeowners limit their backdating claims to insurance force-placed retroactively 61 days or more after notice, according to the ruling.
The court cannot rule as a matter of law "that the amendment manifests Congress's intent to provide blanket permission to backdate insurance, no matter how far outside the 45-day notice period," Beeler wrote.
In response to the ruling, class counsel Kai Richter with Nicholas Kaster, said, "We are pleased with the court's decision, which allows thousands of U.S. Bank borrowers to have their claims heard. We look forward to representing the classes."