United States District Court, N.D. New York
JAMES HOOVER, individually and on behalf of all others similarly situated; KIMBERLY HOOVER, individually and on behalf of all others similarly situated; DAVID MINCEL, individually and on behalf of all others similarly situated, Plaintiffs,
HSBC MORTGAGE CORPORATION (USA); HSBC BANK USA, N.A.; ASSURANT, INC.; AMERICAN SECURITY INSURANCE COMPANY, Defendants
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For Plaintiffs: SHANON J. CARSON, ESQ., PATRICK F. MADDEN, ESQ., OF COUNSEL, BERGER & MONTAGUE, P.C., Philadelphia, Pennsylvania.
For Plaintiffs: ERIC D. HOLLAND, ESQ., GERARD B. SCHNELLER, ESQ., OF COUNSEL, HOLLAND, GROVE, SCHNELLER & STOLZE, LLC, St. Louis, Missouri.
For Plaintiffs: DAVID I. CATES, ESQ., OF COUNSEL, CATES MAHONEY, LLC, Swansea, Illinois.
For Plaintiffs: CHARLES E. SCHAFFER, ESQ., OF COUNSEL, LEVIN FISHBEIN SEDRAN & BERMAN, Philadelphia, Pennsylvania.
For HSBC Mortgage Corporation (USA) and HSBC Bank USA, N.A., Defendants: JULIA B. STRICKLAND, ESQ., LISA M. SIMONETTI, ESQ., OF COUNSEL, STROOCK & STROOCK & LAVAN LLP, Los Angeles, California.
For HSBC Mortgage Corporation (USA) and HSBC Bank USA, N.A., Defendants: DANIEL B. BERMAN, ESQ., OF COUNSEL, HANCOCK ESTABROOK LLP, Syracuse, New York.
For Assurant, Inc. and American Security Insurance Company, Defendants: FRANK G. BURT, ESQ., W. GLEN MERTEN, ESQ., BRIAN P. PERRYMAN, ESQ., OF COUNSEL, CARLTON FIELDS JORDEN BURT, LLP, Washington, DC.
For Assurant, Inc. and American Security Insurance Company, Defendants: CYNTHIA E. NEIDL, ESQ., OF COUNSEL, GREENBURG TRAURIG LLP, Albany, New York.
MEMORANDUM-DECISION AND ORDER
Mae A. D'Agostino, U.S. District Judge.
On February 8, 2013, Plaintiffs commenced this putative class action alleging that Defendants engaged in a scheme to generate fees and income for themselves by requiring mortgagees to purchase flood insurance for amounts and time periods
not required under their loan agreements and applicable law, and through improper commissions, kickbacks, and other benefits. Plaintiffs seek injunctive relief, declaratory judgments, monetary damages, and attorneys' fees and costs. See Complaint, Dkt. No. 1 (" Compl." ). Presently before the Court are Defendants' motions to dismiss Plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). See Dkt. Nos. 34, 35. Plaintiffs have opposed the motions to dismiss. See Dkt. Nos. 38, 39.
This case is one of many similar cases brought in courts around the country challenging the practices of mortgage lenders and insurers who " force-place" or " lender-place" insurance on the residential properties of borrowers. Individuals who borrow money to fund the purchase of residential property are often required by their lender to obtain flood insurance and other property insurance on the real property securing the loan. When the borrower does not maintain the insurance, or does not maintain it in amounts required by the lender, the lender is authorized to purchase the insurance for the borrower. Plaintiffs here challenge the extent of the lender's authority to purchase flood insurance and the practices engaged in by the lenders and insurance companies in providing that insurance.
A. The Parties
Plaintiffs James A. Hoover and Kimberly M. Hoover (the " Hoovers" ) and David Mincel (" Mincel" ) are mortgagees residing in Owego, New York and Lancaster, New York, respectively. Compl. ¶ ¶ 9-10. Defendant HSBC Bank USA, N.A. (" HSBC Bank" ) is a national banking association headquartered in New York, New York. Id. ¶ 11. Defendant HSBC Mortgage Corporation (USA) (" HSBC Mortgage," and together with HSBC Bank, the " HSBC Defendants" ) is a subsidiary of HSBC Bank that operates as a residential mortgage lender, originator, and servicer, and is a Delaware corporation headquartered in Depew, New York. Id. ¶ 12. Defendant Assurant, Inc. (" Assurant" ) is a Delaware corporation headquartered in New York, New York, which offers force-placed or lender-placed insurance products through its Assurant Specialty Property operating segment. Id. ¶ 13. Defendant American Security Insurance Company (" ASIC," and together with Assurant, the " Assurant Defendants" ) is a Delaware corporation headquartered in Atlanta, Georgia, and is an indirectly wholly-owned subsidiary of Defendant Assurant. ASIC operates under the trade names Assurant Solutions and Assurant Specialty Property. ASIC contracts with the HSBC Defendants and their affiliates to provide force-place insurance, track loans in the HSBC Defendants' mortgage portfolio, and handle customer service duties related to force-placed insurance. Id. ¶ 14.
B. Plaintiffs' Individual and Class Action Claims
Plaintiffs allege, on behalf of themselves and as representatives of certain classes, that Defendants have harmed them in three ways in regards to the requirement under their respective mortgages that they purchase flood insurance: first, the HSBC Defendants required the Hoovers to purchase and maintain floor insurance in amounts greater than permitted under the mortgage (" excessive coverage" ); second,
Defendants engaged in an improper scheme of kickbacks, commissions, and other compensation as part of the HSBC Defendants' force-placement of flood insurance (" kickback" ); and third, Defendants improperly backdated force-placed flood insurance policies to cover periods for which there was no risk of loss (" backdating" ). Id. ¶ ¶ 1-5.
Plaintiffs allege the following six (6) causes of action individually and behalf of certain classes:
Count 1. breach of contract and breach of the implied covenant of good faith and fair dealing (as to the HSBC Defendants);
Count 2. unjust enrichment (as to all Defendants);
Count 3. breach of fiduciary duty (as to the HSBC Defendants);
Count 4. aiding and abetting a breach of fiduciary duty (as to the Assurant Defendants);
Count 5. conversion (as to all Defendants); and
Count 6. violation of the New York Deceptive Practices Act (" NYDPA" ) (as to all Defendants).
Id. ¶ 7.
The Hoovers assert their breach of contract and breach of implied covenant of good faith and fair dealing claim against the HSBC Defendants on behalf of an " Over-Insured Class," defined as follows:
All persons with residential mortgage loans originated, acquired and/or serviced by any HSBC Defendant and who, within the applicable statutes of limitations, were forced by any HSBC Defendant to pay for flood insurance which exceeded the lesser of the following: (1) $250,000; (2) the replacement cost value of the property pledged as security for the loan; or (3) the total outstanding loan balance, but excluded from this class are Defendants, their affiliates, subsidiaries, agents, board members, directors, officers, and employees.
Id. ¶ 68.
Both the Hoovers and Mincel assert their breach of contract and breach of implied covenant of good faith and fair dealing claim, their unjust enrichment claim, their breach of fiduciary duty claim, their aiding and abetting a breach of fiduciary claim, and conversion claim on behalf of a " Lender-Placed Class," defined as follows: " All persons in the United States who were charged for lender-placed flood insurance by HSBC during the applicable limitations period." Id. ¶ 69.
Finally, both the Hoovers and Mincel assert their NYDPA claim against the HSBC Defendants on behalf of a " New York Subclass," defined as follows:
All persons in the Over-Insured Class or the Lender-Placed Class whose mortgage loan or line of credit with HSBC was secured by real property in the State of New York, and who were subject to HSBC's flood insurance requirements and/or had lender-placed insurance coverage purchased for their property by HSBC during the applicable limitations period.
Id. ¶ 70.
C. Factual Allegations
1. The National Flood Insurance Program and Regulations
Federal law requires that homeowners whose homes are located in areas deemed to be at high risk of flooding maintain certain levels of flood insurance on their home. As Plaintiffs allege:
The National Flood Insurance Act, 42 U.S.C. § 4001, et seq. (" NFIA" ), requires lenders to ensure that flood insurance coverage is maintained on any improved property securing a loan or
line of credit that falls within a Special Flood Hazard Area (" SFHA" ). Under the NFIA, the amount of coverage must be at least equal to the lesser of: (1) the outstanding balance of the loan; (2) the maximum insurance coverage available through the NFIP, which is $250,000; or (3) the replacement cost of the property. See 42 U.S.C. § 4012a(b)(1).
The Department of Housing and Urban Development (" HUD" ), which operates the Federal Housing Administration (" FHA" ), has also stated that flood insurance coverage on FHA Loans (such as Plaintiffs' loan here) need not exceed the outstanding principal balance of the loan. See, e.g., http://www.hud.gov/offices/cpd/environment/review/floodinsurance. cfm (last visited July 20, 2012) (" Dollar Amount of Flood Insurance Coverage. For loans, loan insurance or guarantees, the amount of flood insurance coverage need not exceed the outstanding principal balance of the loan." ); accord, 24 C.F.R. § 203.16a(c) (" flood insurance must be maintained . . . in an amount at least equal to . . . the outstanding balance of the mortgage" ).
Id. ¶ ¶ 17-18.
2. The Hoovers
On May 2, 2007, the Hoovers obtained an FHA loan from HSBC Mortgage for $83,341.00, secured by a mortgage on their home. Since the Hoovers' home is within a SFHA, their mortgage loan is subject to the requirements of the NFIA and, as a result, they must maintain flood insurance " in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the Act, whichever is less." Id. ¶ ¶ 25, 28 (citing 42 U.S.C. § 4012a(b)(1)).
The relevant provision in the Hoovers' mortgage, as it pertains to the HSBC Defendants' discretion to require flood insurance, is as follows:
4. Fire, Flood and Other Hazard Insurance. Borrower shall insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected, against loss by floods to the extent required by the Secretary. All insurance shall be carried with companies approved by Lender. The insurance policies and any renewals shall be held by Lender and shall include loss payable clauses in favor of, and in a form acceptable to, Lender. . . .
Id., Exh. 1, ¶ 4 (" Paragraph 4" ). The Hoovers' mortgage also grants the HSBC Defendants the authority to purchase property insurance on the Hoovers' behalf:
Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.
Id., ¶ 7.
Upon originating their loan, the Hoovers obtained $85,000 in flood insurance. Following a lapse in their flood insurance coverage, HSBC Mortgage sent the Hoovers a letter on or about July 9, 2008, stating that " [a]s we did not receive evidence of continuing or replacement flood insurance on your property, we are now providing you with an annual evidence of insurance." The letter included an evidence of insurance for a policy issued by ASIC with a coverage period from May 2, 2008, through May 2, 2009 and a coverage
amount of $85,000, which exceeded the unpaid principal balance at that time. HSBC Mortgage renewed this flood insurance policy for successive years until March 16, 2012, when HSBC Bank informed the Hoovers that the force-placed flood insurance policy with ASIC has been cancelled effective February 24, 2012, because ...