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On June 1, the U.S. Court of Appeals for the Eleventh Circuit held that an insurance firm is not required to pay a $60.4 million TCPA judgment arising out of a Florida-based insurance broker’s marketing campaign accused of sending unsolicited text messages and phone calls to consumers. The broker sought coverage against a class action which alleged, among other things, that “by sending the text messages at issue. . . , Defendant caused Plaintiffs and the other members of the Classes actual harm and cognizable legal injury [including] . . . invasions of privacy that result from the sending and receipt of such text messages.” In response, the insurance firm asserted that the policy did not cover invasion of privacy claims such as those brought in the class action against the broker. Subsequently, the broker settled the suit and assigned all of its rights against its insurer to the plaintiffs, who attempted to enforce the judgment against the insurance firm. The 11th Circuit found that the broker’s insurance policy excluded coverage of certain actions that would prompt a lawsuit, including claims of invasion of privacy. The appellate court also concluded that the TCPA class action arose out of an “invasion of privacy” because the class complaint specifically alleged that the broker “intentionally invaded the class members’ privacy and sought recovery for those invasions.”
However, one of the judges dissented from the ruling, opining that the policy the insurance firm wrote to the broker is “ambiguous as to whether it refers to the common-law tort called ‘invasion of privacy,’” noting that “in other words, if it could reasonably be so interpreted—then we must interpret it to refer only to that tort.” The judge also noted that it is “unclear to me why any party to an insurance policy would ever allow coverage to be dictated by the conclusory terms and labels that a plaintiff might later choose to include in her complaint.”
On May 13, NYDFS announced a settlement with an insurance company to resolve allegations that the broker violated the state’s cybersecurity regulation (23 NYCRR Part 500) by failing to implement multi-factor authentication or reasonably equivalent or more secure access controls. Under Part 500.12(b), covered entities are required to implement such protocols (see FAQs here). NYDFS’s investigation also revealed that the insurance company falsely certified its compliance with the cybersecurity regulation for 2018. Under the terms of the consent order, the company will pay a $1.8 million civil monetary penalty and will undertake improvements to strengthen its existing cybersecurity program to ensure compliance with 23 NYCRR Part 500. NYDFS acknowledged the broker’s “commendable” cooperation throughout the examination and investigation and stated that the broker had demonstrated its commitment to remediation.
Industry group sues to stop Washington’s emergency rule banning credit scoring in insurance underwriting
On April 8, the American Property Casualty Insurance Association (APCIA) filed a lawsuit in Washington Superior Court in an attempt to stop an emergency rule issued last month by the Washington Insurance Commissioner, which bans the use of credit-based insurance scores in the rating and underwriting of insurance for a three-year period. The rule specifically prohibits insurers from “us[ing] credit history to place insurance coverage with a particular affiliated insurer or insurer within an overall group of affiliated insurance companies” and applies to all new policies effective, and existing policies processed for renewal, on or after June 20, 2021.
According to a press release issued by the Commissioner, the emergency rule is intended to prevent discriminatory pricing in private auto, renters, and homeowners insurance in anticipation of the end of the CARES Act, which will expire 120 days after President Biden declares an end to the national emergency caused by the Covid-19 pandemic. Under the CARES Act, Congress required furnishers of information to credit bureaus to modify credit reporting practices if and when they grant an “accommodation”—that is, an agreement to defer payments, modify a loan, or grant other relief—to borrowers impacted by the Covid-19 pandemic, irrespective of asset type to ensure that borrowers who sought and obtained forbearance or other relief were not credit reported as becoming delinquent or further delinquent as a result of the forbearance or other relief (see Buckley Special Alert), which the Commissioner believes has disrupted the credit reporting process and reportedly caused credit bureaus to collect inaccurate credit histories for some consumers. The Commissioner further contends that because “the predicative ability of current credit scoring models cannot be assumed,” scoring models used by insurers to set rates for policyholders have been degraded and will have a disparate impact on consumers with lower incomes and communities of color. Sources report that APCIA’s lawsuit—which seeks declaratory and injunctive relief (and asks the court to declare the Commissioner’s rule invalid and to enjoin its enforcement)—claims the Commissioner’s rule will harm insured consumers in the state who pay less for auto, homeowners, and renters insurance because of the use of credit-based insurance scores to predict risk and set rates.
On February 8, the U.S. District Court for the District of Minnesota granted defendant’s motion for summary judgment, ruling that an insurance company is not obligated to indemnify a national retailer (plaintiff) for settlements paid to multiple banks to resolve claims over the costs of canceling and reissuing customers’ compromised credit and debit cards after a 2013 data breach. After the data breach, the banks sued the plaintiff for the costs associated with cancelling and reissuing the cards (payment card claims). The plaintiff notified the defendant of its potential liability for payment card costs associated with the data breach, claiming that the payment card claims were covered under the defendant’s commercial general liability policies. The defendant denied coverage under the policies, and the plaintiff filed a breach-of-contract action seeking both declaratory judgment that its liability for the payment-card claims was covered under the policies, as well as judgment against the defendant for the settlement payments related to the payment card claims. In granting the defendant’s motion for summary judgment, the court determined, among other things, that the plaintiff failed to “establish a connection between the damages incurred for settling claims related to replacing the payment cards and the value of the use of those cards, either to the payment-card holders or issuers.” As such, “the connection between the damages claimed and the loss of use of the payment cards is insufficiently direct and, therefore, the damages claimed are not loss-of-use damages covered under the policies,” the court stated, noting that the defendant’s policies only allowed for indemnification when the plaintiff had a legal obligation to pay damages because of a “loss of use” of “tangible property that is not physically injured.”
On January 21 the New Jersey Commissioner of Banking and Insurance issued Bulletin No. 21-02 declaring that the department will no longer accept temporary insurance producer applications after January 31 because remote producer examinations are now available. Temporary licenses previously issued will remain in force subject to certain conditions set forth in the bulletin.
On October 1, 2020, the U.S. Department of Housing and Urban Development issued Mortgagee Letter 20-33, which extends interim procedures regarding site access issues related to Section 232 mortgage insurance applications during the Covid-19 pandemic (previously covered here and here). The guidance provides temporary modifications pertaining to third-party site inspections for Section 232 FHA-insured healthcare facilities effective through December 31, 2020. The letter also provides guidance on other aspects relating to Section 232 properties, including regarding lender underwriter site visits, appraisals, and inspections on new construction, among other things.
On August 6, the New York Department of Financial Services (DFS) issued a third supplement to Insurance Circular Letter No. 9, previously covered here and here. The letter, which suspended the expiration of licenses for individual insurance producers, has been extended for an additional 30 days through September 6, 2020. All licenses that would have expired between March 25, 2020, and September 6, 2020, but for Insurance Circular Letter No. 9 (2020) and the supplements thereto will automatically expire on September 7, 2020, unless the producer completes all necessary continuing education credits, and submits a license renewal application, before September 7, 2020. The supplement notes that the extension is a “final accommodation.”
On August 3, the New Jersey issued Bulletin No. 20-28, which permits qualified individual applicants seeking a temporary resident insurance producer license in New Jersey to submit the application for licensure electronically through the National Insurance Producer Registry (NIPR). Applicants also have the option of submitting paper applications in lieu of filing an application electronically. The guidance sets forth the qualifications for licensure and procedures to apply for a temporary insurance producer license. It also specifies the electronic application procedures through NIPR and the applicable timelines.
Fannie Mae updates Lender Letter 2020-02 to address impact of Covid-19 on disbursing insurance loss proceeds and HAMP incentives.
On July 15, Fannie Mae updated Lender Letter 2020-02 to include information on servicer requirements related to disbursing insurance loss proceeds for borrowers impacted by Covid-19 as well as Home Affordable Modification Program (HAMP) “Pay for Performance” incentives. For purposes of disbursing insurance loss proceeds, the servicer must consider a loan to be current or less than 31 days delinquent if the borrower has experienced a Covid-19 related hardship and certain criteria are met. Separately, the guidance clarifies the impact of Covid-19 on HAMP “Pay for Performance” incentives. Specifically, the mortgage loan does not lose good standing and the borrower will not lose any “pay for performance” incentives if the borrower (i) immediately reinstates the mortgage loan upon expiration of the Covid-19 related forbearance plan or (ii) transitions directly from a Covid-19 related forbearance plan to a repayment plan.
Maryland Commissioner of Financial Regulation issues advisories on customer identification for depository and non-depository institutions
On July 15, the Maryland Commissioner of Financial Regulation issued industry advisories to depository and non-depository institutions on identification requirements for customers. In light of an executive order extending the expiration date for certain licenses, permits, and registrations, depository and non-depository institutions may continue to accept driver’s licenses and/or identification cards that expired or are eligible for renewal after March 12, 2020.
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Jonice Gray Tucker to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute