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On July 7, the Missouri governor signed SB 101 (the “Act”) into law, amending several provisions relating to property and casualty insurance, including requirements for lender-placed insurance. The Act defines “lender-placed insurance” as insurance secured by the lender/servicer when the mortgagor does not have valid or sufficient insurance on a mortgaged real property, and will include “insurance purchased unilaterally by the lender or servicer, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense, or damage to collateralized property as a result of fire, theft, collision, or other risks of loss” that impairs such lender/servicer’s interest or adversely impacts the collateral, where such purchase is a result of a mortgagor’s failure to obtain required insurance under a mortgage agreement. Among other things, the Act stipulates that lender-placed insurance is not effective until the date a mortgaged real property is not insured, and that individual lender-placed insurance terminates on the earliest date out of listed periods. Also specified is that mortgagors cannot be charged for the policies outside of the scheduled term of the lender-placed insurance. The Act further states that the calculation of the lender-placed insurance premium “should be based upon the replacement cost value of the property,” and outlines how the premium should be determined. All insurers shall have separate rates for lender-placed insurance and voluntary insurance obtained by a mortgage servicer on real estate owned property, as defined in the Act.
Further regarding lender-placed insurance, the Act prohibits: (i) “insurers and insurance producers from issuing lender-placed insurance if they or one of their affiliates owns, performs servicing for, or owns the servicing right to, the mortgaged property;” (ii) “insurers and insurance producers from compensating lenders, insurers, investors, or servicers for lender-placed insurance policies issued by the insurer, and from sharing premiums or risk with the lender, investor, or servicer;” (iii) “payments dependent on profitability or loss ratios from being made in connection with lender-placed insurance;” (iv) [insurers from] provid[ing] free or below-cost services or outsourc[ing] its own functions at an above-cost basis”; and (v) [insurers from] mak[ing] any payments for the purpose of securing lender-placed insurance business or related services.
The Act requires lender-placed insurance policy forms and certificates to be mailed and filed with the Missouri Department of Commerce and Insurance and stipulates the requirements for insurers who must report information to the department as well. Lastly, the Act specifies potential penalties for violations of the Act, including monetary penalties and suspension or revocation of an insurer’s license. The Act becomes effective on August 28.
On July 1, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of a class action challenging the lender placed insurance practices of a mortgage servicer, concluding that the filed-rate doctrine blocked the claims. According to the opinion, borrowers from North Carolina and New Jersey filed suit against their reverse mortgage lender and insurance company, alleging the lender and insurer colluded to overcharge consumers for lender placed insurance in violation of TILA, the federal Racketeer Influenced and Corrupt Organizations Act (RICO), and various state laws. Specifically, the plaintiffs asserted that the insurance company charged an insurance rate, which was appropriately filed with state regulators, that was higher than the mortgage lender paid. The plaintiffs asserted the insurer then returned a portion of the profits back to the lender in order to induce continued insurance business. The district court dismissed the action, holding that the filed-rate doctrine blocked the claims.
On appeal, the 3rd Circuit agreed with the lower court. The appellate court emphasized that under the filed-rate doctrine, there is no distinction between “challenging a filed rate as unreasonable and…challenging an overcharge fraudulently included in a filed rate.” Because the plaintiffs sought damages in connection with the alleged overcharge of insurance premiums, the appellate court concluded that the plaintiffs were “functionally challeng[ing] the reasonableness of rates filed with state regulators.” Moreover, the appellate court noted that if the court were to award damages to the plaintiffs, the court would essentially be “giving these borrowers a better price for [lender placed insurance] than other  borrowers using a different lender,” but the same insurer. Thus, because the insurance rate was appropriately filed with the state regulators, the appellate court had no ability to decide whether the rate was “unreasonable or fraudulently inflated,” because the claims were precluded by the filed-rate doctrine.