Antitrust Law Daily Wrap Up, RICO—S.D.Fla.: Borrowers’ claims of kickbacks associated with “force-insurance” arrangement proceed, (Apr 29, 2015)

By Michael Menzhuber, J.D., LL.M.

Two homeowners sufficiently stated claims under the Racketeer Influenced and Corrupt Organization (RICO) Act and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), as well as certain other common law claims, against an insurance company and mortgage lender, according to a federal district court in Miami. The basis for their claims alleged that the insurance company and the lender paid and received bribes and illegal kickbacks as part of “forced-placed” insurance arrangement (Circeo-Loudon v. Green Tree Servicing, LLC, April 27, 2015, Moreno, F.).

American Reliable Insurance Company (ARIC) had the exclusive right to “force insurance” on property secured by a loan in Green Tree Servicing’s (GTS) portfolio of mortgage loans. ARIC monitored the GTS portfolio for lapses in borrowers’ coverage. If a lapse was identified, ARIS sent the borrower a notice that insurance would be purchased and “force-placed” if the borrower’s voluntary coverage was not continued. If the lapse continued, ARIC notified the borrower that insurance was being “force-placed” at the borrower’s expense.

Renata Circeo-Loudon’s and Louis Circeo’s (homeowners) original complaint, with respect to GTS and ARIC (defendants) “forced-placed” insurance arrangement, was dismissed based on GTS’ disclosure in their mortgage agreement that the homeowners would be subject to much higher costs if they did not obtain hazard insurance on their own. The homeowners filed an amended complaint demonstrating that a portion of the “force-placed” insurance costs were illegal in the first place and, therefore, GTS’s disclosure was meaningless. The defendants moved to dismiss the amended complaint.

RICO. The homeowners alleged that the costs built into the “forced-place” insurance were illegal kickbacks, not commissions. They specifically alleged that borrowers were mailed letters that: (1) misrepresented the nature of the amounts that they would be billed; (2) stated that the amounts represented the cost of the insurance; and (3) failed to disclose that a portion of the costs represented unearned kickbacks paid to GTS.

They further alleged that the defendants: (1) agreed upon these activities and carried them out; (2) were members of an enterprise that shared the common goal of increasing revenues through inflated insurance rate payments based on illegal kickbacks; and (3) played an indispensable role in the operation of the enterprise. Because the homeowners provided specific allegations that the “force-placed” insurance was a scheme driven by illegal activities, the court determined that they sufficiently stated their RICO claims.

FDUTPA. The defendants sought to dismiss the homeowners’ FDUTPA claim on the basis of GTS’s disclosure regarding the cost of “forced insurance” and that performance of a contract, in accordance with the terms of the agreement, did not constitute and unfair or deceptive act. The court noted, however, that the homeowners did not complain about the high rates but, rather, the deceptive and unfair practices that generated the rates. The court then determined that the homeowners sufficiently stated a claim under FDUTPA because they alleged the payment and receipt of secret bribes that allowed GTS to extract illegally inflated insurance rates from them.

The case is No. 14-CIV-21384-Moreno

Attorneys: John Gravante, III (Podhurst Orseck, PA) for Renata Circeo-Loudon. Erik Kemp (Severson & Werson) for Green Tree Servicing, LLC, and Green Tree Insurance Agency, Inc. Farrokh Jhabvala (Carlton Fields Jorden Burt, PA) for Assurant, Inc.

Companies: Green Tree Servicing, LLC; Green Tree Insurance Agency, Inc.; Assurant, Inc.

Cases: RICO StateUnfairTradePractices FloridaNews