Antitrust Law Daily Wrap Up, RICO—S.D. Fla.: Borrowers’ RICO claims against U.S. Bank and insurers survive motion to dismiss, (Aug 27, 2014)

By Linda O’Brien, J.D., LL.M.

Two homeowners sufficiently stated a Racketeer Influenced and Corrupt Organization Act claim against a mortgage lender and two insurance companies for allegedly engaging in a scheme to pay bribes to the lender in relation to a hazard lender-placed insurance program the insurance companies sold to mortgage lenders and servicers (Jackson v. U.S. Bank, N.A., August 20, 2014, Moreno, F.).

American Security Insurance Company (ASIC) and Assurant, Inc. provide monitoring services and issue insurance policies covering properties of borrowers who fail to provide proof of insurance as required by their mortgages. The services and policies are provided pursuant to contracts with mortgage lenders and services, such as U.S. Bank.

Philip Jackson and Stephen Largess filed a putative class action against U.S. Bank, ASIC, and Assurant, alleging violations of the Racketeer Influenced and Corrupt Organization (RICO) Act regarding a hazard lender-placed insurance (LPI) program, among other claims. The plaintiffs asserted that U.S. Bank received “kickbacks” in connection with the LPI, which it did not disclose, and that the LPI was excessive and retroactive. The “kickbacks” allegedly were entirely unearned and ASIC misled borrowers by representing that the amounts were payments for work that had been performed. The defendants moved for dismissal.

The court found that the plaintiffs sufficiently stated a cause of action under RICO. The plaintiffs pleaded that U.S. Bank undertook to provide continuous hazard coverage on borrowers’ properties in the event of a lapse, purchased a master policy from Assurant and ASIC and paid premiums directly to them, used ASIC’s loan tracking services at below cost, and was paid a wholly unearned kickback. The plaintiffs were sent notices, on U.S. Bank letterhead, representing that the charges reflected the “cost of insurance” and failed to disclose that the charges were unearned kickbacks. The defendants’ nondisclosure of the kickbacks could be the basis for a scheme to defraud and were sufficient to state a claim for RICO violations, according to the court.

Additionally, the McCarran-Ferguson Act (MFA) did not bar the plaintiffs’ RICO claim. The plaintiffs did not challenge ASIC’s pricing determinations, but rather alleged ASIC’s participation in a larger scheme to pay bribes to U.S. Bank to maintain its exclusive relationship with the lender, to offer below cost administrative services, and to send misleading notices to borrowers purporting to be U.S. Bank. Thus, the wrongful conduct did not constitute the “business of insurance,” and the RICO statute did not “invalidate, impair, or supersede” the applicable state insurance law, the court concluded.

The case is No. 14-21252-CIV-MORENO.

Attorneys: Aaron Samuel Podhurst (Podhurst Orseck, PA) for Philip Jackson. Paul F. Hancock (K&L Gates LLP), and Timothy J. Droske (Dorsey & Whitney, LLP) for U.S. Bank, N.A. Franklin G. Burt (Carlton Fields Jorden Burt PA) for Assurant, Inc., and American Security Insurance Company.

Companies: US Bank, NA; Assurant, Inc.; American Security Insurance Company

Cases: RICO FloridaNews