Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—7th Cir.: Wachovia not liable for purchasing insurance on behalf of mortgage holder, (Nov 5, 2013)

By Jody Coultas, J.D.

A district court’s dismissal of a proposed Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) class action against Wachovia Mortgage, FSB was upheld by the U.S. Court of Appeals in Chicago, albeit on different grounds (Cohen v. American Security Insurance Company, November 4, 2013, Sykes, D.).

A home owner alleged, on behalf of herself and a class, that Wachovia fraudulently placed insurance on her property when the homeowner’s policy lapsed. The policy with American Security Insurance Company (ASI) was allegedly more than twice the amount the homeowner had paid for her own policy and included a commission to Wachovia’s insurance-agency affiliate. The home owner alleged that the commission was a “kickback” and that the Wachovia acted deceptively because it did not disclose that it was receiving the “kickback” from ASI.

Wachovia and ASI were granted dismissal of the home owner’s claims based on preemption and the filed-rate doctrine. The court held that the Home Owners’ Loan Act granted authority to the Office of Thrift Supervision to regulate the issues involved. The filed-rate doctrine, which protects regulated entities from civil actions attacking their rates if the rates must be filed with the governing regulatory agency and the agency has the authority to set, approve, or disapprove them, applied to the property-insurance rates, according to the district court.

To state a CFA claim, the home owner was required to show that Wachovia engaged in a deceptive act or practice with the intent to deceive the home owner, and that the deception occurred in the course of conduct involving trade or commerce. The home owner was also required to show that Wachovia’s deceptive conduct caused an actual injury.

The home owner was unable to state any claims for relief, according to the court. Under the terms of the mortgage, the home owner was required to maintain hazard insurance on the property. The agreement granted Wachovia the right to secure the insurance and pass the cost to the home owner. Wachovia disclosed that insurance it secured might be significantly more than insurance secured by the home owner. Because Wachovia clearly and fully disclosed the practices at issue, the home owner could not show that Wachovia engaged in a deceptive act or that she was deceived.

There was also insufficient evidence to support the home owner’s claim that Wachovia engaged in unfair business practices that violated the CFA, according to the court. Unfair acts under the CFA offend public policy, are immoral, unethical, oppressive, or unscrupulous, and/or cause substantial injury to consumers. The home owner’s argument that class members were coerced into having insurance provided by ASI was unsupported by any facts. Mortgage holders were given a choice to maintain their own insurance. Requiring a contract partner to uphold contractual duties or face consequences cannot be coercion. Even after Wachovia purchased insurance on behalf of the home owner, she had the option to purchase her own and the ASI policy would be cancelled. There were no allegations that Wachovia caused substantial injury to consumers or engaged in actions that were unethical or oppressive. The allegation that payments to ASI were kickbacks was dismissed as the commission was not a kickback in any sense.

The case is No. 11-3422.

Attorneys: Thomas F. Courtney, Jr. (Thomas F. Courtney & Associates PC) for Randy Cohen. Franklin G. Burt (Jorden Burt) for American Security Insurance Company. Mark B. Blocker (Sidley Austin LLP) for Wachovia Mortgage, FSB.

Companies: Wachovia Mortgage, FSB; American Security Insurance Company

Cases: StateUnfairTradePractices IllinoisNews IndianaNews WisconsinNews