Homeowner Owes to Pay Lender Placed Insurance Premium to Mortgagee Robert Lewis (“Lewis”) sued his mortgage loan servicer, M&T Bank (“M&T”), in connection with flood…
Robert Lewis (“Lewis”) sued his mortgage loan servicer, M&T Bank (“M&T”), in connection with flood insurance coverage purchased by M&T on his behalf. Lewis also sued three subsidiaries of the insurance company A-surant, Inc. (collectively, the “Assurant”). Lewis alleges that, in “force-placing” flood insurance on his mortgaged property, M&T and A-surant violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”). In Robert R. Lewis v. M&T Bank Corp., Et Al., Civil Case No. 3:20-CV-00552 (JCH), United States District Court District Of Connecticut (March 19, 2021) the USDC dealt with the defendants motions to dismiss the Complaint.
In July 2010, Lewis took out a mortgage on his property in Branford, Connecticut. To protect the lender’s interest, the loan agreement signed by Lewis requires him to maintain hazard insurance on the property for the life of the loan. Should Lewis fail to maintain adequate hazard insurance, the loan agreement permits the lender to purchase such coverage on his behalf, known as lender-placed insurance (“LPI”), and then seek reimbursement from him.
The flood insurance policy Lewis had obtained expired in June 2017. That same month, ASIC—with whom M&T had contracted to monitor its loan portfolio, sent Lewis a notice on M&T’s behalf informing him that his flood insurance had lapsed and that, if he did not provide proof of coverage, M&T intended to purchase LPI for his property. The notice stated that the insurance purchased by M&T might “be significantly more expensive than the insurance [Lewis could] buy [him]self” and concluded that “obtaining [his] own insurance was in [Lewis’s] best interest.”
When Lewis failed to obtain or provide proof of coverage, M&T purchased LPI from ASIC. That insurance was purchased at rates approved by, and on file with, the Connecticut Insurance Department (“CID”). M&T, in turn, sought reimbursement from Lewis in that amount.
Lewis alleged that the amount M&T billed him for LPI was inflated because those charges did not reflect hidden rebates received by M&T on its LPI purchase from ASIC. Specifically, Lewis alleged that M&T agreed to buy LPI exclusively from A-surant. In exchange for this exclusive right, A-surant agreed to take over from M&T certain mortgage servicing functions—e.g., monitoring M&T’s loan portfolio for lapses in coverage, sending notice letters like those received by Lewis, and customer service—either at a discount or for free, thereby reducing M&T’s operational expenses. In addition, A-surant pays M&T “unearned commissions,” unmerited “expense reimbursements,” and “illusory reinsurance premiums” in exchange for the exclusive right to be M&T’s LPI provider.
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