Wells Fargo Asks Judge to Dismiss Force-Placed Insurance Class Action Lawsuit

Wells Fargo Bank NA has submitted a motion to dismiss a class action lawsuit alleging the bank received kickbacks for force-placed insurance policies, arguing that Judge David Herndon should toss the case because it was clear in its contractual language and notifications that it could profit off of mortgage protections that loan documentation required.

According to the motion filed Dec. 12, “each plaintiff was obliged under his or her security instrument to maintain adequate hazard insurance coverage or reimburse Wells Fargo for the cost of any replacement coverage it obtained.”

Wells Fargo says it notified the borrowers that not only would it cost more money for the bank to secure the replacement coverage, but that also, as noted in a warning letter, “[Wells Fargo is] reimbursed by the insurance company [for] these efforts in securing this insurance for your property.”

The bank continued: “Nothing in the mortgage precluded [Wells Fargo] from earning a commission and defendants repeatedly disclosed [they they] would receive one. Plaintiffs’ ‘kickback’ allegations are mere legal conclusions insufficient to state a claim.”

In at least three cases, Wells Fargo says it warned borrowers that it would buy temporary mortgage insurance for at least 60 days, which would be extended to one year if homeowners could not provide their own proof of insurance. According to the motion to dismiss the class action lawsuit, they did not do so, and were warned that the rates “may be much higher” than what they could do obtain on their own.

The plaintiffs allege breach of contract or implied covenant, but Wells Fargo alleges that its documentation explains exactly what could, and in fact did happen as a result of the borrowers not maintaining their own mortgage insurance. Moreover, the motion cites a similar class action lawsuit that focused on the commissions, where the Seventh Circuit Court of Appeals agreed that the contract was clear enough regarding “kickbacks” to Wells Fargo and the increased costs involved if homeowners did not obtain a policy themselves.

That also applies to backdating, a potentially pricy choice in which a financial services firm such as Wells Fargo will obtain coverage all the way back to the beginning of the lapse in coverage. Again, the company disagreed with plaintiffs’ legal team, noting that there should be no prospect for damages on counts of unjust enrichment, because of the contract, and that when there are express warranties, there are is no implied covenant or warranties beyond that.

Plaintiffs are represented by Holland Groves Schneller & Stolze LLC, Berger & Montague PC, Kessler Topaz Meltzer & Check, Nix Patterson & Roach LLP, Cates Law Firm, Levin Fishbein Sedran & Berman, Goldman Scarlato Karon & Penny PC, and Zaremba Brownell & Brown PLLC.

The Wells Fargo Force-Placed Insurance Class Action Lawsuit is Debra Simpkins, et al. v. Wells Fargo Bank NA, et al., Case No. 12-cv-00768, U.S. District Court, Southern District of Illinois.