(Article from Insurance Law Alert, September 2015)
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The Second Circuit ruled that fraud claims based on lender-placed insurance rates were barred by the filed rate doctrine, even though the rates were imposed by an intermediary rather than by the insurance companies that obtained regulatory approval for those rates. Rothstein v. Balboa Ins. Co., 794 F.3d 256 (2d Cir. 2015).
When plaintiff borrowers failed to purchase requisite hazard insurance on their properties, their loan servicer, GMAC Mortgage, bought lender-placed insurance from insurance companies at rates that were approved by regulators. GMAC then sought reimbursement from plaintiffs at those same rates. Plaintiffs sued the insurers, alleging that they were fraudulently overbilled because the rates billed by GMAC did not reflect “rebates” and “kickbacks” that GMAC received from the insurers in the form of free loan tracking services by the insurers’ affiliate company. The insurers moved to dismiss pursuant to the filed rate doctrine, under which any rate approved by a governing regulatory agency is “per se reasonable and unassailable in judicial proceedings brought by ratepayers.” A New York federal district court disagreed, holding that the filed rate doctrine did not apply because plaintiffs were not direct customers of the rate filer – i.e., the insurers. However, the district court acknowledged a conflict in authority on this issue, and certified its decision for interlocutory appeal. The Second Circuit reversed.
The Second Circuit ruled that the filed rate doctrine applied because allowing plaintiffs’ claims to proceed “would undermine the rate-making authority of the state insurance regulators who approved [the insurers’] rates.” Plaintiffs’ allegations that they were overbilled rested on the theory that they were improperly charged the full rates (which were approved by regulators) instead of lower rates reflecting the value of the free loan tracking services. The court explained that under the “nonjusticiability principle” inherent in the filed rate doctrine, it is “squarely for the regulators to say what should or should not be included in a filed rate.” In addition, the court held that allowing the claims to proceed would offend the “nondiscrimination principle” of the filed rate doctrine, under which challenges to rates are barred if they would undermine the scheme of uniform rate regulation. The court noted that allowing plaintiffs to recover damages would operate to give them a preference over other borrowers in the form of a discounted rate. The Second Circuit expressly rejected the district court’s finding that the filed rate doctrine does not apply where, as here, the rate is imposed through an intermediary rather than by the insurer directly. The decision illustrates New York’s broad application of the filed rate doctrine to claims that do not challenge the amount of a rate per se, but rather allege fraud in the context of an overall insurance scheme and would, if successful, affect the rates and/or authority of rate setting regulators.
As discussed in our May 2011 and October 2010 Alerts, other courts have similarly enforced the filed rate doctrine to bar fraud claims against insurance companies, although application of the doctrine varies by jurisdiction.