11th Circuit Rules that the Filed-Rate Doctrine Precludes Lawsuits Regarding Lender Placed Insurance

The U.S. Court of Appeals for the Eleventh Circuit ruled that a lawsuit challenging a mortgage servicer’s practices related to the use of lender placed insurance was barred by the filed-rate doctrine.

Generally, when a borrower receives a mortgage loan to purchase a home, the borrower is required to maintain hazard insurance on the property.  If a borrower fails to maintain the hazard insurance, the mortgage servicer will obtain this insurance—known as lender placed insurance (LPI)—on behalf of the borrower.  The borrower will be charged for the cost of the LPI, which is generally more expensive than the insurance the borrower could obtain directly.

In Patel v. Specialized Loan Servicing, LLC, the plaintiffs in a class action alleged that the loan servicer charged inflated prices for the LPI to the borrowers, and in turn received “kickbacks” from the LPI provider.  The plaintiffs sued the mortgage servicers and the LPI provider alleging breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference, and violations of the Truth in Lending Act, the Racketeer Influenced and Corrupt Organizations Act, and state laws prohibiting unfair and deceptive trade practices.

In certain industries, such as insurance, companies are required to file the rate they will charge for their product with a regulator—such as a state insurance commission—and the regulator will approve the rate if it meets certain criteria, such as being reasonable and appropriate.  In turn, the company can only charge customers the approved rate.  This gives rise to the filed-rate doctrine, which provides that where a charge for a product is filed with and approved by a regulator, rate-payers cannot claim that the rate is improper or unlawful in a civil action, and only the regulator can take action against the company over an improper rate.  The doctrine applies even where the rate is approved due to fraud against the administrative agency or is subject to some other unlawful practice, such as price-fixing.

In this case, the charges for the LPI at issue had been filed with and approved by the state regulators, and the borrowers were in fact charged the approved rate.  The Court ruled that the suit was ultimately a challenge to the rate which had been approved by the regulator, and was therefore barred by the filed-rate doctrine.  The Court further ruled that the plaintiffs could not evade the doctrine by attempting to artfully assert that they were challenging some other aspect of the transaction.  The ultimate basis for the suit was that the insurance charges were excessive (since they were allegedly padded to cover the “kickbacks” to the servicer), but any decision by the Court that the approved rate was too high or contained an improper component would inherently conflict with the regulators’ determination that the LPI charges were reasonable and appropriate.

The Court also ruled that it was irrelevant that the borrowers were not being charged by the insurance company directly, but by the servicer as an intermediary, since the rate at issue was ultimately the rate which had been approved by the regulators for that product.

For a copy of the opinion, click HERE.