Statute of Limitations Triggered by 2008 for RICO Claims Over PMI Reinsurance

The U.S. District Court for the Western District of Pennsylvania recently held that consumers were on notice of the existence of alleged kickback schemes related to reinsurance agreements between lenders and private mortgage insurance (“PMI”) providers no later than 2008, and possibly sooner, for purposes of the statute of limitations.

In Weiss v. Bank of America Corp., plaintiffs asserted class action claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”).  Plaintiffs alleged a kickback scheme where the bank, as a mortgage lender, referred borrowers to PMI providers who in turn gave some of the borrowers’ PMI premiums back to the bank by purchasing reinsurance from an affiliate of the bank (also known as captive reinsurance agreements).  The named plaintiffs’ mortgages closed, and they began paying for PMI, in 2006 and 2007.  Plaintiffs alleged that they did not become aware of the alleged kickback scheme until 2012, when contacted by class counsel in connection with the matter, and the suit was filed in 2015.

Plaintiffs claimed that RICO’s four year statute of limitations should be tolled under the “discovery rule,” which provides that a statute of limitations will not run until plaintiffs are aware or should be aware of their injury, as opposed to when the injury first occurs.  Plaintiffs are considered to be on notice of their injury when they have information of possible wrongdoings or “storm warnings.”  Generally, notice is triggered by access to general facts about the defendant’s alleged scheme, and not just by specific facts about how that particular plaintiff was affected by the alleged scheme.

The court found that plaintiffs should have been aware of their claims no later than 2008.  At that time, other lawsuits and news articles regarding the alleged misuse of captive reinsurance agreements between lenders and PMI providers were publicly available.  The court further noted other lawsuits and articles regarding allegedly improper captive reinsurance agreements going back as far as 1999, suggesting that the statute of limitations could potentially have begun even earlier.  That the plaintiffs may have been unlikely to come across the information due to their reading habits, places of residence, and status as ordinary homebuyers did not change the fact that the information was available had plaintiffs exercised some diligence in looking into the matter.  The Court also found that plaintiffs received a disclosure at the time their mortgages closed which stated that their PMI providers had reinsurance agreements with an affiliate of the bank, whereby the bank would receive a portion of the PMI premiums.

Since plaintiffs should have been aware of their injuries caused by allegedly improper captive reinsurance agreements no later than 2008, as opposed to in 2012 when class counsel actually contacted plaintiffs, RICO’s four year statute of limitations had run by the time the suit was filed in 2015.  The Court granted summary judgment in favor of the defendants.

The WBK Firm regularly advises and represents companies throughout the United States against alleged RICO violations.