Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/rescission/
Timestamp: 2019-04-25 12:25:23+00:00

Document:
TITLE AGENT E&O RESCISSION FOR MORTGAGE FRAUD.
The case of Zurich American Insurance Co. v. Diamond Title was a "declaratory relief action seeking rescission of a title agent's errors and omissions policy". Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *1 (M.D. Fla. December 4, 2013).
The title insurer alleged that the applicant for title agent's errors and omissions coverage, Diamond Title, "misrepresented material facts in its application for insurance" by incorrectly answering Question 21, reproduced below. Question 21 is apparently a standard question, with that number, in many title insurance applications in use across the nation.
Does the Applicant or any prospective insured know of any circumstances, acts, errors or omissions that could result in a professional liability claim against the Applicant?
Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *2 (M.D. Fla. December 4, 2013).
One Rotolo "was the owner, operator, and President of Diamond Title at that time". She answered Question 21 with a "No" in 2007. In 2009, she admitted that between 2002 and 2008 she had conspired "to make materially false statements to FDIC-insured banks for the purpose of influencing those banks in connection with mortgage loans and to committing wire fraud". The purpose of the fraud "was to obtain loans secured by mortgages from FDIC-Insured banks and mortgage lending business." Among the "false statements" were statements about the buyers and sellers; the family relationships among them; "the properties' actual purchase prices; the borrowers' intended use of the properties; the amount and source of the equity contributed to the purchase of the property by the borrowers," among other things. Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *1 (M.D. Fla. December 4, 2013).
The Court in this case had no trouble declaring this conduct was among the things that a title insurance agent does and for which a title insurance agent obtains E&O coverage. "These false statements are within the Policy's definition of professional services because they are the duties of a closing agent and escrow agent." Zurich American Insurance Co. v. Diamond Title, 2013 WL 6283684 *3 (M.D. Fla. December 4, 2013). On that ground alone, rescission was in order in the eyes of this Court.
The Court in that case granted the insurance company's motion for summary judgment and directed the Clerk to enter judgment in favor of the plaintiff insurance company.
Rescission Defeats Bad Faith Claims, Federal Court Holds.
A mom and dad tried to set their son up with a Crop Insurance Policy, but the attempt was not successful when the Crop Policy was rescinded by a Federal Court. Among other evidence in the record of that case, the Federal Court pointed out that apparently the son did not invest very much in the crop which he was applying to insure before he made a claim for a big loss on it. Actually, according to the evidence in that case, "[b]eginning with the 2006 crop year," the son "did not own any equipment at that time and had not secured any debt in the name of the nursery". Skymont Farms v. Federal Crop Insurance Corp., 2012 WL 1193407 *1 (E.D. Tenn. April 10, 2012), Download Skymont Farms v. Federal Crop Ins. Corp. (E.D. Tenn. Case No. 4.09cv65, Memorandum and Order of Lee, U.S.M.J.) PUBLIC ACCESS.
Lacking a Federal definition of what is a "material" misrepresentation legally sufficient to void a Federally subsidized Crop Insurance Policy, the Federal Court turned to State Insurance Law for a definition, held that the application for Crop Insurance at bar met the definition because the son just did not display a sufficient insurable interest for the Crop Insurance he was applying for, and ordered that the Crop Insurance Policy was rescinded -- without payment of the son's claim, of course. Id. at *8 - *10.
The son had alleged several claims against the Federal Crop Insurance Corporation which included Bad Faith Claims under Tennessee law. Once the Federal Court reached the decision to rescind this Policy in this case, no Bad Faith Claims existed since there never was legally any Insurance Policy in existence, the Court reasoned. See id. at *2, 14.
... for Mortgage Fee-Taking Fiasco.
Banks and other lenders are making claims on Mortgage Insurance Companies as a result. Defaults by mortgagors translate into fewer fees collected. Mortgage Insurance Companies may have found a remedy for these claims in Rescission. The remedy is based on the simple concept that the Banks and associated persons provided nothing short of material representations in their applications for Mortgage Insurance that the Mortgagors were just not able to pay their Mortgages from the outset. See, e.g, Download JPMorgan Chase Bank, N.A. v. Republic Mortgage Insurance Co. (D.N.J. Case No. 10.06141, Opinion Filed May 4, 2011) PUBLIC RECORDS ACCESS, also published as 2011 WL 1750439 (D.N.J. May 4, 2011)(authorized password required to access Westlaw) and sources cited in this seminal case.
Will Rescission become a way of doing business in the Great Recession caused by the applicants who caused the Mortgage Fee-Taking Fiasco? Time will tell.
California Court Rules: Next Discovery Round Bad Faith Deposition.
It is fairly common when a case presents mixed claims for relief or causes of action, that a Court will limit discovery initially to one of the claims which the Court views as a predicate for the other claims including claims for Bad Faith. If the predicate claim survives the Defendant's Motion for Summary Judgment, then discovery will ordinarily proceed on the remaining claims which depend on the viability of the predicate claim.
Such was the case in Download Kelly v. Provident Life and Accident Insurance Co. (S.D. Cal. Case No. 04cv807, Order of USMJ 06.20.11) PUBLIC ACCESS, also published as 2011 WL 2448276 (S.D. Cal. June 20, 2011)(authorized password required to access Westlaw). Mr. Kelly presented mixed claims including for Rescission of a previous settlement agreement, and for alleged Bad Faith. The Defendant was "his own-occupation disability insurance" Company. The Federal District Judge initially limited discovery in that case to Mr. Kelly's Rescission Claim. The Rescission Claim survived the Defendant's Motion for Summary Judgment. Accordingly, Mr. Kelly proceeded to take discovery on his remaining claims including for alleged Bad Faith.
The Defendant objected that discovery had already been taken. In particular, the Defendant objected to another Rule 30(b)(6) Deposition of its corporate representative(s). The parties presented a joint motion to resolve the discovery dispute.
FN1. Deposition topic nos. 5–12 contain the same limiting time period as topic no. 4: documents drafted between 1993 and 1999.
Kelly v. Provident Life & Accident Insurance Co., 2011 WL 2448276 at *1 & n.1.
Where a case presents mixed claims and the Court limits discovery initially to only one of those claims, all parties-clients of all attorneys of record in the case are best prepared for further discovery on the remaining claims when they are aware that one claim, a predicate claim in the eyes of the Court, has passed the test of viability in the judgment of the Court.
Representations? Warranties? Millions in Defense, Provoke Settlements, Seal it Up.
Insurance Companies will not be left to hold the bag in silence. Those which issued Insurance Policies covering certain aspects of Mortgage Securitizations, such as Mortgage Insurance most notably, did so allegedly on the ground of representations and warranties given by Lenders. Lenders, like the frequent Defendant Countrywide now owned by Bank of America, allegedly represented and warranted that the securitization packages for which they requested Insurance, met the lenders' Underwriting guidelines. Allegedly, they did not, and the Insurance Companies are suing to force the Lenders to buy back the insured loan packages, thereby shifting the responsibility to pay from the Insurance Companies back to the Lenders.
Parenthetically, although these reported Claims and Causes of Action seem to be based on Contracts, the requested relief sounds very much like Rescission or the prevention of Unjust Enrichment, or other Equitable Remedies.
We are now at the beginning of this class of litigation. Reportedly, a New York State Supreme Court Justice has ruled that MBIA, one of the Plaintiffs in such a case, can prove its case through a statistical sample of insured loans rather than proving that representations and warranties were not met in a universe of many, many individual instances. The Justice relied on a case decided in 1856, writes David S. Hilzenrath, "Bank of America Hit With Setback in MBIA Insurance Mortgage Liability Lawsuit" (Washington Post Online, Friday, December 31, 2010).
When Material Representations Are Not Material MISrepresentations.
However, as with the Law of Insurer Bad Faith, not every settlement attempt made by a Liability Insurer that does not necessarily result in success, is Bad Faith.
One William Haberman was a managing member of Mona Lisa. He provided an Affidavit (actually, one of at least two Affidavits) which "makes clear that Mona Lisa's design team made these changes to add value to the project at no additional cost to plaintiffs, not to skimp on building costs. Plaintiffs have not provided any facts or evidence to contradict Haberman's explanation." In re Mona Lisa at Celebration, LLC, 2010 WL 3359527 at *16. [Emphasis by the Court.] Cf. id. at *15 ("Nowhere does plaintiffs' expert ... opine that the overall value of the hotel amenities building was adversely impacted as a result of the redesign.").
Sometimes actions and dealings are actually and incontestably in Good Faith and Fair Dealing. When that happens, there can be no legitimate contest.
... The Federal Housing Finance Agency Leads The Way on the Road to Recoupment.
The Federal Housing Finance Agency is investigating Trustees for pools of Mortgages and Servicers of the pooled Mortgages. The FHFA has subpoenaed unidentified records from 64 different entities. Subpoenas became necessary when polite requests were ignored.
"Among the bigger trustees in the business are Deutsche Bank and the Bank of New York, while loan servicers include Bank of America and many more. None of the banks would confirm if they had received subpoenas." Gretchen Morgenson, "Fair Game/Holding Bankers' Feet to the Fire" p. 1, col. 1 (New York Times, "SundayBusiness" Section, Sunday, July 18, 2010).
The FHFA is the Conservator of Fannie Mae and Freddie Mac. It is charged with recouping the Federal Taxpayers' payments and losses on failed Mortgages where the circumstances warrant recoupment. That clearly seems to be the focus of the FHFA investigation: "Once that question has been answered, Fannie and Freddie can force the institutions that sold the securities to repurchase the improper loans, allowing taxpayers to recover some of the losses they've swallowed on Fannie's and Freddie's federal bailout." Id.
Reports of the demise of recoupment and restitution following the Great Collapse are premature.
State Rescission Regulation: Local Prosecutions for "Postclaims Underwriting" Violations Upheld.
In Download Blue Cross of California, Inc. v. Superior Ct. (Cal. 2d DCA Opinion Filed December 15, 2009), attached Official Slipsheet Opinion at 2, a California Trial Court refused to dismiss a lawsuit filed by the Los Angeles City Attorney as a result of alleged "postclaims underwriting," i.e., alleged Rescission of Health Insurance Policies issued by the Defendant after the Policyholders made Claims. The Appellate Court upheld the Trial Court's refusal to dismiss the case.
In its Opinion, the California Appellate Court pointed out that "postclaims underwriting" is "a practice prohibited by section 1389.3 of the Health and Safety Code and section 10384 of the Insurance Code." Download Blue Cross of California, Inc. v. Superior Ct. (Cal. 2d DCA Opinion Filed December 15, 2009), at 3. The Statutory Prohibition is enforceable by local Prosecutors such as the City Attorney of Los Angeles, the Court held.
The decision and its evolving aftermath in California are commented on by Lisa Girion, "Healthcare/Health Insurers' Rescission Practices Are Exposed to More Scrutiny/Local Prosecutors, Such as City Attorneys, Can Sue Over the Practice of Revoking Sick Patients' Policies, an Appellate Court Rules" (Los Angeles Times Online, Saturday, January 2, 2010).
Rescission: Post-Claims Underwriting, or Controlling Fraud?
The issues posed by Rescission of Health Insurance Policies after Claims are made on those Policies are addressed in this new report by Karl Vick, "When Your Insurer Says You're No Longer Covered/Firms Defend 'Rescissions' as Fraud Control" (Washington Post Online, Tuesday, September 8, 2009).
Why Rescission by Health Insurance Companies after Claims are made casts them in the role of the villain in the Health Insurance Reform saga, is made clear in the linked report as well.
UPDATE: California Arbitrator Awards Attorney's Fees Too.
A previous post in this space addressed an Arbitration Award in a California Arbitration. The Arbitration of the Insurance issues apparently including Good Faith and Fair Dealing or not, was demanded by the Health Insurance Company, Health Net Inc. The agreed Arbitrator is a retired California Judge. The California Arbitration resulted in an Award of over $9.4 Million, $8.4 Million of which was a Punitive Damages assessment against Health Net. See the post here, on February 23, 2008.
On February 28, 2008, a follow up newspaper report published in the Los Angeles Times Online seems to call into question what remedies or options, if any, Health Net and its Attorneys may have to appeal or even question the Arbitration Award: Lisa Girion, "Penalty Cuts Insurer Profit/Health Net Lowers Its Earnings After a Judge Awards $9.4 Million to a Cancer Patient Whose Policy Was Canceled" (Los Angeles Times Online, Thursday, Feb. 28, 2008).
As the linked newspaper report's headline reflects, Health Net is filing documents with the Securities and Exchange Commission reflecting that the Arbitration Award has lowered its reportable net income for 4Q 2007, from $123.4 Million to $116.9 Million.
The newspaper also reports that the California Arbitrator has awarded the Policyholder her Attorney's Fees, in an amount to be determined.

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