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Cohen v. Am. Sec. Ins. Co.

Cohen v. Am. Sec. Ins. Co.

United States Court of Appeals for the Seventh Circuit

September 13, 2012, Argued; November 4, 2013, Decided

No. 11-3422

Opinion

 [*603]  Sykes, Circuit Judge. Home-mortgage lenders often require the borrower to maintain hazard insurance on the mortgaged property to protect the lender's interest in the collateral. If the borrower fails to keep the property insured, the lender has the option to secure the insurance itself and pass the cost on to the borrower.

In this proposed class action, Martha Schilke alleges that Wachovia Mortgage, FSB, her lender and holder of a mortgage  [**2] on her home, fraudulently placed insurance on her property when her homeowner's policy lapsed. Wachovia secured the replacement coverage from American Security Insurance Company ("ASI") and charged her for it, as specifically permitted under her loan agreement. The premium was more than twice what she had paid for her own policy and included a commission to Wachovia's insurance-agency affiliate, again as permitted under the loan agreement. Schilke calls the commission a "kickback."

On behalf of herself and a class, Schilke sued Wachovia and ASI asserting multiple statutory and common-law claims for relief, most sounding in fraud or contract.1 The district court dismissed the complaint in its entirety—and also rejected two attempted amendments—based on federal preemption and the filed-rate doctrine.

 [*604]  We affirm but on different grounds. The complaint and the proffered amendments do not state any viable claim for relief. The loan agreement and related disclosures  [**3] and notices conclusively demonstrate that there was no deception at work. It was Schilke's responsibility to maintain hazard insurance on the property at all times; if she failed to do so, Wachovia had the right to secure the insurance itself and pass the cost on to her. Wachovia fully disclosed that lender-placed insurance may be significantly more expensive than her own policy and may include a fee or other compensation to the bank and its insurance-agency affiliate. In short, maintaining property insurance was Schilke's contractual obligation and she failed to fulfill it; because the consequences of that failure were clearly disclosed to her, none of her claims for relief can succeed.

I. Background

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735 F.3d 601 *; 2013 U.S. App. LEXIS 22394 **; 2013 WL 5890642

RANDY COHEN, both individually and as a representative of all other persons similarly situated, Plaintiff-Appellant, v. AMERICAN SECURITY INSURANCE COMPANY, and WACHOVIA MORTGAGE, FSB f/k/a WORLD SAVINGS BANK, FSB, Defendants-Appellees.

Prior History:  [**1] Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 CV 1363 — Robert M. Dow, Jr., Judge.

Schilke v. Wachovia Mortg., FSB, 820 F. Supp. 2d 825, 2011 U.S. Dist. LEXIS 110274 (N.D. Ill., 2011)

Disposition: Affirmed.

CORE TERMS

Lender, kickback, premium, coverage, lender-placed, deception, allegations, mortgage, notices, unjust enrichment, loan agreement, conversion, material fact, borrower, insurer, hazard, unfair, rates, insurance coverage, insurance policy, district court, affiliate, express contract, contractual, filed-rate, regulated, renewals, damages, lapsed, proof of insurance

Antitrust & Trade Law, Consumer Protection, Deceptive & Unfair Trade Practices, State Regulation, Business & Corporate Compliance, Public Contracts Law, Voiding Contracts, Bribes, Gratuities & Kickbacks, Banking Law, International Banking, Bonds, Guarantees & Letters of Credit, General Overview, Contracts Law, Contract Interpretation, Good Faith & Fair Dealing, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Torts, Contracts, Intentional Interference, Elements, Fraud & Misrepresentation, Actual Fraud, Nondisclosure, Intentional Torts, Conversion, Contracts Law, Types of Contracts, Quasi Contracts, Breach, Breach of Contract Actions, Elements of Contract Claims, Pleadings, Complaints, Contract Formation, Consideration, Promissory Estoppel