On September 14, 2015, a Florida federal judge granted final approval to a class action settlement while casting doubt on the viability of lender-placed insurance (LPI) lawsuits after recent federal appellate decisions. Lee v. Ocwen Loan Servicing, LLC, No. 14-60649, 2015 WL 5449813 (S.D. Fla. Sept. 14, 2015).
Plaintiffs alleged that lender Ocwen Loan Servicing LLC, and an insurance provider for homeowners, Assurant, Inc., created a “kickback” scheme to charge homeowners inflated LPI premiums if they stopped maintaining insurance on their own. This nationwide class action, with approximately 400,000 class members, sought to recover “the portion of the charge allegedly ‘inflated’ by defendants’ compensation arrangements.”
Objectors had objected to the proposed settlement because it required class members to file claims in order to receive settlement funds (a “claims-made” process). Objectors said this (i) was unnecessary since Ocwen has enough information to determine who the actual class members are and pay them directly (“direct-pay”), and (ii) would make the payout to class members low in relation to the fees class counsel would receive.
In a 75-page ruling, Judge Jonathan Goodman rejected these arguments and approved the settlement for several main reasons: (a) plaintiffs’ LPI claim faced legal barriers to recovery; (b) the settlement relief was generous and tantamount to a trial win for plaintiffs; (c) case law supported use of the “claims-made” payout process; (d) government officials, regulators, and almost all class members did not object; and (e) extensive formal discovery was not necessary to ensure the settlement’s fairness.
“Indeed, there is ‘no doubt that recent federal appellate decisions have changed the climate for Plaintiffs’ class action attorneys pursuing force-placed insurance claims,'” the ruling said. Judge Goodman noted defendants’ “strong affirmative defenses” like the filed rate doctrine, citing the recent Second Circuit case in Rothstein v. Balboa Insur. Co., 794 F.3d 256 (2d Cir. July 22, 2015) (remanding LPI claim for dismissal). Judge Goodman had the parties survey all cases on LPI claims, and said the project “confirmed that LPI lawsuits face significant legal obstacles.” Further, Judge Goodman said “Plaintiffs’ ability to obtain certification of a [nationwide] class is less than certain” because “ruling on the filed rate doctrine under the differing laws of the 50 states would be exceedingly complicated, and could yield disparate results.”
In response to the objections that requiring class members to file claims to receive settlement funds is improper, the Court noted the generosity of the settlement. A refund or credit of 12.5% of the LPI’s Net Premium would mean “hundreds of dollars to the average Claimant.” This “approximates Class Members’ alleged damages [and] is comparable to or exceeds refund or credit percentages allowed in” other LPI class settlements. Even if the percentage of class members who file claims is low, the settlement still provides “substantial injunctive relief” to all class members by barring various practices for five years, and “class members may choose not to file claims for a variety of reasons.” Further, Judge Goodman said the settlement was “procedurally fair” because the “Claim Form should take no more than a few minutes” and requires no supporting materials.
Additionally, the Court noted there was no evidence that Defendants would have agreed to this generous settlement if a “direct-pay” process was required. Even though Ocwen theoretically has all class members’ information; under a direct-pay process, Ocwen would either have to use an automated system that overpays undeserving claimants or conduct costly manual file-by-file review to determine the deserving claimants and the amount each is owed. In either case, defendants likely would not have agreed to absorb those costs without reducing the settlement amount.
In addition to observing that the case law supported the “claims-made” process, the Court also found the lack of objection from federal and state government officials and regulators to be”powerful indicia that the Settlement is fair, reasonable and adequate.” And finally, the Court considered the stage at which settlement was reached, and found that “vast formal discovery need not be taken” where there were depositions and declarations from the instant matter, formal discovery from other suits involving Ocwen, informal discovery prior to mediation, and sophisticated counsel on both sides.
This ruling sheds important light on the viability of LPI class actions going forward and the ability to use a claims-made payout process in class action settlements.