California Federal District Court Holds Force-Placed Insurance Claims Not Preempted By National Bank Act


On December 11, the U.S. District Court for the Northern District of California refused to preempt under the National Bank Act claims that a mortgage lender breached its contract by force-placing a backdated flood insurance policy on the borrower’s property. Ellsworth v. U.S. Bank, No. C 12-02506, 2012 WL 6176905 (N.D. Cal. Dec. 11, 2012). The borrower brought a putative class action against his lender and flood insurer on behalf of himself and similarly situated borrowers, alleging that the lender and insurance company overcharged him for a temporary force-placed flood insurance policy that was backdated, and for which the lender received a kickback from the insurer. The lender and insurer moved to dismiss on the grounds that the borrower’s claims are preempted by the National Bank Act and barred by California’s filed rate doctrine and the voluntary payment doctrine, and that the borrower failed to state a claim. The court held that the borrower’s claims are not preempted by the National Bank Act because they are at their core about practices—the alleged kickbacks and backdating—rather than fees. Further, the court held that claims based on overcharging due to the alleged kickback scheme are not a challenge to the rates of the premiums, but rather the allegedly unlawful conduct, and therefore are not barred by the filed rate doctrine. The court also declined to dismiss based on the defendants’ attempts to apply the voluntary payment doctrine and arguments the borrower failed to state a claim, and denied defendants’ motions to dismiss.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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