Patton Boggs Reinsurance Newsletter - June 2013: Pennsylvania Federal Court Finds Basis for Equitable Tolling and Denies Cedent and Captive Mortgage Bank Reinsurer Motions to Dismiss RESPA Class Action

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Riddle v. Bank of Am. Corp., Case No. 12-1740 2013 U.S. Dist. LEXIS 52091, 2013 WL 1482668 (E.D. Pa. Apr. 11, 2013).

An outgrowth of the residential housing bubble was the creation of captive mortgage bank reinsurers.  The mortgage banks and their captive reinsurers are now subject to multiple class-action suits across the U.S.  While the issues are not traditional reinsurance issues, these cases are multiplying and may be of interest to those who toil in the reinsurance space.

Here, a Pennsylvania federal court denied motions to dismiss filed by the cedent, the reinsurer, and other defendants in a class-action suit alleging violations of the Real Estate Settlement Procedures Act (“RESPA”).  Plaintiffs allege that the mortgage lender created its own captive reinsurance company and then referred borrowers to private mortgage insurance providers who agreed to reinsure with lender’s captive reinsurer. Lender allegedly received a fee for the referral and transferred those fees to the captive reinsurer. Plaintiffs also allege that the captive reinsurer assumed little or no actual risk, but that mortgage borrowers paid more for mortgage insurance because the price included those referral fees.

At issue was whether plaintiffs’ claims were barred by RESPA’s one-year statute of limitations.  The court concluded that although plaintiffs filed their suit outside of the one-year limitations period, plaintiffs had alleged sufficient facts to permit an extension of the statute of limitations.  This holding was based on the equitable-tolling doctrine, including facts regarding alleged fraudulent concealment by defendants. The court noted that in this early stage of litigation, the court must accept plaintiffs’ facts as true, but also ruled that it would allow the parties “a limited amount of time” to present evidence on the limitations issue.

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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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