Title Insurance Class Action Decertified Based On Wal-Mart v. Dukes

Posted on January 02, 2013 by Wystan M. Ackerman

Title insurers have been hit with a wave of putative class action lawsuits alleging that they improperly failed to provide discounts on premiums for title policies issued in connection with a refinancing.  (For more on this, see the Title Insurance page of this blog.)  Although some classes have been certified on this issue, the federal courts have been trending strongly against class certification, as now demonstrated by a Maine federal judge’s decertification of a class. 

In Loef v. First American Title Ins. Co., No. 2:08-cv-311-GZS, 2012 U.S. Dist. LEXIS 174313 (D. Me. Dec. 10, 2012), the court had previously certified, prior to the U.S. Supreme Court’s decision in Wal-Mart, a class consisting of certain property owners in Maine who had refinanced their properties, purchased title insurance from First American, and paid more than the statutory refinance rate for their policy.  In connection with summary judgment briefing in this case, it became clear to the court that there were numerous factual disputes over whether particular class members (including the named plaintiff himself) were entitled to the refinance rate, for a variety of reasons.  Id. at *7-8.  In reevaluating its class certification ruling under Wal-Mart, and based on the more extensive record it now had, the district court followed the weight of authority in other courts (including two circuit-level rulings in similar cases), and found that neither commonality nor predominance was satisfied.  On commonality, the court concluded that:

What is now clear is that each class member presents unique facts as to what was presented in connection with their purchase of title insurance and what steps were taken to ascertain whether they qualified for First American's published refinance rate. As a result, even assuming that the Class has a common injury (i.e., each was overcharged for title insurance by Defendant), merits discovery has not uncovered any common cause for that injury that can be traced to Defendant. Additionally, it is now clear that First American has different defenses as to why individual class members were not charged the refinance rate at the time of closing. See Wal-Mart, 131 S. Ct. at 2561 (noting that defendant retains a right to litigate defenses to individual claims under Rule 23). Thus, there are not common answers to these common questions. In the absence of a common answer, neither liability nor damages can be established on a class wide basis.

Id. at *15.  On predominance, the court similarly concluded that: 

Even if the Court assumes that the Plaintiff could establish as a matter of law that First American had an absolute duty to charge the refinance rate in some circumstances, it is clear on the developed record that determining whether First American failed to fulfill that absolute duty will require individual review of each class member's transaction. Despite access to merits discovery, Plaintiff has not presented sufficient evidence to create a trialworthy issue that there was a classwide failure on the part of First American title agents to charge the refinance rate.

Id. at *21-22.

This case is a good example of where the Wal-Mart decision, particularly the unanimous portion of the Wal-Mart opinion that stresses a defendant’s right to put on its individualized defenses, is making a difference in the lower courts.  From a defense strategy perspective, this case also illustrates the importance, as I’ve noted before, of digging into the details of the individual claims of class members and developing individualized defenses.  It is hard work, but the defendant’s position can be presented more persuasively with specific examples of individual class members’ transactions rather than the hypotheticals that are still often used. 

Title Insurance Class Action on Reissue Premium Discounts: Kentucky Court of Appeals Affirms Class Certification

Posted on November 12, 2012 by Wystan M. Ackerman

Numerous class actions have been filed against title insurance companies claiming that they failed to properly discount rates when policies were reissued, typically in connection with refinancing of properties.  (For more on this, see, for example, my August 2, 2012 post.)  Contrary to some prior decisions in federal courts, the Kentucky Court of Appeals recently affirmed a class certification order.

In Stewart Title Guaranty Company v. Finney, No. 2011-ca-000499-me, 2012 Ky. App. Unpub. LEXIS 817 (Ky. Ct. App. Nov. 2, 2012), the claim was that the title insurer improperly charged  rates based on an unapproved 1994 rate manual rather than a 1999 rate manual, and failed to apply a reissue discount.  The Kentucky Court of Appeals applied what it described as a “very limited review” standard under which it would have to find a “clear abuse of discretion” in order to reverse the class certification order.  Id. at *5.  The court also suggested that “there exists a presumption in favor of class certification,” relying on a 1968 decision of the Tenth Circuit (there is no such presumption in modern federal law).  Id. at *8.  On the key issues of predominance and superiority, the court reasoned as follows in distinguishing federal decisions:

Stewart suggests that the only way it is capable of gathering the necessary evidence to litigate its liability with respect to each prospective subclass member is to conduct a very intensive, very costly canvass of its agents' records. Stewart repeatedly emphasizes the difficulty of proving these facts for each class member due to the nature of their relationship to their agents. The circuit court concluded, to the contrary, that Stewart possessed the ability to perform audits and reviews of its agents' records and was therefore easily capable of gathering this information. The Finneys contend Stewart should not be rewarded for less than the best business practices, and that any other issues, like the rates and discount used for Stewart's customers, may be resolved by generalized proof. Since the parties' arguments give rise to the possibility that this case includes both common questions resolved by generalized proof and individualized inquiries needed for Reissue Subclass eligibility, the dispute is resolved by determining whether individualized inquiries predominate over the common questions.

. . .

The Finneys' claim is based upon common questions relating to the 1994 Rate Manual, which do not require resolution by individualized inquiries. Where, as here, giving the rate discount to an eligible insured is mandatory, resolution of the question is routine. Which customers should have received the discount is determinable by the criteria Stewart itself created in its 1999 Rate Manual.

. . .

The improper application of the 1994 Rate Manual and the resulting failure to give insureds the proper reissue discount are provable by general proof of directives which the "agents monolithically followed." Thus, the circuit court did not abuse its discretion.

. . .

The circuit court found the class action to be manageable. More specifically, it found that Stewart had the ability to audit and identify the eligible members, even if it must sort through thousands of closing files, which its agents are contractually required to keep. It found that a large class size is not sufficient to deny certification. We agree.

Id. at *14-17, 21.

Unlike most federal courts, the Kentucky Court of Appeals was comfortable imposing a substantial burden on the insurer to review thousands of files to identify class members and perhaps for other purposes as well.  What the court does not address is what the trial would look like.  Once the insurer performs the onerous review, presumably the insurer will have a defense to many of the claims and would want to put on those individual defenses at trial, leading to what would not be truly a class action trial but a mass-trial of individual claims.

Title Insurance Class Action: Fifth Circuit Illustrates Analysis of Proposed Common Questions Under Wal-Mart v. Dukes

Posted on August 23, 2012 by Wystan M. Ackerman

In a title insurance class action, the Fifth Circuit recently illustrated one method of applying the Supreme Court’s decision in Wal-Mart v. Dukes:  Analyze separately each question that the named plaintiffs propose as a  common question of law or fact.  Determine whether it is actually a proper question that a judge would decide as a matter of law, or a jury (or judge, if no jury is demanded) would decide at trial as a matter of fact.  Then determine whether each question is in fact a common question under Dukes, i.e., whether its truth or falsity will resolve an issue central to the validity of every putative class member’s claim.  Also determine whether the question presupposes the resolution of a prior question that is not a proper common question.  This type of question-by-question analysis places the burden on the plaintiffs to demonstrate how they can prove a case on a class-wide basis, and can be a useful framework for the parties and the court to analyze class certification issues.

Ahmad v. Old Republic National Title Insurance Company, No. 11-10695, 2012 U.S. App. LEXIS 16901 (5th Cir. Aug. 13, 2012) was one of numerous class actions recently brought against title insurers claiming that they have purportedly overcharged homeowners for title insurance policies purchased in connection with refinancing a home.  (For more on developments in these cases, see the Title Insurance page of my blog.)  The Fifth Circuit reversed a decision from the Northern District of Texas granting class certification.  The court found that the outcome was largely controlled by its decision last year in Benavides v. Chicago Title Ins. Co., 636 F.3d 669 (5th Cir. 2011).  Under the Texas Department of Insurance’s rate rules, a detailed individualized analysis of every file would be required to determine whether a discount should have been applied, and therefore common issues would not predominate.

What I found most interesting about the Ahmad decision was how the Fifth Circuit went about analyzing the class certification issues.  It quoted all eleven proposed common questions of law and fact as alleged by the plaintiffs.  The court then focused on the questions that the district court had found to be common questions, and determined that none of them were proper common questions because: (1) a proposed common question of fact could not be answered yes or no; (2) the question as formulated could not be presented to a jury at trial; (3) the question could not be answered based on common evidence but rather would require a file-by-file review; and/or (4) a question presupposed the resolution of another question, which was not a common question.

The Fifth Circuit’s analytical methodology in Ahmad may be useful to lower courts in deciding  class certification issues, and to parties in briefing them.  Of course, once common questions are identified (if any), the next step, where a Rule 23(b)(3) class is being proposed, is to determine whether those common questions predominate over individual questions.  A similar analysis might be constructed for that part of the analysis, with the defendant identifying each of the individual questions and the court assessing whether each proposed individual question is a proper individual question of law or fact, and then whether the common questions or the individual questions predominate.

Title Insurance Class Action: Denial of Certification Demonstrates Strategies for Avoiding and Defending Underwriting-Related Class Actions

Posted on August 02, 2012 by Wystan M. Ackerman

Back in May of 2011, I wrote a blog post about a denial of class certification by the Western District of Washington in Boucher v. First American Title Insurance Company.  The court denied certification but allowed the plaintiffs to conduct discovery and later file a renewed motion for class certification.  The recent decision on the renewed motion for certification, Boucher v. First American Title Insurance Company, 2012 U.S. Dist. LEXIS 102904 (W.D. Wash. July 24, 2012), denies the second attempt to certify a class, and illustrates how district courts are approaching class certification post-Wal-Mart and how insurers are successfully defending against certification.

This is one of a series of putative class actions against title insurers alleging that they failed to charge properly-discounted premiums for policies issued in connection with refinancing of homes.  (For other blog posts on this topic, skim through the Title Insurance page of my blog.)  The allegation here was that First American was improperly charging a full rate rather than a discounted rate for policies issued when a property  was refinanced.   The key to the court's decision was that, with a deep dive into the facts after additional discovery had occurred, it became clear to the judge that there was much more nuance to the issue than had appeared at first blush.  It was not a simple issue of providing a discount or failing to do so, but rather the court explained that "First American's rate manuals contain a variety of exceptions, surcharges, and convoluted provisos that will, in some circumstances, lead to a customer paying something other than the general schedule rate or the reorganization [i.e., discounted] rate."  Id. at *5.  After further discovery, the plaintiffs identified 74 class members that they claimed were overcharged.  First American's underwriting counsel reviewed these files and demonstrated that some of these class members did not qualify for a discount and some were properly charged a special rate based on their circumstances.  Some of the class members paid too much and others paid too little, but it was based on miscalculations not an improper failure to apply the reorganization discount.  Id. at *19-20.  The court ultimately concluded, without deciding the merits of any individual claim, that First American had good faith bases to contest many of the putative class members' claims, and that "instances of overcharging and undercharging were not systematic (as the Bouchers claimed), but rather the result of errors that are apt to occur in any set of hundreds of thousands of customer transactions."  Id. at *22.  The court further explained that "proving each class member's claim would require a time-consuming individual process," that "First American has a right to present similar evidence in response to every class member's claim," and that "[w]ere it necessary for the court to revisit its commonality finding, it might reach a different conclusion [than it had previously reached] in light of Dukes."  Id. at *24-25 & n.5.

What are the lessons here for insurance companies and their defense counsel?  First, if you are aiming to avoid class action exposure with respect to underwriting-related matters, try not to make your system of calculating rates too simple.  The more exceptions there are to "general rules" and the more nuanced the rate-setting process is, the less likely it is that there will be an across-the-board mistake by front-line personnel or a compliance issue that leads to a class action being certified against your company.  Of course this has to make business sense too, not just avoid litigation.  But the more tailored the premium is to information that has direct impact on the risk, presumably the more accurate the premium is as well. 

Second, when you are defending putative class actions, there is no substitute for doing your homework.  The more deeply that in-house and outside counsel dive into the facts of claims of putative class members, often the better able you are to defend the case.  Sometimes there is resistance to this because it's hard work to even identifiy the putative class members.  Some people in the company may say it is impossible to identify them or it will take too long, or it is not worth the effort because the plaintiffs have the burden of proof and the defendant should not do their work for them (although much of this work clearly should be protected as work product if you decide not to use it).  But very often this kind of hard work pays off because you discover all kinds of defenses to class certification that were not readily apparent when the case began.  So challenge what the business people or the client at first say is impossible or not worth the effort, and see where it takes you.   

Applying Iqbal in Insurance Class Actions: Second Circuit Affirms Dismissal of Title Insurance Complaint

Posted on July 17, 2012 by Wystan M. Ackerman

Several years ago, legal commentators wrote extensively about the U.S. Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which revised the standard for a motion to dismiss under Fed. R. Civ. P. 12(b)(6).  Commentators have debated the extent to which these decisions have altered how motions to dismiss are decided.  A recent Second Circuit decision applying Iqbal in a title insurance class action provides some guidance to district courts and demonstrates how the new standard can be used effectively by defendants in class actions.

In Galiano v. Fidelity National Title Insurance Company, No. 10-4941-cv, 2012 U.S. App. LEXIS 13614 (2d Cir. July 3, 2012), the plaintiffs brought a putative class action against various title insurance companies doing business in New York, alleging that title insurance rates were improperly inflated due to “kickbacks” that violated the Real Estate Settlement Procedures Act (RESPA).  The complaint alleged that commissions paid to title agents violate RESPA because the commissions exceed the value of services rendered by title agents and in effect constituted “kickbacks” for referring business to the title insurer.  Id. at *5-6.  The district court dismissed the complaint.  The Second Circuit affirmed, based entirely on the plaintiffs’ failure to satisfy Iqbal.  Judge Chin’s opinion explained that:

In this case, the district court did not err in dismissing the Complaint because it did not contain sufficient factual matter to state a plausible claim for relief under § 8(a). See Iqbal, 556 U.S. at 678; Fed. R. Civ. P. 12(b)(6). While the Complaint did allege a kickback scheme, it did so in a wholly conclusory and speculative manner. See Iqbal, 556 U.S. at 678-79.

First, the Complaint failed to allege facts sufficient to establish the elements of a § 8(a) claim. The Complaint failed to identify: (1) a payment or thing of value; (2) given by defendants and received by plaintiffs' title agents, lawyers, brokers, lenders, or other third parties pursuant to an agreement to refer settlement business; and (3) an actual referral.  . . .

Second, the Complaint failed to allege any specifics as to the date, time, or amount of the alleged § 8(a) violations, or any connections between these plaintiffs — or their title agents, lawyers, brokers, or lenders — and these defendants.  . . . The Complaint contained no allegations that defendants charged any plaintiff a rate inflated by kickbacks.

Third, plaintiffs are essentially relying on a supposed industry-wide practice of kickbacks and referrals to sustain their § 8(a) claim. In effect, the Complaint presumed that (1) there were substantial differences between title insurance rates and the actual costs incurred by title insurers — namely, the costs associated with the risk of loss and the search and examination of prior ownership records — and (2) these differences represented kickbacks for referrals rather than profit margins.  . . . Without facts as to the alleged kickbacks, referral agreements, or referrals, however, plaintiffs are engaging in mere conjecture; this speculation is insufficient to state a plausible claim.

Id. at *12-14.

Galiano explains that, under Iqbal, a properly drafted complaint must: (1) allege facts (not mere conclusory assertions) that, if proven, would establish the elements of the cause of action; (2) allege specifics as to basic details such as dates, times and amounts; and (3) when alleging an improper practice, allege facts, not “mere conjecture” or “speculation.”  This opinion should be helpful to district courts adjudicating motions to dismiss in the Second Circuit, as well as to plaintiffs seeking to plead a complaint in compliance with Iqbal and defendants seeking dismissal of complaints under Iqbal.

Filed Rate Doctrine: Third Circuit Reaffirms Breadth of this Doctrine in Title Insurance Class Action

Posted on June 21, 2012 by Wystan M. Ackerman

The filed rate doctrine is a general principle that a suit cannot be brought against an insurance company, or other company that is subject to rate regulation (such as a utility) challenging the appropriateness of rates that were filed with a regulatory agency.  The rationale for this doctrine is essentially that ratemaking is properly within the competency and responsibility of the agency, and courts are ill-equipped to set rates, which they would have to do if they concluded the current rates were improper.  This doctrine comes into play in insurance class actions involving underwriting issues where the plaintiff attempts to challenge rates that are filed with one or more state insurance departments.  A recent Third Circuit opinion, in a case in which Retired Supreme Court Justice Sandra Day O’Connor sat on the panel, reaffirmed the breadth of the filed rate doctrine and its applicability to class actions.

In re New Jersey Title Insurance Litigation, No. 10-3343, 2012 U.S. App. LEXIS 12057 (3d Cir. June 14, 2012)  was a putative class action brought against title insurance companies, alleging that they fixed the rates for title insurance in New Jersey, in violation of federal and state antitrust law.  The district court dismissed the complaint based on the filed rate doctrine, and the Third Circuit affirmed.  The Third Circuit’s opinion made two important points: 

  • The court rejected the plaintiffs’ position that the filed rate doctrine would be inapplicable assuming that the New Jersey Department of Banking and Insurance did not conduct a “meaningful review” of the rates but instead essentially simply “rubber stamped” them.  The Third Circuit explained that “[t]he Supreme Court has indicated that the doctrine applies whenever rates are properly filed with a regulating agency,” and “[t]he Supreme Court moreover has rejected the notion that agencies must ‘meaningfully review’ rates under the filed rate doctrine.”  Id. at *13, 19.  The Third Circuit disagreed with a Sixth Circuit case in which that circuit had found that the filed rate doctrine was inapplicable where a regulatory scheme required only “non-disapproval” of rates by the agency rather than affirmative approval of them.  Id. at *17-18.  (The Third Circuit noted, however, that the New Jersey statutes implicated by the case at bar required affirmative approval of title insurance rates.) 
  • The court also rejected the plaintiffs’ argument that achieving nondiscrimination in rates among ratepayers is essential to the applicability of the filed rate doctrine.  As the court noted, putative class actions by their very nature reduce the problem of discrimination among ratepayers (because, assuming the putative class is defined in a sufficiently broad manner and the putative class is certified, all similarly situated ratepayers will either win or lose together).  This portion of the Third Circuit’s decision confirms that the filed rate doctrine applies to class actions.

The potential applicability of the filed rate doctrine should be considered in defending any class action that involves underwriting issues.  Although the allegations of the complaint may not appear to directly implicate the validity of rates, the doctrine can apply in some circumstances where the claims indirectly challenge insurance rates.  The doctrine also might apply in some circumstances where the case challenges policy forms that have been filed with insurance departments and either affirmatively approved or not disapproved.

Title Insurance Class Action: Fourth Circuit Affirms Decertification and Dismissal Based on Failure to Exhaust Administrative Remedies

Posted on August 11, 2011 by Wystan M. Ackerman

A recent Fourth Circuit opinion highlights the importance of exploring the possibility that plaintiffs in a class action may have an administrative remedy in the state insurance department, which they may have to exhaust before suit.

Mitchell-Tracey v. United General Title Insurance Company, 2011 U.S. App. LEXIS 15952 (4th Cir. Aug. 2, 2011) was a statewide class action alleging that a title insurer failed to provide proper discounts when property owners purchased a second title insurance policy on the same property, typically when they refinanced their mortgage.  (This is a hot issue in title insurance class actions, see my post earlier this week about another one of these cases.)  A class was certified by the Maryland federal court in this case, but then the Fourth Circuit issued an opinion in another similar case holding that the named plaintiffs were required to exhaust administrative remedies with the insurance commissioner, where a key issue was interpretation of the rate filings and the insurance commissioner had the statutory authority to interpret them.

In insurance class actions, sometimes it’s obvious that there is an administrative remedy and primary jurisdiction argument.  That was probably true here where a rate filing was directly in issue.  In other cases, there is a potential argument based on an administrative remedy, but the potentially applicable statute or regulation is obscure or rarely invoked.  In some instances, the insurer may prefer to litigate than potentially throw the issue into a regulatory proceeding.  What is important here is for insurers and their counsel to remember to explore this issue whenever it might apply, and recognize that the argument might exist in circumstances where, at first blush, you would not expect it to be a viable argument. 

First Class Certification Ruling in Insurance Class Action After Wal-Mart Finds No Commonality

Posted on August 09, 2011 by Wystan M. Ackerman

I recently came across the first class certification ruling I’ve seen in an insurance case since the Supreme Court decided Wal-Mart (see my prior blog post).  The court strongly applied the new standard for commonality and found a lack of commonality, even though the same judge had previously found most of the class certification elements (except for adequacy of representation) satisfied in a very similar case prior to Wal-Mart.  So far, so good – this federal district court applied Wal-Mart as I expected it to be applied in insurance cases, and denied certification.

In Corwin v. Lawyers Title Insurance Company, 2011 U.S. Dist. LEXIS 84232 (E.D. Mich. Aug. 1, 2011), the plaintiff alleged that she was overcharged for a title insurance policy when she bought it as part of a “short sale” transaction (owing more than her property was worth, she sold it to the bank).  She claimed, for herself and a putative class of Michigan property owners, that under rate manuals she was entitled to a discounted rate because she had bought a prior policy on the same property.  Id. at *1-4.  She claimed that, although she had not presented evidence of the prior policy, the insurer had the burden of determining whether prior insurance existed.  She claimed the insurer could do this through a title search.  Id. at *5.  This kind of issue is fairly common in title insurance class actions – see my prior posts regarding a Sixth Circuit decision and a Western District of Washington decision in similar cases.

Judge Dawson, who decided this case, had previously found all of the class certification elements, except for adequacy of representation by the named plaintiff, were satisfied in Hoving v. Lawyers Title Insurance Company, 256 F.R.D. 555 (E.D. Mich. 2009).  He changed his mind here, though, based substantially on Wal-Mart:

[T]he Court [in Wal-Mart] quoted this language: “What matters to class certification . . . is not the raising of common ‘questions’—even in droves—but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.”

In this case, the plaintiff's proposed class consists of all individuals who purchased title insurance during specified time periods and were charged the basic rate. No absent class member can recover under the unjust enrichment theory, however, unless he or she can establish that there was a previous title policy issued on the specific property in question. Such proof is uniquely individualized; it cannot be established on a classwide basis. Therefore, instead of liability being established “in one stroke,” it would take an assessment of each transaction to determine if the absent class member qualified for the discount rate. Finding that the defendant failed to make a proper inquiry would not establish that the title company was unjustly enriched by charging the basic rate absent proof that the seller's property was insured previously. In order to make that determination, each transaction would have to be examined. As a consequence, the plaintiff cannot satisfy the requirement of Rule 23(a)(2) because, although there are questions common to the absent class members and the plaintiff that must be decided before liability is established, the critical inquiry without which liability cannot attach requires individualized determination.

 Id. at *16-18 (citation omitted; emphasis added).

This decision highlights how Wal-Mart has fundamentally changed the law on class certification.  If there is a key issue that requires individual determination, the basic requirement of commonality is not satisfied, let alone predominance (which the court here also found was not satisfied).   

 

Title Insurance Class Actions: Arbitration As A New Defense Strategy After AT&T Mobility v. Concepcion

Posted on July 07, 2011 by Wystan M. Ackerman

Law360 alerted me to one of the first significant decisions applying the Supreme Court’s opinion in AT&T Mobility v. Concepcion (see my blog post about the Concepcion decision) – the Northern District of California decision in In re California Title Insurance Antitrust Litigation, No. 08-01341 JSW, slip op. (N.D. Cal. June 27, 2011).  (I don’t have a cite or link to this slip opinion online, so e-mail me if you would like a copy.) 

This case involves antitrust claims that the defendants, who allegedly dominate the title insurance market in California and nationwide, allegedly manipulated and controlled prices and fixed prices at unfairly high rates.  There were arbitration provisions either in the title insurance policies or the loan documents.  (The opinion is not particularly clear with respect to how arbitration provisions in loan documents would apply but the court concludes they would.)

The court grants a motion to compel arbitration, explaining that Concepcion “held that courts must compel arbitration even in the absence of the opportunity for plaintiffs to bring their claims as a class action.”  (Slip op. at 4.)  The plaintiffs argued that the defendants had waived their right to arbitration by not raising it earlier in the case, but the court concluded that, prior to Concepcion, such an argument would have been futile under the California Supreme Court’s Discover Bank rule.  The court also found that the plaintiffs had failed to show prejudice from the failure to raise the arbitration issue earlier.  The court notes that Concepcion still allows plaintiffs to raise “generally applicable contract defenses” to arbitration agreements that do not focus on the fact that the agreement is an arbitration agreement.  It does not appear that such a defense was raised by the plaintiffs in this case, however.

The takeaway I see here is that title insurance companies (and other insurers) involved in pending class actions should consider seeking to compel an arbitration of the named plaintiffs’ claims, even if the litigation is substantially advanced.  It may not be too late to take advantage of Concepcion.   

Insurance Rating Class Action: Sixth Circuit Decision Highlights Several Lessons Broadly Applicable to Insurance Class Actions

Posted on May 24, 2011 by Wystan M. Ackerman

A new Sixth Circuit opinion in two putative class actions involving rates for title insurance demonstrates several lessons generally applicable to insurance class actions.  In Randleman v. Fidelity National Title Insurance Company, the plaintiffs claimed that title insurers failed to provide proper discounts for refinancing of mortgages.  The applicable Ohio rate manual provided that “[w]hen a refinance loan is made to the same borrower on the same land, the following [discounted] rate will be charged . . . provided the Insurer is given a copy of the prior policy, or other information sufficient to enable the Insurer to identify such prior policy . . . .”  (Emphasis added.)  The named plaintiffs, when they refinanced their mortgages, did not ask for a discount or submit evidence to their title insurer of the existence of a prior policy.  The district court in Randleman initially certified a class, on the theory that if Fidelity National was aware that the transaction was a refinancing, that would mean in nearly all instances that a prior title insurance policy had been issued (the court assumed that lenders would not finance a property without title insurance).  After certification, Fidelity National was able to establish, by taking depositions of lenders, that Ohio lenders often rely on attorneys’ opinion letters or title guarantees in lieu of title insurance.  Based on this new evidence, the district court decertified the class.  In a companion case (Hickman), class certification was denied for similar reasons.  The Sixth Circuit affirmed the denial of class treatment because: (a) the class proposed in Randleman was an improper “fail-safe” class; (b) determining whether defendants had notice of a prior title policy, which was necessary for class members to establish an entitlement to a discount, required an individualized analysis and thus predominance was not satisfied; and (c) a proposed subclassing plan would not solve the lack of predominance.

I see several key takeaways from this decision: 

  • Sometimes defendants need to take extensive discovery in a class action.  Discovery in class actions is frequently one-sided, with the plaintiffs attempting to take extensive discovery from the defendant, and the defendant taking no affirmative discovery except for deposing the named plaintiffs.  But there are times when defense counsel needs to think outside the box and consider taking discovery from third parties or from members of the proposed class.  Here, the defendants apparently did not take discovery from the lenders until after the judge certified the class, but they were permitted to take this discovery later and were fortunate enough to convince the judge to change his mind about certification. 
  • Watch out for fail-safe class definitions.  The Sixth Circuit explained that the class the district court initially certified was an improper “fail-safe class” because the class was defined as people who were entitled to receive a discount but did not receive one.  The Sixth Circuit wrote that this is improper because “[e]ither the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.”  It is not unusual for plaintiffs to propose a fail-safe class.  Here, it appears this was overlooked in the district court. 
  • Whether subclassing can overcome a lack of predominance remains an open issue.  This opinion describes a vague proposal for subclassing involving identifying which lenders required title insurance, followed by a trial on unidentified class-wide issues.  The Sixth Circuit says this would not overcome predominance, although it does not provide a detailed explanation of its reasoning, and it declines to weigh in on a circuit split on whether a subclassing plan can overcome predominance.

 

Title Insurance Class Action: Certification Denied Without Prejudice in Class Action Against First American Title Insurance Company

Posted on May 19, 2011 by Wystan M. Ackerman

This is my first post on developments in title insurance class actions.  One hot-button issue in this area is whether insureds are properly receiving discounts on title insurance policies when mortgages are refinanced.  In one of these cases, the U.S. District Court for the Western District of Washington recently denied class certification, although without prejudice to filing a new motion for certification.

In Boucher v. First American Title Insurance Company, the plaintiffs’ theory is that First American was purportedly supposed to provide a 50% discount from its filed rates where a mortgage was being refinanced, and failed to do so in some cases.  The court wrote a fairly lengthy opinion that essentially concludes that plaintiffs failed to take enough discovery to be able to accurately estimate the size of their proposed class or demonstrate a means by which the class could be identified.  The court, however, gives the plaintiffs another chance to take more discovery and then file another motion for class certification.

What puzzles me here is why the court was so generous to plaintiffs’ counsel.  By the time a motion for class certification has been fully briefed and argued (and in some cases an evidentiary hearing conduced), it should be rare that the plaintiffs are allowed another bite at the apple.  Discovery and briefing in these cases requires substantial efforts by both parties and the court, and to allow a “do-over” where the plaintiffs, after taking discovery, failed to even demonstrate a method to identify the class or the size of the class seems somewhat inequitable.  The opinion says that the parties will not have to re-brief issues that were previously briefed, but substantial new issues likely will be raised after further discovery.

There may be no way for an insurer to avoid this result where the court is inclined to be generous to plaintiffs’ counsel, but one way to try to avoid this is to encourage the court to set a schedule that provides for a clearly-defined cutoff for class-related discovery before a motion for class certification is filed.