Reinsurance Claims

A federal district court has dismissed with prejudice a Real Estate Settlement Procedures Act (RESPA) class action filed against JPMorgan Chase Bank N.A. and related entities on statute of limitations grounds a year after finding that the continuing violations doctrine applied to RESPA.

Plaintiffs claimed that defendants violated RESPA when JPMorgan created captive reinsurers to reinsure private mortgage insurance. Plaintiffs alleged that JPMorgan received kickbacks from the reinsurers, which did not assume any real risk and provided no real services. Defendants moved to dismiss the initial complaint on the basis that the claims were untimely under RESPA’s one year statute of limitations. In response, plaintiffs relied (1) on the argument that the limitations period was tolled by the filing of an earlier class action called Samp v. JPMorgan Chase Bank, N.A., which asserted similar claims on behalf of the same putative class members, under the doctrine established by the Supreme Court in American Pipe American Pipe & Construction Co. v. Utah, and (2) on the doctrine of equitable tolling. While that motion was pending, the Third Circuit decided Cunningham v. M & T Bank Corp., in which it held that the equitable tolling doctrine did not save very similar RESPA claims, as plaintiffs in that suit knew or should have known of their claims at the time they were provided with certain disclosures regarding reinsurance. Plaintiffs in the JPMorgan case then moved to amend their complaint to abandon their reliance on equitable tolling, instead asserting that, under the continuing violations doctrine, their RESPA claims were triggered each time a kickback payment was made. The court found that this doctrine applied to such RESPA claims and allowed the amendment.

Defendants moved to dismiss the amended complaint, again asserting that the RESPA claims were time-barred. In its order, the court reiterated its position that the continuing violations doctrine could be applied to the RESPA claims and rejected defendants’ argument that plaintiffs’ knowledge of their claims more than one year before filing their complaint defeated the application of this doctrine. Such knowledge was irrelevant, the court found, as plaintiffs did “not seek to aggregate earlier wrongful acts that would otherwise be untimely,” but limited their claims to conduct occurring within one year prior to the date of accrual.

Plaintiffs victory on this point did not save their RESPA claims, however, as the court then found that plaintiffs had forfeited the tolling made possible by American Pipe because they filed their complaint before the issue of class certification was resolved in the earlier Samp class action. Finding that this was a question of first impression in the Third Circuit, the court found that the purpose of the American Pipe doctrine was to avoid forcing putative class members to file individual suits to avoid the operation of the statute of limitations, and that this purpose would not be served if parties could, after taking advantage of this tolling and file duplicative lawsuits before the issue of class certification was decided in the earlier-filed class action. Thus, the court dismissed plaintiffs’ RESPA claims with prejudice as time-barred and, refusing to exercise ancillary jurisdiction over the remaining state law claims, dismissed those claims without prejudice. The court has already denied a motion for reconsideration filed by plaintiffs, reaffirming its decision that plaintiffs forfeited American Pipe tolling. The court has also denied a motion to intervene by parties seeking to become class representatives, finding that it lacked jurisdiction to continue the matter after dismissing it prior to class certification and that there was no entity with which to intervene.

Blake et al. v. JPMorgan Chase Bank, N.A., et al. (E.D. Pa. March 28, 2018)

This post written by Jason Brost.

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In this case, plaintiffs Keller Foundations LLC, a limited liability construction company (“Keller”), Hayward Baker Inc., a construction services corporation (“HBI”), and their parent Keller Group PLC (“Keller Group”) brought a suit in New York federal court against Zurich American Insurance Company (“Zurich”) for breach of contract and breach of the contractual and statutory implied covenants of good faith and fair dealing. Zurich had issued a policy to Keller and HBI. Keller Group is also the parent company of Capital Insurance Company, a captive reinsurer that covered a portion of Zurich’s risk under a captive reinsurance agreement that provided that Capital would reimburse $450,000 per loss on the policy in excess of a $50,000 deductible.

The dispute concerns a settlement Zurich entered into with Diaz Fritz Isabel (“Diaz”). In 2009, HBI was hired by Diaz to serve as a subcontractor at an expansion project at a hospital in Florida. Groundwater seeped into the existing portions of the hospital, causing damage to the project. Diaz then sued HBI in Florida state court for breach of contract relating to the flood damage, to which HBI counterclaimed for money that it was owed for its work as subcontractor (the “Diaz/HBI Lawsuit”). Diaz also sought additional insured coverage under the Zurich policy, which was denied by Zurich. Diaz then sued Zurich in Florida federal court, alleging that it was entitled to additional insured coverage with respect to the damages allegedly caused by HBI’s breach (the “Diaz/Zurich Lawsuit”). Zurich counterclaimed, seeking a declaration that it had no duty under the policy to defend or indemnify Diaz. The parties mediated their dispute, which resulted in a settlement under which Zurich agreed to pay Diaz $450,000. Zurich paid Diaz, and then sought reinsurance reimbursement from Capital under the reinsurance agreement, which was paid by Capital. In the New York litigation, plaintiffs claimed that Zurich did not have the authority to enter into the settlement agreement with Diaz and that Zurich unlawfully damaged them by doing so. Zurich initially moved to dismiss the complaint, which the court granted, but without prejudice to the plaintiffs’ ability to bring an amended complaint or a new lawsuit against Zurich. Plaintiffs then filed an amended complaint, which Zurich again sought to dismiss.

The New York federal court again dismissed the amended complaint in its entirety for failure to state a claim. First, the court held that there are no adequate allegations that Zurich breached its duties in the Diaz/HBI Lawsuit as Zurich has paid, and continues to pay, for HBI’s defense in that action. As for the Diaz/Zurich Lawsuit, the court held that since none of the plaintiffs in the New York action were a party to that case, Zurich could not have violated a duty to defend them. The court also noted that plaintiffs did not allege that Zurich failed to repay ‘‘sums’’ for ‘‘damages’’ covered by the Zurich policy to which HBI and Keller are parties. Rather, the court noted that the New York litigation involved Capital’s reimbursement under the captive reinsurance agreement, to which none of the plaintiffs was a party. Thus, the court held “[t]o the extent Keller and HBI are aggrieved by this chain of events, their grievances do not arise under the Policy, but under the Captive Reinsurance Agreement, to which plaintiffs are not parties. And plaintiffs’ grievances are ultimately not with Zurich, but with Capital.” Thus, the court granted the motion to dismiss Keller and HBI’s breach of contract claims, and as for Keller Group, the court ruled that it lacks standing to sue Zurich under the policy. The court also dismissed plaintiffs’ claims for breach of good faith and fair dealing.

Keller Foundations LLC, et al. v. Zurich American Insurance Co., No. 16-6751 (USDC S.D.N.Y. Mar. 29, 2018).

This post written by Jeanne Kohler.
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