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Laquenta Montanez and Sergio Montanez, Individually and On Behalf of v. Hsbc Mortgage

July 17, 2012


The opinion of the court was delivered by: DuBOIS, J.



This case arises from defendants HSBC Mortgage Corporation's ("HSBC Mortgage") and HSBC Mortgage Services, Inc.'s ("HSBC Services") practice of force-placing*fn1 insurance policies on properties that secure mortgages they issued. Plaintiffs-borrowers on whose property defendants force-placed insurance-allege that the premiums on the force-placed insurance policies were unreasonably high and that defendants profited unlawfully by accepting kickbacks from insurers and purchasing unnecessary policies. Plaintiffs assert claims for breach of contract, unjust enrichment, and violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 Pa. Cons. Stat. Ann. §§ 201-1 et seq.*fn2

Both defendants filed motions to dismiss. For the reasons that follow, the Court grants defendant HSBC Services' Motion to Dismiss and grants in part and denies in part defendant HSBC Mortgage's Motion to Dismiss.


A. LaQuenta and Sergio Montanez

LaQuenta and Sergio Montanez are a married couple living in Philadelphia. (Am. Compl. ¶ 16.) On or about December 13, 2005, they obtained a home mortgage loan from HSBC Mortgage in the amount of $85,800. (Id. ¶ 17; Mortgage Contract, Am. Compl. Ex. 1.) Section five of the mortgage contract required plaintiffs to maintain insurance on the property. (Mortgage Contract, Am. Compl. Ex. 1 § 5.) Section five of the mortgage contract also stated,

If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower's equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. (Id.) This clause allowed HSBC Mortgage to "force-place" insurance on the property if plaintiffs failed to maintain the required insurance. (Am. Compl. ¶ 2.) The purpose of force-placing insurance is to protect the lender's security interest in the property in the event that the borrower fails to insure the property adequately. (Id. ¶ 64.)

Plaintiffs obtained a homeowner's insurance policy when HSBC Mortgage issued the mortgage loan. (Id. ¶ 18.) The policy covered the period from December 9, 2005, through December 9, 2006, and the annual premium was $698. (Id.) However, the issuer of that policy notified plaintiffs in early 2006 that the policy would be cancelled "due to an adjacent dwelling that was boarded up." (Id.) Plaintiffs thereafter obtained another insurance policy, effective February 21, 2006, with an annual premium of $1,016.40 ("February 21, 2006, Policy"). (Id. ¶ 21.)

On or about April 18, 2006, HSBC Mortgage's Insurance Department sent plaintiffs a letter requesting proof of insurance and stating that HSBC Mortgage would force-place insurance on the property unless it received such proof within ten days. (Id. ¶ 22, Ex. 8.) The letter stated that the policy that HSBC Mortgage would force-place would have an annual premium of $1,302 and would not cover some items that might have been covered under plaintiffs' prior coverage. (Id.) Plaintiffs sent a fax to HSBC Mortgage on May 10, 2006, stating that they had sent HSBC Mortgage a copy of the February 21, 2006, Policy on April 5, 2006, and attaching another copy of the policy. (Id. ¶ 23.) Nevertheless, HSBC Mortgage sent plaintiffs a letter on May 19, 2006, stating that HSBC Mortgage had force-placed the insurance policy with an annual premium of $1,302.*fn4 (Id. ¶ 24.) Plaintiffs made the increased mortgage payments in 2006.*fn5 (Id.)

On or about April 22, 2008, plaintiffs received another letter from HSBC Mortgage's Insurance Department stating that it had purchased another force-placed insurance policy. (Id. ¶ 26.) While the letter stated that HSBC Mortgage was "now" providing the force-placed insurance, the policy actually became effective on February 21, 2008. (Id.) The annual premium was $1,271. (Id.) That policy was renewed three times, effective February 2009, February 2010, and February 2011. (Id. ¶¶ 27--29.) On April 5, 2011, the property was foreclosed upon and the Sheriff of the County of Philadelphia sold it to HSBC Mortgage for $3,500. (Id. ¶ 30, Ex. 16.)

HSBC Services was not directly involved with plaintiffs' mortgage. However, plaintiffs allege that HSBC Services "received financial benefits in connection with Mr. and Mrs. Montanez's force-placed insurance policies." (Id. ¶ 31.) The Amended Complaint does not specify how HSBC Services received such benefits; it merely states that HSBC Services and HSBC Mortgage are affiliates. (Id. ¶ 34.)

B. General Allegations Regarding Defendants' Force-Placed Insurance Practices

HSBC Mortgage is a residential mortgage lender, originator, and servicer. (Id. ¶ 36.) HSBC Mortgage serviced plaintiffs' loan. (Id.) HSBC Services "primarily services mortgage loans of borrowers who were financed by two former institutions acquired by defendants' parent company, HSBC Holdings PLC." (Id. ¶ 37.) Plaintiffs allege that both defendants regularly use their right to force-place insurance on property to profit at the borrowers' expense. (Id. ¶ 4.) Plaintiffs allege that defendants do so in two ways: through kickbacks and redundant charges. According to the Amended Complaint, both defendants engaged in these general practices, (e.g., id. ¶ 45), and both defendants took steps to keep this scheme secret, (id. ¶¶ 65, 104, 105, 108, 109).

1. Kickbacks

According to plaintiffs, defendants receive kickbacks from insurers that provide force-placed insurance policies. (Id. ¶¶ 54--68.) Specifically, defendants purchase force-placed insurance policies at unreasonably high prices-which the borrower ultimately pays-and then receive a certain amount of the premiums back from the insurer pursuant to either a "commission arrangement" or a "captive reinsurance arrangement." (Id.) Under a commission arrangement, the insurance provider pays a commission to the lender or the lender's affiliate-in essence, a kickback. (Id. ¶ 55.) Because the borrower ultimately bears the cost of the policy, this commission acts as payment from the borrower to lender. (Id.) Under a captive reinsurance arrangement, the lender or a subsidiary agrees to reinsure a portion of the policy in exchange for a portion of the premium. (Id. ¶ 56.) Plaintiffs allege that HSBC Mortgage accepted kickbacks in force-placing insurance on plaintiffs' property. (Id. ¶ 31.)

2. Redundant Charges

Defendants allegedly increase the kickbacks they receive by force-placing insurance where no insurance is necessary to protect defendants' interest in the property. (Id. ¶ 69--72.) Plaintiffs point to three ways in which defendants do so: (1) requiring borrowers to pay for insurance coverage that exceeds the amount necessary to protect defendants' interest in the property; (2) backdating policies to cover time that has already passed without damage to the property, i.e., time for which there is no risk of damage occurring to the property; and (3) insuring property for periods of time following a lapse in coverage even though the lender's interest in the property was covered during those time periods pursuant to a "standard mortgage clause."*fn6 (Id. ¶ 70.) Plaintiffs allege that HSBC Mortgage backdated its force-placed insurance policies on their property and force-placed insurance notwithstanding the fact that the property was insured pursuant to a standard mortgage clause in the plaintiffs' February 21, 2006, Policy. (Id. ¶ 21.)


To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must allege facts that "'raise a right to relief above the speculative level.'" Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). To satisfy the plausibility standard, a plaintiff's allegations must show that defendant's liability is more than "a sheer possibility." Id. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

In Twombly, the Supreme Court used a "two-pronged approach," which it later formalized in Iqbal. Iqbal, 556 U.S. at 679--80; Fowler v. UPMC Shadyside, 578 F.3d 203, 210-- 11 (3d Cir. 2009). Under this approach, a district court first identifies those factual allegations that constitute nothing more than "legal conclusions" or "naked assertions." Twombly, 550 U.S. at 555, 557. Such allegations are "not entitled to the assumption of truth" and must be disregarded. Iqbal, 556 U.S. at 679. The court must then assess "the 'nub' of the plaintiff['s] ...

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