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SD Fla. Rejects Borrower’s Effort to Exclude Evidence of Reasonableness of Lender-Placed Insurance Premiums

The U.S. District Court for the Southern District of Florida recently denied a borrower’s motion to exclude testimony of an insurer’s expert regarding the reasonableness of lender-placed insurance premiums levied upon the borrower’s mortgage loan.

In so doing, the Court rejected the borrower’s argument that the expert testimony failed to address claims that the insurer colluded with its mortgage servicer to inflate insurance premiums, concluding that the borrower’s objection goes to the weight, rather than the admissibility of the testimony, and that testimony concerning the insurer’s compliance with applicable rules, regulations and industry standards would assist the trier in fact.

The Court further concluded that the expert’s opinions need not rely upon particular methodology, but were admissible based upon his knowledge and experience.

A copy of the opinion in Iaffaldano v. Sun West Mortgage Company, Inc. is available at:  Link to Opinion.

A borrower’s mortgage loan servicer obtained lender-placed hazard and flood insurance as to the borrower’s property.  The borrower sued, alleging that the lender-placed insurer’s policy premiums were considerably higher than comparable premiums through other carriers, and that the servicer outsourced some of its servicing activities to the insurer in a scheme to manipulate the lender-placed insurance policies to allot commission to the insurer.

The borrower asserted causes of action against the servicer for alleged violations of the federal Real Estate Settlement Procedures Act (RESPA), and against the insurer for alleged tortious interference with the borrower’s relationship with the servicer.

To defend the borrower’s claims, the insurer retained an expert, who prepared a report which opined that: (1) lender-placed insurance in and of itself means higher risk, meaning a higher premium; (2) the annual premium was reasonable and consistent with the significantly higher risk, and; (3) the premiums were not overpriced and were at levels dictated by statute.

While acknowledging that the expert was sufficiently qualified to prepare the report, the borrower moved to exclude the expert’s testimony, arguing that the insurer failed to meet its burden to demonstrate that its expert’s opinions were based upon reliable methodology, would not assist the triers of fact, and did not comply with the requirements of Rule 26.  Fed. R. Evid. 702;  McDowell v. Brown, 392 F.3d 1283, 1298 (11th Cir. 2004).

As you may recall, federal courts apply the Daubert standard for admitting scientific expert testimony, wherein judges are tasked with a “gatekeeping” role concerning the admission of expert testimony under Rule 702.  Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592-593 (1993)).

Applying the Daubert methodology, the Court first addressed the borrower’s argument that the expert’s opinions were not based on any methodology, and did not use either of the methodologies endorsed by the National Association of Insurance Commissioners.

The Court rejected the borrower’s argument, and held that the expert need not use a particular methodology in arriving at his conclusions, which were reliable based upon his knowledge and experience.   See, e.g., Am. Gen. Life Ins. Co. v. Schoenthal Family, LLC, 555 F.3d 1331, 1338 (11th Cir. 2009) (“Standards of scientific reliability, such as testability and peer review, do not apply to all forms of expert testimony. . . . A district court may decide that nonscientific expert testimony is reliable based upon personal knowledge or experience.”) (citations omitted).

Next, the borrower argued that the expert’s testimony would not assist the trier of fact because his report does not “address [] Plaintiff’s contention that collusion between the defendants inflated the premium.” The insurer argued that the proffered testimony would be helpful to the trier of fact to establish that the insurer “complied with the applicable rules, regulations, and industry standards.”

Again, the Court rejected the borrower’s argument, holding that the borrower’s objection goes to the weight, rather than the admissibility of the expert’s testimony, and is more appropriately the subject of cross-examination.

Lastly, the Court concluded that the expert report’s appendix listing all materials used in arriving at his conclusions met the standard under Federal Rule of Civil Procedure 26 that an expert report disclose the “facts and data considered by the witness.”

Accordingly, the borrower’s motion to exclude the proposed expert testimony proffered by the insurer was denied.

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