Kolbe v. BAC Home Loans Servicing, LP
2012 U.S. App. LEXIS 19935
| 1st Cir. | 2012Background
- Kolbe sues Bank of America and Balboa Insurance over a flood-insurance demand tied to Kolbe's FHA-backed mortgage.
- Paragraph 4 of the mortgage requires both hazard insurance and flood insurance, with flood coverage stated to be “to the extent required by the Secretary” of HUD.
- NFIA/NFIP requirements mandate flood coverage at or above the outstanding loan balance, but Kolbe allegedly paid for an extra $46,000 in flood insurance after notices from the bank.
- The district court dismissed, holding Paragraph 4 unambiguously gave the lender discretion to set flood coverage amounts beyond federal minimums.
- Kolbe plants a class action alleging breach of contract and breach of the implied covenant of good faith and fair dealing, including self-dealing allegations related to force-placed insurance.
- The First Circuit vacates the district court’s dismissal as to Kolbe's contract and implied covenant claims against Bank of America, while affirming dismissal as to Balboa.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Paragraph 4 ambiguous about flood insurance authority? | Kolbe argues the flood sentence is independent and limits the lender. | Bank argues flood insurance is subsumed by the general hazard insurance discretion. | Ambiguity exists; jury could interpret either side. |
| Did Kolbe plead a plausible breach of contract claim? | Kolbe claims the Bank could not demand extra flood coverage beyond the NFIA minimum. | Bank asserts the lender may require more under Paragraph 4's general grant. | Yes; plausible claim stated. |
| Did Kolbe plead a plausible breach of the implied covenant of good faith and fair dealing? | Bank’s demand for excess flood coverage and related conduct shows bad faith motive. | Ambiguity alone does not prove bad faith; actions were within contract and policy. | Yes; plausible conduct alleged. |
| Was Balboa properly dismissed from the case? | Balboa participated in notices and could bear contract-related liability. | No contractual relationship with Kolbe; no plausible claim against Balboa. | Balboa dismissal affirmed. |
| Was extrinsic evidence appropriate to interpret Paragraph 4? | HUD materials and NFIA context support Kolbe's view of independent flood obligation. | Extrinsic materials are not controlling; ambiguity still unresolved. | Extrinsic evidence informative; not dispositive; ambiguity remains plausible. |
Key Cases Cited
- Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1 (1st Cir. 2011) (adequate complaint must be facially plausible)
- Am. Cyanamid Co. v. Fermenta Animal Health Co., 54 F.3d 177 (3d Cir. 1995) (extrinsic context in ambiguity analysis)
- United States v. Pantelidis, 335 F.3d 226 (3d Cir. 2003) (ambiguity and contract interpretation standards)
- Sumitomo Mach. Corp. of Am., Inc. v. AlliedSignal, Inc., 81 F.3d 328 (3d Cir. 1996) (de novo review of contract interpretation)
- Wilson v. Amerada Hess Corp., 168 N.J. 236, 773 A.2d 1121 (N.J. 2001) (good-faith standard requires justified expectations)
- Custer v. Homeside Lending, Inc., 858 So.2d 233 (Ala. 2003) (hazard/flood insurance language in loan forms)
- Pacifico v. Pacifico, 190 N.J. 258, 920 A.2d 73 (N.J. 2007) (contract language interpreted in light of common usage and custom)
- Hofstetter v. Chase Home Fin., LLC, 751 F.Supp.2d 1116 (N.D. Cal. 2010) (contract ambiguity and lender discretion in mortgage context)