Skansgaard v. Bank of America, N.A.
896 F. Supp. 2d 944
W.D. Wash.2011Background
- Skansgaard owns a home in Hoquiam, WA; in Oct. 2002, he obtained an FHA loan for $83,686 to purchase the home.
- Because the property is in FEMA-designated SFHA, federal law and the deed of trust require flood insurance.
- Initially, Skansgaard carried flood insurance only to cover the loan balance; no objection from the lender at that time.
- Bank of America later acquired the loan and BHLS began servicing it; BHLS informed Skansgaard that his flood coverage was inadequate and must equal the replacement value or $250,000, whichever is lower.
- Bank of America allegedly force-placed flood insurance, charged $799.22 to escrow, and allegedly received a commission from this arrangement, causing an escrow shortage and a substantial rise in monthly mortgage payments.
- In May 2011, Skansgaard filed suit in King County Superior Court alleging (i) breach of contract, (ii) breach of the implied covenant of good faith and fair dealing, and (iii) a WA CPA claim on behalf of a class, asserting improper force-placed insurance and profits therefrom; Defendants removed the case to federal court and moved to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the deed of trust unambiguously permits the lender to require flood insurance in any amount | Ambiguity favors plaintiff; third sentence acts independently; flood insurance must align with FEMA/Secretary limits. | Contract permits lender to require insurance at any level the lender sees fit. | Breach of contract claim survives the motion to dismiss. |
| Whether the implied covenant of good faith and fair dealing was adequately pled | Discretion under the contract must be exercised in good faith and reasonably. | No basis to deny based on discretion exercised; claim should fail. | Claim adequately alleged; denial of dismissal appropriate. |
| Whether the WA CPA claim is viable as alleged | Defendants engaged deceptive acts by force-placing insurance and benefiting financially. | Plaintiff failed to show unfair or deceptive acts that affect the public. | CPA claim survives the motion to dismiss. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (standard to survive Rule 12(b)(6) mukha for plausibility)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Conley v. Gibson, 355 U.S. 41 (U.S. 1957) (pleading standards prior to Twombly/Iqbal)
- Badgett v. Sec. State Bank, 116 Wash.2d 563, 807 P.2d 356 (1991) (implied covenant of good faith includes reasonable exercise of discretion)
- Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748 (8th Cir. 2006) (good faith required when discretion is granted by contract)
- Scribner v. Worldcom, Inc., 249 F.3d 902 (9th Cir. 2001) (good faith limits discretion under contract terms)
- Indoor Billboard/Washington, Inc. v. Integra Telecom of Wash., Inc., 162 Wash.2d 59, 170 P.3d 10 (2007) (private CPA elements and capacity to deceive the public)