Eleventh Circuit: Filed-Rate Doctrine bars claims over lender’s force-placed insurance

In Patel, et al v. Specialized Loan Servicing LLC, et al, No. 16-12100 (11th Cir. 2018), the Eleventh Circuit held that claims against a loan servicer for “artificially inflated” force-placed insurance premiums were barred by the filed rate doctrine. In Patel, the plaintiff alleged that loan servicers and insurance companies breached implied covenants of good faith and fair dealing, as well as various deceptive and unfair trade practice statutes, by purchasing force-placed insurance for the plaintiffs’ mortgaged properties. Plaintiffs alleged that the premiums were “artificially inflated”, “unreasonably high”, and that they reflected the “costs of kickbacks” to the loan servicers. The Court affirmed the Southern District of Florida’s dismissal of the plaintiff’s complaint for failure to state a claim, finding that the allegations in the complaint were “textbook examples of the sort of claims” barred by the filed-rate doctrine.

The filed-rate doctrine “precludes any judicial action which undermines agency rate making authority.” In its opinion, the Eleventh Circuit reiterated the two underlying principles in support of the filed-rate doctrine: nondiscrimination and nonjusticiability. The nondiscrimination principle ensures that all rate-payers are required to pay the same rates for services. The nonjusticiability principle entrusts administrative agencies, rather than courts, with the sole authority to set the rates of regulated entities. Based on those principles, the Court held that the filed-rate doctrine precludes two types of suits: direct challenges to a filed rate and facially neutral challenges if an award of damages would result in the plaintiff paying a rate lower than the rate paid by other customers.

The filed-rate doctrine 'precludes any judicial action which undermines agency rate making authority.'

Following a discussion of the history of the filed-rate doctrine and the Erie principles applicable to the case, the Eleventh Circuit set forth a two-part test to determine whether the allegations in Patel fell within either of the two categories of cases barred by the filed-rate doctrine. The first prong of the test analyzes whether “the complaint facially attacks a filed rate.” Second, if the first prong is not satisfied, the court looks to whether the complaint “implicates the nonjusticiability principle by challenging the component of a filed rate.” The complaints in Patel failed at the first stage of analysis as they alleged that the harm suffered was in the form of “artificially inflated premiums” and “unreasonably high force-placed insurance premiums.” Based on this language, the Court could not avoid the conclusion that the plaintiffs were attempting to directly challenge the rates that the force-placed insurance providers filed with state regulators.

This case is important to lenders, insurance companies, and other entities involved with rate-regulated industries as it provides a degree of protection from the liability of litigating rates that have already been filed with and approved by a federal or state administrative agency. As Judge Jordan’s dissent points out, Patel expands the filed-rate doctrine’s protection to loan servicers, “down-stream entities” whose rates are influenced by a regulated entity, but who are not in and of themselves regulated entities.