Legal Issues Facing the Flood Industry - PowerPoint Presentation

Slide1

Legal Issues Facing the Flood Industry

NFDA Annual Conference – March 22, 2016

©

2016 National Flood Determination Association

The information shared in this presentation

does not constitute and may not be relied upon as legal advice. For questions regarding your specific circumstances, please consult an attorney. Slide2

Panelists

Tom List, NFDA General Counsel, Moye WhiteLauren McKenna, Attorney, Fox Rothschild LLPJordan Gray, General Counsel, WNC Insurance

Brandy Hood, Regulatory Attorney, Buckley Sandler

Scott Giberson, Compliance, CoreLogic/NFDA

2

©

2016

National Flood Determination Association

The information shared in this presentation

does not constitute and may not be relied upon as legal advice. For questions regarding your specific circumstances, please consult an attorney. Slide3

Agenda

Flood Industry Case Law Update Lauren McKennaForeseeability Issue Nationally Lauren McKenna

E-Discovery & Litigation Holds:

Lauren McKennaGuidance for Companies Examinations & Civil Monetary Penalties:

Brandy

Hood

An Update on the Present Enforcement Landscape

The Dynamic between State Legislative Activity and

Jordan

Gray the Federal Flood Program

Questions and Answers

3

©

2016

National Flood Determination Association

The information shared in this presentation

does not constitute and may not be relied upon as legal advice.

For

questions regarding your specific circumstances, please consult an attorney. Slide4

Flood Industry Case Law Update

4©

2016 National Flood Determination Association

Case law synopsis updated as of March 2016

You will receive an electronic copy of this synopsis in your email inbox soon

Special thanks to Lauren McKenna and Fox Rothschild for this updateSlide5

Flood Industry Case Law Update

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2016 National Flood Determination Association

Case Name: Spong v. Fid. Nat. Prop. &

Cas

. Ins. Co.

Date of Decision

: May 22, 2015

Jurisdiction: U.S. District Court of Appeals for the Fifth Circuit

Citation: 787 F. 3d 296

Case Name: Wise v. HSBC Mortgage Corp. Date of Decision: November 6, 2015Jurisdiction: U.S. District Court of Appeals for the Eastern District of MissouriCitation: 2015 WL 6796955

The information shared in this presentation does not constitute and may not be relied upon as legal advice. For questions regarding your specific circumstances, please consult an attorney. Slide6

Flood Industry Case Law Update

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2016 National Flood Determination Association

Case Name: Rodgers v Ocwen Loan Servicing

Date of Decision

: December 7, 2015

Jurisdiction: U.S. District Court of Appeals for the Northern District of Texas

Citation: 2015 WL 8003209

Case Name:

Wells Fargo Bank v Fonder

 Date of Decision: December 7, 2015Jurisdiction: U.S. District Court of Appeals for the Northern District of TexasCitation: 2015 WL 8003209

The information shared in this presentation does not constitute and may not be relied upon as legal advice. For questions regarding your specific circumstances, please consult an attorney. Slide7

Foreseeability Issue NationallySlide8

Foreseeability Issue Nationally

Still the main focus for many courts

Continued efforts by plaintiffs to utilize foreseeability as a basis for claims against flood determination companies and lendersSlide9

Map

2015 Report

2016 Update

California

Missouri

Montana

Nevada

South CarolinaSlide10

Foreseeability Issue Nationally

California

Limits liability to the recipient and/or direct beneficiary of the information and does not permit third parties to assert a negligent misrepresentation claim

Missouri

Limits liability to parties for whose benefit the professional intends to supply the information and to parties whom the individual knows will receive the information through the intended, benefitting parties

Montana

Same as MissouriSlide11

Foreseeability Issue Nationally Cont’d

Nevada

Limits liability to persons who the professional knows will rely upon the information

South

Carolina

No bright line standard for its approach to foreseeabilitySlide12

E-Discovery & Litigation Holds

--Guidance for CompaniesSlide13

What is E-Discovery

Discussion of Parameters of E-DiscoverySlide14

Potential Consequences of e-Discovery Misconduct

Sanctions:

Monetary penalties

Preclusion or dismissal of a claim/defense

Preclusion of evidence

Adverse instructions by the Judge to the Jury:

e

.g., “The Defendant has failed to prevent the destruction of relevant evidence. You may therefore presume that the evidence was relevant and was favorable to the Plaintiff. You may choose to find that fact determinative, somewhat determinative or not at all determinative in reaching your verdict.”

Loss of possibly helpful evidenceSlide15

e-Discovery Obligations of Counsel

Pension Committee of University of Montreal Pension Plan v. Banc of America Securities, LLC 685

F.Supp.2d

456 (

S.D.N.Y

. 2010)

&

Zubulake

v. USB Warburg LLC, 229

F.R.D

. 422 (

S.D.N.Y

. 2004) (“

Zubulake V”)

Litigation Hold Process

Effectively communicate discovery issues to client

Identify and contact all of the “key players” (including former employees)

Issue written Litigation Hold Notice(s) that instruct witnesses not to destroy records

Do not place total reliance on client/representatives (especially those who aren’t equipped/knowledgeable) to properly preserve, search and select “relevant” documentsSlide16

e-Discovery Obligations of Counsel

Cont’d

Preservation/Collection of Electronically Stored Information

Ensure that a comprehensive search for relevant

ESI

is conducted

Collect (take possession of) paper/electronic records from key players

Ensure that any relevant archives and backups are preserved and segregated

Ensure that all deletion policies/practices affecting relevant

ESI

are suspended

Supervise and monitor the preservation, collection and production of documentsSlide17

e-Discovery Lifecycle

(the stages of e-Discovery)Slide18

What must we preserve?

“While a litigant is under no duty to keep or retain every document in its possession, it is under a duty to preserve

what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request

.”

Zubulake

IV, 220

F.R.D

. 212, 217Slide19

Identification: The 6 Big QuestionsSlide20

Who?

Witnesses (custodians) – whose information do you need?

Identify the “custodians” – the “key players” who are reasonably likely to have information that may be relevant or discoverable in the case.

Don’t forget about:

Assistants

Former employees

Departments or distribution groups

Third parties who are under the client’s “control”

Who is in charge of the client’s

Information Systems?

They should be involved in identifying potential sources of

ESI

, how it is stored, identifying any automatic deletion/backup policies, and assist with preserving/collecting

ESISlide21

When?

What are the applicable date ranges for the

ESI

that might be potentially discoverable in the case?

Has the client undergone any changes in their computer systems during that period of time?

Archive/legacy systems

Are there any retention (automatic deletion) policies that would affect the data needed during that timeSlide22

What?

What issues are potentially relevant in litigation?

What types of potentially discoverable documents/

ESI

does the client have relating to those issues?

Emails

Electronic documents

Paper

Databases

Phone (texts, IM, voicemail, GPS)

Social media posts

Website content

What are the potential

r

isks of

spoliating

that information?

Is there an automatic deletion policy for old emails?

Does the client have a schedule for overwriting backups?

Have there been any intervening changes to the client’s IS structure?

Is old/legacy data still available or scheduled for deletion?Slide23

Where are the client’s documents, emails and other

ESI

physically maintained?

Local

computers (laptops and PC’s)

Servers

(in-house or in the “cloud”)

Other

file-sharing locations (

Sharepoint

, Dropbox, etc.)

Social media accounts?

Personal

computers/email accounts?

Tablets

, PDA’s, etc.

Cell

phones

Backups

& archives

Removable

media (CDs, DVDs, USB/thumb drives, etc

.)

Office

working files, filing cabinets, etc.

Where?Slide24

How and where is the data structured/located within the client’s computer systems?

How difficult is it to target specific data for preservation?

Is it easier to preserve the client’s entire system?

How do we go about preserving and collecting this ESI?

Is all of t his information “reasonably accessible”, or will it result in significant burden and/or expense to collect and/or search? (Note – the data must still be

preserved

– but we may be able to argue that it need not be immediately collected/reviewed/produced.)

How is the client (or vendor) going to preserve and collect the ESI?

Will they be doing it in a forensically safe manner that adequeatley preserves the original documents, including all associated metadata?

How?Slide25

Why?

Does the client (and the custodians) know

why

preservation is necessary?

Sanctions/risks of not preserving

At the Rule 26 Conference, you’ll need to be prepared to discuss:

ESI in client’s possession

Efforts taken to preserve ESI

Issues re: preservation, collection, processing, search of ESI

Why are you preserving certain things and not others?

Think about and develop a sound plan for preservation, it if is called into question laterSlide26

Metadata

is

evidence

Examples - email

Examples - documentsSlide27

Investigate!

Document all of the information you’ve gathered

Issue Litigation Hold Notices to all custodians and necessary IT people

Follow up and ensure that automatic deletion policies are suspended

Ensure that relevant evidence is preserved and collected as soon as possible

Take possession of relevant ESI & determine best methods of review

Review, search & analyze your data and documents (find gaps of evidence, key documents, etc.)

Revisit the process regularly and follow up.

Checklist for implementing

a Litigation HoldSlide28

Examinations & Civil Monetary Penalties

--An Update on the Present Enforcement LandscapeSlide29

Examinations and Civil Money PenaltiesBrandy HoodAssociate Slide30

DisclaimerThe information contained herein is for informational purposes only; does not constitute legal advice; and, does not necessarily reflect the opinions of BuckleySandler LLP or any of its attorneys or clients. This presentation is not intended to create, and does not create, an attorney-client relationship between you and BuckleySandler LLP, or any of the presenters, and you should not act or rely on any information in this presentation without consulting legal counsel. The information contained in this presentation may or may not reflect the most current legal developments; accordingly, information in this presentation is not promised or guaranteed to be correct or complete, and should not be considered an indication of future results. BuckleySandler LLP expressly disclaims all liability in respect to actions taken or not taken based on any or all of the contents of this presentation. Slide31

Civil Money PenaltiesBefore

Up to $385 per violation$120,000 - $135,000 CapNow

Up to $2,000 per violation

No CapSlide32

Civil Money Penalties

For pattern or practice violations of:

Requirement to purchase flood insurance

Escrow requirement

Lender Placed Insurance

Notice of Special Flood Hazards and Availability of Federal Disaster Relief

AssistanceSlide33

Pattern or Practice

To determine whether there’s a “pattern or practice,” the agencies considerations may include, but are not limited to, the presence of one or more of the following:

Did the conduct result from a common cause or source within the financial institution’s control?

Did the conduct appear to be grounded in a written or unwritten policy or established practice?

Did the noncompliance occur over an extended period of time?

What is the relationship of the instances of noncompliance to one another? (e.g., did the instances occur in the same area of the financial institution’s operations?)Slide34

Pattern or Practice (continued)

Is the number of instances of noncompliance significant relative to the total number of applicable transactions? (but violations that involve only a small percentage of an institution’s total activity could still constitute a pattern or practice)

Was the financial institution cited for violations in prior exams and, if so, what steps did it take to correct the identified deficiencies?

Did the financial institution’s internal and/or external audit process identify and address deficiencies in its flood insurance compliance?

Does the financial institution lack generally effective flood insurance compliance policies and procedures and/or a training program for its employees?Slide35

Select Recent Enforcement Actions

RegulatorDateAmountOCC

11/24/15

$1,800

FRB

11/23/15

$28,640

FRB

11/18/15

$5,000

FDIC

10/7/15

$4,550

OCC

10/2/15

$11,700

FRB

9/18/15

$9,285

FRB

8/27/15

$56,205

FDIC

8/18/15

$6,250

FDIC

8/10/15

$6,900

Regulator

Date

Amount

FDIC

7/30/15

$123,000

OCC

7/20/15

$3,000

OCC

6/29/15

$1,104,530

OCC

6/9/15

$180,720

FDIC

6/1/15

$10,650

FRB

6/1/15

$7,500

FRB

6/1/15

$5,000

FRB

5/11/15

$2,100

FRB

4/29/15

$11,285 Slide36

The Dynamic between State Legislative Activity and the Federal Flood ProgramSlide37

State Legislation Addressing Flood

FLORIDA HAWAIIMAINEMASSACHUSETTSMICHIGAN

MISSISSIPPINEW

JERSEYNEW YORKOKLAHOMA

PENNSYLVANIA

SOUTH

CAROLINA

WEST VIRGINIASlide38

State Legislation to Review

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2016 National Flood Determination Association

FLORIDA: 2015 Flood Insurance -- SB 1094 (by Senator

Brandes

;

HB 895 by Representative Ahern):

Specifies components to be included in the coastal management element required for a local government comprehensive plan; requires property appraisers to submit elevation certificates to the Division of Emergency Management and amends the requirements of a customized flood insurance policy

.

2014 Flood Bill -- SB 542: The legislation was inspired by the reaction to large rate increases in certain areas on the state under the Biggert-Waters Act. SB 542 creates new rating and policy form options for carriers interested in offering private market flood policies.  The main point of contention between the House and the Senate during the Session was the minimum and maximum dwelling coverage limit options that the state should authorize.  The Senate proposal would allow insurers to offer flood policies that would only cover the mortgage amount on a dwelling, while the House proposal required replacement costs coverage for the entire structure. Ultimately, the House prevailed.  Under the provisions of SB 542, insurers may offer “Standard Flood” policies which must cover only losses from flood equivalent to the coverage provided under the National Flood Insurance Program, including deductibles and adjustment of losses; “Preferred Flood” policies which must include the same coverage as “Standard Flood”, as well as water intrusion not covered under the “standard” definition, additional living expenses, replacement costs for personal property and contents; “Customized Flood” policies can vary in content as long as they provide coverage that is broader than coverage provided under “standard” flood insurance; and “Supplemental Flood” policies that may provide coverage designed to provide coverage to supplement a policy obtained by the NFIP, such as coverage for jewelry, art, deductibles, and additional living expenses.

SB 542 allow insurers to establish rates for flood policies either utilizing existing Florida rating laws (s. 627.062, F.S.), or in  accordance with previously established property rates allowing for a “reasonable rate of return” for flood, as well as maintaining supportive actuarial data for 2 years.

The bill was signed into law by the governor on June 13, 2014

.

HB 929 (COMPARE SB 584); AUTHOR: Ahern; TITLE: Peril of Flood; STATUS: House Second Reading; LAST ACTION: 02/18/2016 From HOUSE Committee on ECONOMIC AFFAIRS: Reported favorably. 02/18/2016 In HOUSE. Placed on Calendar.

SUMMARY: Relates to peril of flood; authorizes an insurer to issue flood insurance policies on a flexible basis; extends the date by which an insurer may use certain statutory rate standards for establishing and using flood coverage rates; authorizes a surplus lines agent to export a contract or endorsement providing flood coverage to an eligible surplus lines insurer without satisfying specified

conditions; extends the date by which a surplus lines agent may export such contract or endorsement.Slide39

State Legislation to Review (continued)

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2016 National Flood Determination Association

FLORIDA:SB 584 (COMPARE FL H 929); AUTHOR: Brandes; TITLE: Flood Risk Reduction Policies

; STATUS: Senate Appropriations Committee; LAST ACTION: 01/15/2016 To SENATE Committee on APPROPRIATIONS.

SUMMARY: Authorizes a matching grant program to local governments implement flood risk reduction policies and projects; ranks applications for assistance; relates to trust grants and loan agreements for land acquisition; authorizes a contract to store elevation certificates and maintain a database for public access to such certificates; authorizing an insurer to issue flood insurance policies on a flexible basis; extends statutory rate standards for flood coverage rates; relates to surplus lines insurance.

HAWAII:

HB 2203

(SB 2745) introduced 1/25/2016; SUMMARY: Requires financial institutions and mortgage servicers to provide written notice to borrowers regarding the status of their insurance coverage; obtain force-placed insurance subject to certain conditions; and terminate and refund any moneys to the borrower upon receipt of the confirmation of a borrower's existing insurance coverage”

MAINE:

HB 393; AUTHOR: DeChant; TITLE: Liability Outside Federally Declared Flood Zones; STATUS: Died; LAST ACTION: 05/06/2015 HOUSE adopts Majority Committee Report: Ought not to pass. 05/06/2015 SENATE adopts Majority Committee Report: Ought not to pass. 05/06/2015 In SENATE. Placed in Legislative File (DEAD).SUMMARY: Summary This bill prohibits an insurance company from excluding coverage under a homeowner's property insurance policy for flood damages caused by the failure of municipal or government infrastructure whether or not the home is located in a flood zone designated by the Federal Government.Slide40

State Legislation to Review (continued)

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2016 National Flood Determination Association

MASSACHUSETTS:Massachusetts HB 3783, which generally restricts the amount of flood insurance a lender can require, was approved on July 23, 2014. The law becomes effective 120 days after passage. Massachusetts has enacted HB 3783, which provides that no creditor or creditor’s representative, as defined in section 35B of chapter 244, may require in a mortgage, note, or otherwise a purchaser or owner of residential property with one to four units to purchase or pay for flood insurance on the property that:

i

.        is at a coverage amount exceeding the outstanding principal mortgage balance at the beginning of the year for which the policy shall be in effect and, in the case of a home equity line of credit, home equity loan or second and subsequent mortgage the full value of the credit line, outstanding principal on the equity loan or second or subsequent mortgage on that property at the beginning of the year for which the flood insurance policy shall be in effect;

     ii.        includes coverage for contents; or

    iii.        includes a deductible of less than $5,000.

H

810

; (COMPARE H814) Introduced 3/10/2015; Hearing scheduled for 9/29/2015; 3/16/2016 House Reporting date extended to Wednesday May 18, 2016, pending concurrence; 3/17/2016 Senate Amendment (changing reporting date to Wednesday May 18, 2016) adopted, pending concurrence. SUMMARY: An Act relative to an investigation to review flood insurance rates.

H 814; (COMPARE H810) Introduced 3/10/2015 Hearing scheduled for 9/29/2015; ; 3/16/2016 House Reporting date extended to Wednesday May 18, 2016, pending concurrence; 3/17/2016 Senate Amendment (changing reporting date to Wednesday May 18, 2016) SUMMARY: An Act relative to an investigation of flood insurance by the attorney general.MICHIGAN:HB 246 -

Introduced 3/15/2016 - “A resolution to memorialize the Congress of the United States to renew full federal support of residential and business flood insurance through the NFIP”MISSISSIPPI:HB 639

; AUTHOR: Baria; TITLE: Flood Insurance; STATUS: Died; LAST ACTION: 02/23/2016 Died in committee.SUMMARY: Releases owners of real property required to purchase flood insurance only due to the acceptance of assistance under the Katrina recovery homeowner grant program.Slide41

State Legislation to Review (continued)

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2016 National Flood Determination Association

NEW JERSEY:2014 New Jersey AB 1726; (IDENTICAL (2014) NJ S 308); SPONSOR: Eustace; TITLE:

Flood Hazard Area Control Act Amendments

; CHAPTER: 2015-270; STATUS: Chaptered; LAST ACTION: 01/19/2016 Signed by GOVERNOR. 01/19/2016 Chapter No. 2015-270

SUMMARY: Directs the Department of Environmental Protection to take certain actions concerning delineations of flood hazard areas and floodplains; directs the Department to update delineations of flood hazard areas as frequently as may be necessary to incorporate certain floodplain delineations and to incorporate certain federal floodplains delineation into the department's flood hazard area delineation for certain watercourses; requires a person to apply for a permit for a site based upon a floodplain delineation.

HB 4495

; AUTHOR: Rutherford; TITLE:

Flood Insurance Requirement; STATUS: House Labor, Commerce and Industry Committee; LAST ACTION: 01/12/2016 INTRODUCED. 01/12/2016 To HOUSE Committee on LABOR, COMMERCE AND INDUSTRY.

SUMMARY: Establishes that a property owner who is required to carry flood insurance on real property may not be required to maintain this coverage if this property is not affected by certain flooding events.

S1141

- Introduced 2/8/2016 - Requires insurers that sell flood insurance to provide certain policyholders with certain information.SCR 44 - Introduced 2/4/2016 - Urges Congress and the President of the United States to increase subsidies for federal flood insurance.A1647 - Introduced 1/27/2016 - Adds to property tax levy cap exclusions increases in flood insurance premiums. NEW YORK:

SB 3676 / A 6968 - SB 3676 in committee 1/21/2016; Died in Assembly/Returned to Senate 1/6/2016; Passed Senate 5/28/2015; Introduced 2/13/2015; A 6968 in committee 1/6/2016; Introduced 4/15/2015 - Would provide a tax credit for businesses in a heightened flood risk zone that purchase flood insurance

A 5638 / SB 4222 - A 5638 in committee 1/6/2016; Introduced 3/3/2015; SB 4222 in committee 1/6/2016; Introduced 3/11/2015 - Would create the New York Flood Insurance AssociationSlide42

State Legislation to Review (continued)

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2016 National Flood Determination Association

NEW YORK:A 3337 - In committee 1/6/2016; Introduced 1/22/2015 - Would prohibit lenders from requiring more flood insurance than the outstanding balance of the loan or the max under the NFIP, whichever is less

A 2380

- In committee 1/6/2016; Introduced 1/16/2015 - Would provide a one-time tax credit equal to 75% of the cost of purchasing flood insurance to certain businesses located in State Disaster Emergency Declaration Areas

A 2241

- In committee 1/6/2016; Introduced 1/15/2015 – Would require insurers insuring property in floodplains to include damages done by wave action or windblown waves

A 4435

- In committee 6/8/2015; Introduced 1/30/2015 - Among other things, would require insurers to provide insureds/prospective insureds with a notice informing them what flood zone they are located in and what the level of risk associated with that flood zone is (and an additional notice if the flood zone changes)OKLAHOMA

:

SB 1405

- Introduced 1/21/2016 – The county clerk is authorized to utilize the information related to flood status of the pertinent real property stipulated by any lender making such determination when a mortgage filing is made in conjunction with the deed.PENNSYLVANIA:HB 1648 - Introduced 2/2/2016 – An Act imposing a duty on municipalities to provide notification to property owners of changes to SFHA maps of FEMASB 494 - Approved by the Governor 2/5/2016; Introduced 2/10/2015 – Would repeal requirement for the Insurance Commissioner’s flood insurance consumer education plan (to encourage residents to purchase/maintain flood insurance focusing on properties which have suffered previous flood damage) to be reported to the General Assembly (See also HB 717 – passed House 4/13/2015)

HB 1299 – Introduced 6/8/2015 – An Act establishing the Flood Insurance Premium Assistance Task Force.

HB 1029 – Introduced 4/20/2015 – An Act establishing the Flood Insurance Premium Assistance Program.Slide43

State Legislation to Review (continued)

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2016 National Flood Determination Association

SOUTH CAROLINA:H 4495 - Referred to committee 1/12/2016 (Prefiled 12/3/2015) - “A property owner who is required to carry flood insurance on real property may not be required to maintain this insurance if the property is not affected by a flooding event that results in a major disaster where a state of emergency is declared”

WEST VIRGINIA:

West Virginia SB 621

, legislation allowing private insurers to offer flood insurance, reached final passage and awaits action by the governor.  The bill is an attempt to encourage more private market involvement in flood insurance and would establish minimum coverage requirements and limitations for such policies; provide the insurance commissioner with authority for rate-making and legislative and emergency rule-making authority on the issue, and allow an insurer to export a contract or endorsement of a certain amount to a surplus lines insurer without meeting certain requirements; among other provisions. Slide44

Questions and Answers

Thank you!