After a Virgin Islands property owner failed to secure property insurance as required by her mortgage agreement, the holder of her mortgage obtained a policy to protect its interests. The policy did not fully protect the homeowner for damage her property sustained during Hurricane Maria in 2017. The homeowner sued the mortgage holder for various breach of contract and RESPA violations. The bank filed a motion to dismiss.
The case is Lavern Claxton v. Oriental Bank (formerly Bank of Nova Scotia) and John Does 1-10 (No. 19-cv-0069 KAJ District Court of the Virgin Islands, Division of St. Croix).
The facts
In April 2009, Lavern Claxton executed a $233,000 mortgage note with Oriental Bank, secured by property she purchased on St. Thomas. The mortgage agreement required, among other things, that Claxton maintain insurance for the mortgaged property to cover loss or damage, including from natural disasters, like hurricanes.
Because Claxton did not purchase insurance for the property, the bank obtained force-placed insurance beginning in 2014. In September 2017, Hurricane Maria devastated the region, causing substantial damage to Claxton’s dwelling and property.
Six months later, she submitted a claim of loss under the force-placed insurance. The insurance provider sent adjusters to appraise the damage to her home, resulting in a $20,000 estimate. At around the same time, she separately obtained an estimate of $125,000 in damage. The lower figure was ultimately paid on her claim.
According to Claxton, the unresolved damage to her property resulted in the loss of rental income she had previously had from her home, depriving her of the ability to pay her mortgage.
She filed suit, and the latest version of her complaint accused the bank of fifteen violations, including misrepresentation, breach of express and implied contract, estoppel, negligence, sounding in negligent misrepresentation, fraud, illegal tying under the Bank Holding Company Act (BHCA), breach of fiduciary duties, breach of implied covenant of good faith and fair dealing and violation of the Real Estate Settlement Procedures Act (RESPA). The bank moved to dismiss the complaint.
The ruling
A circuit judge sitting by designation dismissed Claxton’s claims with prejudice. On the breach of contract claims, the judge ruled Claxton failed to state a claim.
“She alleges that the bank ‘breached its duties by failing to properly secure insurance for [her] property in an arms-length, good faith transaction, from an insurer that was not insolvent for a reasonable price that properly covered [her] property.’ Those contentions are not adequately supported by factual allegations, and they seek to impose a duty on the bank that simply does not exist,” the judge wrote in his decision. “Although it owed certain obligations to Claxton, those did not include purchasing an insurance policy that fully covered the value of her property.”
“Because she fails to make out plausible claims for breach of contract and breach of the mortgage agreement, her claim for breach of covenant of good faith and fair dealing must also be dismissed,” the judge ruled. “Where there is no duty, there can be ‘no breach of ... a duty of good faith and fair dealing.’”
On Claxton’s breach of fiduciary duties claim, the judge wrote: “She alleges that the bank misappropriated and misused her funds. [Claxton], however, fails to state any facts that might render such an allegation plausible, and any fiduciary duty that the bank might have owed Claxton was not breached…Any allegation that [the bank] misused Claxton’s funds is without the support of plausibly alleged facts. Again, it is merely a matter of conclusory denunciation.”
The judge also rejected Claxton’s misrepresentation, estoppel, negligent misrepresentation, fraud and unjust enrichment claims.
“The complaint does not support any of those claims with facts that might render them plausible. And, to the extent fraud is implicated, Claxton does not point to any statement by the bank that was false or misleading, such as would meet the heightened pleading standard for fraud… Claxton cannot maintain any of her claims after having failed to plausibly allege any deceitful or wrongful act on the part of the bank. When reduced to its bare facts, the complaint shows that the bank purchased mortgage insurance after Claxton failed to do so, and that the insurer appraised her property at a value less than she thought appropriate. That, at most, makes out a dispute with the insurer, not the bank.”