Kolbe v. BAC Home Loans Servicing, LP ( 2013 )


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  •           United States Court of Appeals
    For the First Circuit
    No. 11-2030
    STANLEY KOLBE,
    Plaintiff, Appellant,
    v.
    BAC HOME LOANS SERVICING, LP, d/b/a BANK OF AMERICA, N.A.;
    BALBOA INSURANCE COMPANY,
    Defendants, Appellees.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Nathaniel M. Gorton, U.S. District Judge]
    Before
    Lynch, Chief Judge,
    Torruella, Lipez, Howard, Thompson, and Kayatta,
    Circuit Judges.
    Edward F. Haber, with whom Todd S. Heyman, Adam M. Stewart,
    Michelle H. Blauner, and Shapiro Haber & Urmy LLP were on brief,
    for appellant.
    John C. Englander, with whom Matthew G. Lindenbaum, Dennis
    D'Angelo, William M. Jay, and Goodwin Procter LLP were on brief,
    for appellees.
    Mark R. Freeman, Appellate Staff Attorney, United States
    Department of Justice, with whom Nancy D. Christopher, Associate
    General Counsel for Litigation, William C. Lane, Assistant General
    Counsel for Insured Housing and Community Development Litigation,
    Bruce S. Albright, Senior Trial Attorney, U.S. Department of
    Housing and Urban Affairs, Stuart F. Delery, Principal Deputy
    Assistant, Attorney General, Carmen M. Ortiz, United States
    Attorney, Michael S. Raab, Appellate Staff Attorney, United States
    Department of Justice, were on brief, for the United States amicus
    curiae.
    Frank G. Burt, Denise A. Fee and Jorden Burt LLP on brief for
    Property Casualty Insurers Association of America's amicus curiae.
    Elizabeth J. Cabraser, Kelly M. Dermody, Daniel M. Hutchinson,
    Lisa J. Cisneros, Lief Carbraser Heimann & Bernstein LLP, on brief
    for National Consumer Law Center and AARP amici curiae.
    Stuart T. Rossman on brief for National Consumer Law Center
    amicus curiae.
    Jean Constantine-Davis and AARP Foundation Litigation on brief
    for AARP amicus curiae.
    Richard L. Neumeier, Morrison Mahoney Miller LLP, Jan T.
    Chilton, Michael J. Steiner and Severson & Werson PC on brief for
    Mortgage Bankers Association and American Financial Services
    Association amici curiae.
    Opinion En Banc
    September 27, 2013
    The judgment of dismissal entered by the district court
    is affirmed by an equally divided en banc court.       See Savard v.
    Rhode Island, 
    338 F.3d 23
    , 25 (1st Cir. 2003) (en banc).
    Opinions follow.
    LYNCH, Chief Judge, with whom HOWARD, Circuit Judge, and
    KAYATTA, Circuit Judge, join.    The result of the evenly divided
    vote of the en banc court is to affirm the district court's
    dismissal of the complaint for failure to state a claim.          See
    Savard v. Rhode Island, 
    338 F.3d 23
    , 25 (1st Cir. 2003) (en banc).
    This opinion explains why we think that result is correct and
    required by law.
    I.
    This is a contract dispute over the terms of a mortgage
    contract between the borrower, plaintiff-appellant Stanley Kolbe,
    and the servicer of his loan, defendant-appellee BAC Home Loans
    Servicing, LP ("BAC" or "the Bank").      Kolbe sued the Bank in a
    putative class action for damages alleged to have arisen out of the
    Bank's requirement that he maintain flood insurance in an amount
    sufficient to cover the replacement value of his home.          Kolbe
    contends that the Bank, under Covenant 4 of his mortgage contract,
    cannot require more than the federally mandated minimum flood
    insurance, which is the lesser of the principal balance of the loan
    or $250,000 in special flood hazard areas, and $0 in all other
    areas.    The   mortgage   is   insured   by   the   Federal   Housing
    -3-
    Administration ("FHA"), and Covenant 4 is a standard uniform
    covenant prescribed by the FHA pursuant to federal law.                    See 
    24 C.F.R. § 203.17
     (2012); Requirements for Single Family Mortgage
    Instruments,     
    54 Fed. Reg. 27,596
    ,    27,603-07   (June    29,     1989)
    (hereinafter     "Mortgage     Requirements").           The   Covenant       was
    promulgated after notice and comment rulemaking.
    We conclude that Kolbe has failed to state a claim for
    breach of contract.          Three interrelated strands of reasoning
    support our conclusion.       The first is straightforward application
    of   the   typical    principles    of    contract   interpretation.         When
    interpreting a written contract, we look at text, context, and
    purpose to discover whether a proffered reading of the contract is
    reasonable.       For    contract      language   mandated     by   a   federal
    regulation, this context includes the regulation and the federal
    policy underlying the regulatory scheme.                As a purely textual
    matter, the Bank offers the most natural reading of the disputed
    language.     Yet even if an argument exists that Kolbe's textual
    reading is plausible, context confirms that the Bank's reading is
    correct and Kolbe's reading is incorrect.               As we will describe,
    particularly under our third strand of reasoning, Kolbe's reading
    would   hinder   federal     housing     policy   and   conflict    with    other
    guidance from the federal government regarding flood insurance.
    Interpreting the text in context, as we would do with any contract,
    we conclude that the Bank's reading is correct.
    -4-
    Second, we apply special principles for interpreting
    uniform contract language.            Covenant 4 is a uniform clause used in
    millions of mortgages nationwide by many different lenders, so we
    give it one uniform meaning rather than multiple inconsistent
    meanings.       Extrinsic evidence of the parties' unique intentions
    regarding a uniform clause is generally uninformative because
    unlike individually tailored contracts, uniform clauses do not
    derive from the negotiations of the specific parties to a contract.
    Instead, courts seek to determine the uniform meaning of the clause
    as a matter of law, a task appropriate for the motion to dismiss
    stage.        Kolbe cannot avoid dismissal on the grounds that his
    specific understanding or the actions of the parties create an
    ambiguity.
    Third,     the   fact   that   the   Covenant    was   drafted   and
    mandated by the United States requires that its meaning be that
    meant by the United States when it drafted the regulation.                     The
    role that the Covenant plays in an important regulatory scheme
    requires that result. The language of the Covenant was not drafted
    or negotiated by the parties and was not the result of give-and-
    take in the marketplace.          Rather, it was created and mandated in
    order    to    further    important     federal    policies.     While   on    the
    Covenant's plain language and context, we think the meaning is
    clear, were there doubt, we would defer to the position articulated
    to us by the United States in its amicus brief; in this case, the
    -5-
    United   States'   position   reinforces    our   conclusion    reached   in
    applying the first two principles.
    In its amicus brief to the en banc court, the United
    States has stated that Kolbe's interpretation is incorrect for a
    number of reasons, including that it "lacks any anchor in the
    statutory scheme."    Brief for the United States as Amicus Curiae
    Supporting Appellees at 2, Kolbe v. BAC Home Loans Servicing, LP,
    No. 11-2030 [hereinafter "United States Brief"].               Further, the
    United States says that Kolbe's interpretation "serves no practical
    end, and . . . would seriously undermine federal housing policy."
    
    Id.
       The United States' position as set forth in the brief is
    entitled   to   deference;    it   is   well-reasoned   and    is   entirely
    consistent with its prior interpretations of the clause expressed
    in various federal publications.
    This is an issue for judges to decide.        The law does not
    allow a jury to decide that federal policy is otherwise, or that
    the contract language required by the United States does not have
    the eminently reasonable meaning urged by the United States,
    consistent with the policies that brought about the Covenant in the
    first instance.
    As we will discuss, Kolbe has also failed to state a
    claim for breach of the covenant of good faith and fair dealing.
    The district court correctly dismissed all of Kolbe's claims.
    -6-
    II.
    Kolbe owns a home in Atlantic City, New Jersey in a
    special flood hazard area.       On October 6, 2008, he borrowed
    $197,437 from Taylor, Bean & Whitaker Mortgage Corp. ("Taylor
    Bean") in a mortgage loan secured by his home.           The loan was
    guaranteed by the FHA, a part of the Department of Housing and
    Urban Development ("HUD").
    The   mortgage   agreement   contained   a   set   of   Uniform
    Covenants that are required by HUD regulations to be in every FHA-
    insured mortgage.1   One of the Uniform Covenants included in the
    mortgage is the following provision, which is at issue:
    4. Fire, Flood and Other Hazard Insurance.
    Borrower shall insure all improvements on the
    Property,   whether   now  in   existence   or
    subsequently erected, against any hazards,
    casualties, and contingencies, including fire,
    for which Lender requires insurance.      This
    insurance shall be maintained in the amounts
    and for the periods that Lender requires.
    Borrower shall also insure all improvements on
    the Property, whether now in existence or
    subsequently erected, against loss by floods
    to the extent required by the Secretary.
    The "Secretary" referred to in Covenant 4 is the Secretary of HUD.
    This case presents the issue of whether the amount of flood
    insurance required by HUD is a floor or a ceiling.
    1
    See 
    24 C.F.R. § 203.17
     (requiring an FHA-insured mortgage to
    "be in a form meeting the requirements of the Commissioner");
    Requirements for Single Family Mortgage Instruments, 
    54 Fed. Reg. 27,596
    , 27,603-07 (June 29, 1989) (FHA model mortgage form).
    -7-
    Kolbe's home is in an area designated by the Federal
    Emergency Management Agency ("FEMA") as having "special flood
    hazards," and as such HUD required (and still requires) that flood
    insurance must be maintained in "an amount at least equal to either
    the outstanding balance of the mortgage . . . or the maximum amount
    of the NFIP insurance available with respect to the property
    improvements, whichever is less." 
    24 C.F.R. § 203
    .16a(c) (emphasis
    added).2 The original mortgage holder, Taylor Bean, never required
    Kolbe       to   maintain   greater   flood   insurance   than   the   minimum
    federally required amount, and at all times, Kolbe maintained flood
    insurance in excess of the outstanding loan balance.
    Taylor Bean declared bankruptcy and ceased operations in
    August 2009.          At some point, the Bank became the servicer of
    Kolbe's loan.3         In November 2009, the Bank sent Kolbe a letter
    notifying him that it was requiring him to purchase an additional
    $46,000 in flood insurance coverage; the Bank has asserted, and
    Kolbe has not disputed, that this additional insurance would bring
    Kolbe's total flood insurance coverage to the replacement cost of
    2
    At all relevant times, the maximum amount of NFIP insurance
    available for a single family home in a special flood hazard area
    was $250,000. See 
    42 U.S.C. § 4013
    (b)(2). Because the balance of
    Kolbe's loan was always less than $250,000, the minimum amount of
    flood insurance required by HUD was always the principal balance of
    Kolbe's loan.
    3
    BAC Home Loans Servicing was a wholly owned subsidiary of
    Bank of America, N.A., which itself is a wholly owned subsidiary of
    Bank of America Corporation, the publicly traded company. BAC Home
    Loans Servicing has merged into Bank of America, N.A.
    -8-
    the property.      Kolbe alleges that the Bank had a nationwide policy
    of requiring flood insurance at a level that often exceeds the
    principal balance of the loan.
    The letter notified Kolbe that if he did not purchase the
    required flood insurance within about six weeks, the Bank would
    purchase the insurance at his expense and charge him for the cost,
    a practice known as "lender-placed insurance"; the letter urged
    Kolbe to avoid lender-placed insurance by purchasing his own
    insurance.        A second letter reiterated the requirement.           Kolbe
    purchased the insurance on his own; thus the Bank never had to
    purchase lender-placed insurance on his behalf.
    III.
    On    February   23,   2011,   Kolbe   filed   a   class   action
    complaint in the district court against the Bank alleging it
    breached the mortgage contract and violated the implied covenant of
    good faith and fair dealing by requiring the additional flood
    insurance.    The first count of Kolbe's complaint alleged breach of
    Covenant 4 of the mortgage contract.           Under Kolbe's theory, the
    Covenant precluded the Bank from requiring Kolbe to maintain any
    flood insurance in excess of the amount required by the Secretary
    of HUD, which in Kolbe's case was the principal balance of the
    loan.   See 
    24 C.F.R. § 203
    .16a(c).           The second count alleged a
    breach of the implied covenant of good faith and fair dealing.
    This count alleged that "[b]y requiring Plaintiff . . . to maintain
    -9-
    and pay for flood insurance coverage in excess of the coverage
    required by [his] mortgage agreement[], Defendants acted in bad
    faith and breached the implied covenant of good faith and fair
    dealing . . . ."   Kolbe sought to represent a putative class of all
    other borrowers with similar mortgages owned or serviced by the
    Bank who were required to purchase flood insurance above the amount
    of the outstanding balance of their loans.4     Kolbe also sought a
    jury trial as to all claims.
    On August 18, 2011, the district court granted the Bank's
    motion to dismiss all claims.    The court concluded that the first
    two sentences in Covenant 4, which allowed the Bank to require
    insurance for "any hazards . . . in the amounts and for the periods
    that Lender requires," unambiguously gave the Bank the right to
    choose the amount of flood insurance it required.      Kolbe v. BAC
    Home Loans Servicing, L.P., No. 11-10312-NMG, 
    2011 WL 3665394
    , at
    *3-5 (D. Mass. Aug. 18, 2011).    The district court also dismissed
    the count for breach of the covenant of good faith and fair dealing
    because it concluded that the Bank's flood insurance requirement
    was based on FEMA policy guidelines and was not unreasonable.   Id.
    at *5.
    4
    The complaint also named as a defendant Balboa Insurance
    Company ("Balboa"), a subsidiary of the Bank. Kolbe alleged that
    Balboa prepared and sent the letters requiring the additional flood
    insurance. The district court dismissed all claims against Balboa,
    but Kolbe did not press the claims against Balboa in its briefing
    related to the rehearing en banc, so those claims are not at issue.
    -10-
    Kolbe appealed, and a divided panel of the First Circuit
    vacated the dismissal.      See Kolbe v. BAC Home Loans Servicing, LP,
    
    695 F.3d 111
    , 113-14 (1st Cir. 2012). The panel majority held that
    both Kolbe's interpretation and the Bank's interpretation of the
    contract    could   be   found   reasonable    by   a   trier   of   fact,   and
    therefore that the district court erred in dismissing the breach of
    contract claim.     
    Id. at 122
    .    The panel majority also held that the
    breach of good faith claim could go forward either on the theory
    that the Bank intentionally breached the contract, or that the Bank
    demanded greater insurance based on the improper motivation of
    potential profit from placement of lender-placed insurance with
    affiliated companies.       
    Id. at 123-24
    .          Judge Boudin dissented,
    arguing that the contract and federal policy plainly allowed the
    Bank to require more flood insurance and there was no independent
    claim under the implied covenant.             
    Id. at 126-29
     (Boudin, J.,
    dissenting). We granted rehearing en banc, and vacated the panel's
    decision.    Order, Kolbe v. BAC Home Loans Servicing, LP, No. 11-
    2030 (1st Cir. Nov. 1, 2012).5
    5
    This case "involves a question of exceptional importance."
    1st Cir. R. 35(a)(2). The disputed provision appears in each of
    the nearly 7.8 million FHA-insured mortgages nationwide.       Many
    class action lawsuits presenting precisely the same issue as this
    case have been filed in federal district courts throughout the
    country, producing a set of sharply conflicting district court
    opinions. Moreover, this case bears on the intersection between
    two complex statutory and regulatory schemes: the FHA mortgage
    insurance program meant to promote home ownership, and the National
    Flood Insurance Program ("NFIP") meant to facilitate flood
    insurance.
    -11-
    IV.
    To interpret Kolbe's mortgage agreement, we start with
    the legal rules applicable to the construction of this particular
    contract language.
    Contract Interpretation in Light of Context and Purpose
    In all contracts, courts must construe contract language
    in light of the purposes the language was meant to achieve, and in
    the context of the relevant commercial or regulatory schemes within
    which the contract is situated. See Simonson v. Z Cranbury Assocs.
    P'ship, 
    695 A.2d 222
    , 224 (N.J. 1997) ("[A] contract should not be
    construed literally so as to defeat the probable intention of the
    parties; rather, particular words or clauses may be qualified by
    the context and given the meaning that comports with the probable
    intention." (internal quotation marks and citation omitted));
    OneBeacon Ins. Co. v. Georgia-Pacific Corp., 
    474 F.3d 6
    , 7 (1st
    Cir. 2007) ("The issue being one of contract interpretation, we
    look to language and other common indicia (e.g., context, inferred
    purpose)."); Restatement (Second) of Contracts § 202 cmt. b ("The
    meaning of words . . . commonly depends on their context. . . .
    When the parties have adopted a writing as a final expression of
    their agreement, interpretation is directed to the meaning of that
    writing in the light of the circumstances.").       In particular,
    contract language must be interpreted in the context of applicable
    statutes and regulations.   See 5 Corbin on Contracts § 24.26, at
    -12-
    271 (rev. ed. 1998) ("Words and other symbols must always be
    interpreted in the light of the surrounding circumstances, and the
    existing   statutes    and    rules    of    law    are   always    among    these
    circumstances.").
    The typical principles of contract interpretation are
    supplemented    by    two    additional      sets    of   rules     of    contract
    construction    particularly     relevant      to    Covenant      4:    those   for
    construction of uniform clauses, and those for construction of
    contract language drafted by the United States and required by
    federal law to be in the contract.           Although these principles are
    applications of the general rule that contracts are interpreted in
    light of context, the methodology varies somewhat from that used
    when interpreting a contract with unique language negotiated by the
    two parties.6
    6
    When two parties draft a contract with language specific to
    their transaction, the relevant expectations to assess are those of
    the individual parties to the contract, but even those must be
    assessed against background and purpose.        If there is true
    ambiguity even against a background which informs the meaning of
    the language, courts will look to extrinsic evidence of the
    parties' manifest intentions and expectations to discern the
    contract's meaning.    It is the court that decides whether such
    ambiguity is present. As a corollary to this principle, when an
    individually tailored contract is ambiguous, it is inappropriate
    for a court to resolve a contract dispute on the pleadings, because
    the outcome will depend on extrinsic evidence that will surface at
    discovery or at trial. See, e.g., C.A. Acquisition Newco, LLC v.
    DHL Exp. (USA), Inc., 
    696 F.3d 109
    , 113 (1st Cir. 2012).
    -13-
    Uniform Clauses
    When a contract uses uniform language that is contained
    in a large number of contracts, as is the case here, it is a well-
    established common law principle of contract interpretation that
    such contracts are "interpreted wherever reasonable as treating
    alike       all    those    similarly    situated,    without   regard   to   their
    knowledge or understanding of the standard terms of the writing."
    Restatement (Second) of Contracts § 211(2). A variety of state and
    federal courts have acknowledged this principle.7
    Because   uniform     contracts    are   interpreted   uniformly
    across cases whenever it is reasonable to do so, extrinsic evidence
    about what a particular party intended or expected when signing the
    contract is generally irrelevant. See, e.g., Sharon Steel Corp. v.
    Chase Manhattan Bank, N.A., 
    691 F.2d 1039
    , 1048 (2d Cir. 1982)
    ("Boilerplate provisions are thus not the consequence of the
    relationship of particular borrowers and lenders and do not depend
    upon particularized intentions of the parties to an indenture.
    There are no adjudicative facts relating to the parties to the
    litigation for a jury to find and the meaning of boilerplate
    7
    See, e.g., Vedachalam v. Tata Consultancy Servs., Ltd., 
    18 Wage & Hour Cas. 2d (BNA) 1677
    , 
    2012 WL 1110004
    , at *9 (N.D. Cal.
    Apr. 2, 2012); Peoples v. Sebring Capital Corp., 
    52 Fed. R. Serv. 3d 197
    , 
    2002 WL 406979
    , at *8 (N.D. Ill. Mar. 15, 2002); Fireman's
    Fund Ins. Cos. v. Ex-Cell-O Corp., 
    702 F. Supp. 1317
    , 1326 (E.D.
    Mich. 1988); Anderson v. Douglas & Lomason Co., 
    540 N.W. 2d 277
    ,
    284-85 (Iowa 1995); Kinoshita v. Canadian Pac. Airlines, Ltd., 
    724 P.2d 110
    , 117 (Haw. 1986); Carpenter v. Suffolk Franklin Savings
    Bank, 
    346 N.E.2d 892
    , 897 (Mass. 1976).
    -14-
    provisions is, therefore, a matter of law rather than fact."); 2
    Farnsworth, Farnsworth on Contracts, § 7.11, at 304-05 (3d ed.
    2004)       ("This   rule    plainly   subordinates   the    meaning   that   an
    individual party may have attached to the contract language to the
    goal of equality of treatment for parties that are similarly
    situated.").
    The   issue    of   interpreting   form      contract   language
    frequently arises in the context of class action certification.8
    Several federal courts have certified classes for contract disputes
    over form contracts because the form contracts are interpreted
    uniformly across members of the class, and thus the outcome does
    not depend on extrinsic evidence that would be different for each
    putative class member.          See, e.g., Vedachalam v. Tata Consultancy
    Servs., Ltd., 
    18 Wage & Hour Cas. 2d (BNA) 1677
    , 
    2012 WL 1110004
    ,
    at *9 (N.D. Cal. Apr. 2, 2012) ("[I]n construing the form contract
    between Defendants and class members, the Court need not delve into
    the actual knowledge of individual class members."); Peoples v.
    Sebring Capital Corp., 
    52 Fed. R. Serv. 3d 197
    , 
    2002 WL 406979
    , at
    *8 (N.D. Ill. Mar. 15, 2002) ("The court also rejects the broader
    8
    In federal court, requirements for a class action include
    commonality of legal or factual questions, that the class
    representative's claims and defenses be typical of those of the
    class, and (for one category of class actions) that common
    questions predominate over questions affecting only individual
    members. Fed. R. Civ. P. 23(a)(2)-(3), (b)(3).
    -15-
    notion that it will generally have to examine the parties' intent
    on a transaction-by-transaction basis.").
    It is undisputed that Covenant 4 is a Uniform Covenant
    required by HUD for all FHA-insured mortgages, according to a
    regulation that went into effect after notice and comment.
    Requirements for Single Family Mortgage Instruments, 
    53 Fed. Reg. 25,434
     (July 6, 1988); see also Mortgage Requirements, 54 Fed. Reg.
    at 27,596 (final notice issued after receiving comments).              In
    essence, HUD's regulation requires that every FHA-insured mortgage
    contain a core of Uniform Covenants, while allowing the parties to
    an individual mortgage to add non-uniform covenants at the end of
    the contract.      For example, Kolbe's mortgage contains about four
    pages of Uniform Covenants and one page of non-uniform covenants.
    That Kolbe's mortgage contract contains uniform HUD
    covenants is apparent on its face.         After information about the
    address and location of Kolbe's home, the third paragraph states,
    "THIS SECURITY INSTRUMENT combines uniform covenants for national
    use     and   non-uniform   covenants    with   limited   variations   by
    jurisdiction to constitute a uniform security instrument covering
    real property."       The mortgage then reads, "UNIFORM COVENANTS.
    Borrower and Lender covenant and agree as follows." Following this
    heading are sixteen numbered covenants, including the disputed
    Covenant 4 and Covenant 7, which also has significance to this
    case.     These Uniform Covenants form the heart of the mortgage
    -16-
    contract, covering such topics as principal and interest payments,
    insurance and taxes, care of the property, grounds for acceleration
    of debt, and the liability of co-signers.
    After the Uniform Covenants, the mortgage reads, "NON-
    UNIFORM COVENANTS.     Borrower and Lender further covenant and agree
    as   follows."      The   mortgage    then    includes    five    non-uniform
    covenants.     The bottom left corner of every page of the contract
    contains the label in capital, boldface type: "NEW JERSEY FHA
    MORTGAGE."    Upon reading the mortgage, it would have been clear to
    Kolbe   or   any   reasonable   person      that   the   mortgage   contained
    nationwide Uniform Covenants, including Covenant 4.              It also would
    have been clear that this was an FHA mortgage, such that federal
    policy and regulatory pronouncements would be relevant to its
    interpretation.
    Language Drafted By The Government
    When dealing with uniform contract language imposed by
    the United States, it is the meaning of the United States that
    controls.     In interpreting such a government mandated term, a
    court's assessment of context and purpose is informed by the
    traditional tools of legislative and regulatory construction. This
    is a matter of law to be determined by a court.             When the United
    States mandates that private parties use uniform language for a
    certain type of contract, the United States is enacting a policy
    that all parties to that type of contract should be subject to
    -17-
    identical obligations.   Those obligations are the ones the United
    States intended them to be, as determined by a court, regardless of
    the personal interpretation offered by a party.9   If such contracts
    were subjected to different meanings depending merely on whether a
    particular party's interpretation was plausible, it would not only
    undermine the efficiency benefits of standardization, but it would
    also undermine the federal policy that motivated the United States
    to impose uniform contractual obligations on parties in the first
    place.   This case demonstrates the necessity of these principles.
    The disputed contract language is a Uniform Covenant required by
    9
    Moreover, any concern that uniform contract language will be
    used by a powerful party such as a bank to force undesirable terms
    on a less powerful party such as a homeowner is lessened where the
    language is imposed on both the bank and the homeowner by a third
    party, the United States.
    Under the doctrine of "contra proferentem," ambiguities in a
    contract drafted by one party will be interpreted against the
    drafting party; the "rationale behind that method of interpretation
    is that '[w]here one party chooses the term of a contract, he is
    likely to provide more carefully for the protection of his own
    interests than for those of the other party.'"         Pacifico v.
    Pacifico, 
    920 A.2d 73
    , 78 (N.J. 2007) (quoting 5 Corbin on
    Contracts § 24.27); see also Restatement (Second) of Contracts
    § 206. A corollary of this doctrine is that insurance policies are
    interpreted against the insurer and in line with the "reasonable
    expectations" of the insured, since the insurer typically drafts
    the policy. See Haber v. St. Paul Guardian Ins. Co., 
    137 F.3d 691
    ,
    697 (2d Cir. 1998); Villa v. Short, 
    947 A.2d 1217
    , 1226 (N.J.
    2008).
    When the government mandates the specific contract language,
    neither party can directly impact the language through superior
    bargaining power. Thus, "[t]he rule that language is interpreted
    against the party who chose it has no direct application to cases
    where the language is prescribed by law." Restatement (Second) of
    Contracts § 206, cmt. b; accord Lass v. Bank of Am., N.A., 
    695 F.3d 129
    , 137 (1st Cir. 2012).
    -18-
    federal law for the nearly 7.8 million FHA-insured mortgages
    nationwide;10 we therefore seek to find, to the extent reasonable,
    one uniform meaning, rather than separate meanings that might vary
    from lender to lender, or even from borrower to borrower.
    As one commentator puts it, "if the specified provision
    is expressly included in the contract in the exact terms required,
    the provision must be interpreted and given effect in accordance
    with the intention of the legislature, regardless of what the
    contracting parties may have understood it to mean."            5 Corbin on
    Contracts § 24.26, at 278.
    Numerous federal and state courts, including the Supreme
    Court, have affirmed these principles.          In Illinois Steel Co. v.
    Baltimore & Ohio Railroad Co., 
    320 U.S. 508
     (1944), the Supreme
    Court adjudicated a contract dispute involving a uniform bill of
    lading that had been imposed by the Interstate Commerce Commission.
    The Supreme Court noted that "[s]ince the clauses of the uniform
    bill of lading govern the rights of the parties to an interstate
    shipment and are prescribed by Congress and the Commission in the
    exercise of the commerce power, they have the force of federal law
    and   questions   as   to   their   meaning   arise   under   the   laws   and
    Constitution of the United States." 
    Id. at 511
    . The Supreme Court
    10
    Office of Risk Analysis and Regulatory Affairs, Federal
    Housing Administration, Monthly Report to the FHA Commissioner on
    FHA Business Activity, FHA Portfolios Summary (January 2013),
    available at http://portal.hud.gov/hudportal/documents/ huddoc?id=jan13.pdf.
    -19-
    then approached the issue as a question of regulatory construction,
    and decided the purpose and effect of the clause itself.                 See 
    id. at 513-16
    .
    Similarly, in Honeywell, Inc. v. United States, 
    661 F.2d 182
     (Ct. Cl. 1981), the Court of Claims (the predecessor to the
    Federal Circuit) construed a federal procurement regulation that
    had been incorporated into a government contract.               The court held
    that under the rules for "regulation interpretation," the agency's
    interpretation received "controlling weight"; the court rejected
    the notion that it should "construe[] [the language] in order to
    give it the effect intended by both parties."                 Id. at 186.       See
    also Saavedra v. Donovan, 
    700 F.2d 496
    , 499 (9th Cir. 1983) (noting
    that   when    a   federal    regulation       mandated   contract    terms,   the
    contractual party "had a legal duty to conform to the actual wage
    determination, not just a contractual duty to conform to plausible
    interpretations       of     contract    provisions       embodying    the     wage
    determination"); Lloyd v. Cincinnati Checker Cab Co., 
    36 N.E.2d 67
    ,
    69 (Ohio App. 1941) ("[S]uch statutory provisions [required to be
    in the contract] are read into the bond or contract 'regardless of
    the intention of the parties.'             The liability thus created is
    obviously, therefore, not a contractual liability involving a
    meeting of the minds, but a purely statutory obligation.").
    These principles have also been adopted in New Jersey.
    See above, note 6.         In Paul Revere Life Insurance Co. v. Haas, 644
    -20-
    A.2d 1098 (N.J. 1994), the Supreme Court of New Jersey interpreted
    an insurance contract with a provision required by state statute.
    The   court    rejected      an    argument     that    it    should   consider     the
    understanding        of   the      insured    in     interpreting      the    required
    provision;      rather,      the    court    stated,     "A    specific      provision
    integrated into the contract by force of a statute, as a matter of
    public policy, must be interpreted and given effect in accordance
    with the intention of the legislature, irrespective of how the
    contractors understood it."            Id. at 1106 (quoting Saffore v. Atl.
    Cas. Ins. Co., 
    121 A.2d 543
    , 548 (N.J. 1956) (quoting 3 Corbin on
    Contracts § 551, at 200-01 (1960))) (internal quotation marks
    omitted).      Although Hass dealt with a state statute, there is no
    reason the same principle would not apply with full force to a
    provision required by a federal regulation.
    This   court      therefore     must     examine   the   text    of   the
    Covenant in light of the purposes for which the United States
    imposed the language and the context of the relevant regulatory
    scheme.     This is in keeping with the basic common law principle
    that contract language should be interpreted in light of purposes
    and context, applied to the particular circumstance of uniform
    contract language imposed by the United States.
    Such an inquiry is appropriate for the motion to dismiss
    stage because interpreting regulatory text in light of government
    purposes is a matter of law that is emphatically the province of
    -21-
    judges, not juries. See Northshore Min. Co. v. Sec'y of Labor, 
    709 F.3d 706
    ,    708   (8th     Cir.    2013)       ("This      dispute   involves      the
    interpretation of MSHA regulations, a matter of law that we review
    de novo."); Marine Polymer Techs., Inc. v. HemCon, Inc., 
    672 F.3d 1350
    , 1358 (Fed. Cir. 2012) ("Statutory interpretation is a matter
    of law that we consider de novo."); cf. Marbury v. Madison, 5 U.S.
    (1 Cranch) 137, 177 (1803) ("It is emphatically the province and
    duty    of    the   judicial    department         to    say   what   the   law   is.");
    Diederich v. American News Co., 
    128 F.2d 144
    , 146 (10th Cir. 1942)
    ("The power of the judge to pass upon questions of law is just as
    much an essential part of the process of trial by jury . . . as is
    the power of the jury to pass upon questions of fact.").
    V.
    With these principles in mind, we turn to the Covenant at
    issue.       In performing our task of determining the uniform meaning
    of the Covenant as a matter of law, we first examine the text in
    light    of     its   context,        then        look   to     the   United      States'
    interpretation.         We     repeat    the       language      of   Covenant     4   for
    convenience, dividing it into its three sentences:
    4. Fire, Flood and Other Hazard Insurance.
    (1) Borrower shall insure all improvements on
    the Property, whether now in existence or
    subsequently erected, against any hazards,
    casualties, and contingencies, including fire,
    for which Lender requires insurance. (2) This
    insurance shall be maintained in the amounts
    and for the periods that Lender requires. (3)
    Borrower shall also insure all improvements on
    the Property, whether now in existence or
    -22-
    subsequently erected, against loss by floods
    to the extent required by the Secretary [of
    HUD].
    The Bank argues that in allowing the lender to require its chosen
    amount of insurance for "any hazards," the first two sentences
    clearly give the Bank the authority to choose the required amount
    of   flood   insurance.11   Kolbe    argues    that   the   only   provision
    addressing flood insurance in Covenant 4 is the third sentence, and
    thus the Bank could not require more flood insurance than the
    amount required by HUD, which (in Kolbe's case) was the principal
    loan balance.
    We agree with the contract interpretation offered by
    Judge Boudin in his panel dissent.         We adopt and incorporate Judge
    Boudin's reasoning and expand.         See Kolbe, 695 F.3d at 127-29
    (Boudin, J., dissenting).      The Bank offers the only plausible
    reading of the uniform text, against the context.            As we discuss
    later, this reading is confirmed by the intent of the United
    11
    The language of Covenant 4 grants authority to the lender;
    the Bank is the servicer of Kolbe's loan, and the identity of the
    lender is unknown.       That distinction does not matter.
    "[T]ypically, a mortgage servicer acts as the agent of the
    mortgagee to effect collection of payments on the mortgage loan."
    R.G. Fin. Corp. v. Vergara-Nuñez, 
    446 F.3d 178
    , 187 (1st Cir.
    2006). In addition, a HUD regulation states that "the actions of
    [a mortgagee's] servicer shall be considered to be the actions of
    the mortgagee." 
    24 C.F.R. § 203.502
    (a). In the absence of any
    contrary allegations in the complaint, we will presume that as
    servicer, the Bank was acting as the lender's agent with the
    lender's full authority. Indeed, if the Bank were not the lender's
    agent, the breach of contract claim against the Bank would clearly
    fail because the lender and not the Bank is a formal party to the
    contract.
    -23-
    States.   Simply put, the first two sentences allow the Bank to
    choose the amount of insurance for “any hazards,” and that includes
    flood insurance because floods are hazards. Dictionary definitions
    confirm the common understanding that floods are hazards,12 and even
    the panel majority acknowledged that "[f]loods unquestionably are
    a type of hazard, and they are thus literally within the scope of
    the first sentence."       Kolbe, 695 F.3d at 117 (majority opinion).
    Although     the    third    sentence      also   addresses    flood
    insurance, it adds an independent requirement: that the borrower
    maintain HUD's minimum level of flood insurance in addition to the
    lender's minimum.      Because both HUD's and the lender's flood
    insurance requirements are minimum requirements, they are perfectly
    consistent,    and   the   borrower    can    meet   both   requirements   by
    maintaining    flood   insurance       in    the   amount   of   the    higher
    requirement.    Contrary to Kolbe's arguments, there is no need to
    read the first two sentences to exclude floods in order to avoid
    12
    Webster's Third New International Dictionary 1041 (2002)
    (defining "hazard" as "a thing or condition that might operate
    against success or safety: a possible source of peril, danger,
    duress, or difficulty"); The American Heritage Dictionary of the
    English Language 806 (4th ed. 2000) (defining "hazard" as "a
    possible source of danger"); The Random House Dictionary of the
    English Language 878 (2d ed. unabridged 1987) (defining hazard as
    "an unavoidable danger or risk, even though often foreseeable");
    Black's Law Dictionary 786, 1253 (Bryan A Garner ed., 9th ed. 2009)
    (defining "hazard" as "[d]anger or peril; esp., a contributing
    factor to a peril," and defining peril as "Insurance. The cause of
    a risk of loss to person or property; esp., the cause of risk such
    as fire, accident, theft, forgery, earthquake, flood, or illness"
    (emphasis added)).
    -24-
    making any provision superfluous, or to resolve a conflict between
    a specific provision and a general provision under principles of
    contract interpretation.13
    The Bank's interpretation is also more consistent with
    another covenant of the contract, Covenant 7, as we explain in
    another section below.        This Covenant empowers the lender to
    purchase   insurance   to    "protect   the   value   of   the   Property,"
    suggesting that the lender's economic interests are not limited to
    the principal balance of the loan.
    Kolbe also argues that the title of Covenant 4--"Fire,
    Flood and Other Hazard Insurance"--supports his reading.               Kolbe
    argues that the title signifies that the paragraph deals separately
    with fire insurance and flood insurance.              Because the first
    sentence refers to "hazards . . . including fire," but does not
    mention    floods,   while   the   third   sentence   singles    out   flood
    insurance, Kolbe concludes that only the first sentence deals with
    13
    According to a canon of contract interpretation, a specific
    provision will sometimes control the meaning of a more general
    provision on the same subject. This is a useful rule of thumb
    where two clauses conflict, because in that circumstance it will be
    necessary to disregard one provision or the other.           See 2
    Farnsworth on Contracts § 7.11, at 297 ("If, however, two
    provisions in a contract so clearly conflict that both cannot be
    given full effect, it is assumed that the more specific the
    provision, the more likely it is to reflect the parties'
    intention."). Yet when two provisions are consistent, disregarding
    the more general provision is not necessary to resolve a conflict,
    and in fact would fail to give full effect to each provision.
    -25-
    fire insurance and only the third sentence deals with flood
    insurance.
    This argument is a non sequitur.    The first sentence
    covers "any hazards, . . . including fire" (emphasis added).      In
    the context of a sentence covering "any hazards," the listing of
    fire as an example clearly does not imply an exclusion of other
    hazards. It would be unnatural and illogical to read "any hazards,
    . . . including fire" to mean "all hazards except floods."      The
    government flood insurance requirement is mentioned separately in
    the final sentence to comply with National Flood Insurance Act
    (NFIA) and HUD legal requirements regarding flood insurance.    See
    42 U.S.C. § 4104a(a)(3); 
    24 C.F.R. § 203
    .16a(a)(2).       The title
    merely reflects that flood and fire are two kinds of hazards that
    are specifically mentioned in the Covenant.        If anything, the
    phrasing of the title supports the Bank.        By using the phrase
    "Other Hazard Insurance" after listing fire and flood, the title
    says that both fire and flood are instances of hazards, which leads
    to the conclusion that flood insurance is included in the first
    sentence.
    We conclude that the Bank's reading of the text, is the
    only plausible reading in the relevant context.14      For contract
    14
    Indeed, Kolbe's interpretation would lead to unreasonable
    results, such as preventing lenders from requiring any flood
    insurance in homes at moderate flood risk, and is contrary to
    government policy as we describe below.
    -26-
    language mandated by a federal regulation that implicates the
    federal mortgage insurance and flood insurance programs, this
    context includes the broader regulatory schemes and the federal
    policy underlying those schemes. In essence, when this covenant is
    understood in context against its purposes and federal housing
    policy, the only reasonable interpretation of this language is that
    offered by the Bank.       An examination of the context removes any
    claim of ambiguity.
    Covenant 4 traces its origins to a HUD regulation that
    bears directly on the question at hand.          The regulation is titled
    "Mortgagor     and    mortgagee    requirement    for    maintaining      flood
    insurance."      
    24 C.F.R. § 203
    .16a.      In   pertinent   part,   that
    regulation states that both the mortgagee and the mortgagor must
    "obtain and . . . maintain NFIP flood insurance coverage on the
    property improvements during such time as the mortgage is insured."
    
    Id.
     § 203.16a(a)(2).       As to the amounts, the regulation states:
    "The flood insurance must be maintained such time as the mortgage
    is insured in an amount at least equal to either the outstanding
    balance of the mortgage, less estimated land costs, or the maximum
    amount of the NFIP insurance available with respect to the property
    improvements, whichever is less."             Id. § 203.16a(c) (Emphasis
    added.).
    And there is good reason why HUD required lenders and
    borrowers to "maintain" flood insurance in "at least" certain
    -27-
    amounts, and not in "no more" than certain amounts, as Kolbe would
    have it.   As the United States said at oral argument15:
    And there are good reasons for that.       The
    first is that in a normal case [the] borrower
    defaults, the bank forecloses on the property-
    -assigns it to HUD and then walks away. And
    HUD pays them the insurance proceeds of the
    mortgage insurance. Then HUD is responsible
    for selling the property and reimburses the
    mortgage insurance fund with the proceeds of
    the sale. But of course if the house has been
    destroyed by a flood--there is nothing for HUD
    to sell. And so there is no way to reimburse
    the mortgage insurance fund and that is why
    HUD regulations have specifically provided
    since 1971, that flood damage has to be
    repaired by the lender before the property can
    be re-conveyed.
    In    its    brief,   the    United    States   also   explains   the
    unreasonable consequences that would result from Kolbe's reading.
    In   response,   Kolbe     argues      that    federal   policy   supports   his
    interpretation.        He also argues that the position of the United
    States articulated in the brief is entitled to no deference because
    (a) it is stated in an amicus brief, and (b) in his view, it is
    inconsistent with the position the United States took earlier.
    Before      addressing      the    policy   arguments,   we   provide
    background on the relevant regulatory schemes to explain the
    arguments and our conclusion.
    15
    We acknowledge that the panel did not have before it any
    explicit articulation of the position of the United States, but the
    en banc court now has this articulation.
    -28-
    Federal Flood Insurance and Housing Policy
    Two federal statutory and regulatory schemes factor into
    this case: the National Flood Insurance Act ("NFIA") and the FHA's
    mortgage insurance program.            In 1968, Congress passed the NFIA, 
    42 U.S.C. §§ 4001-4129
    , to make flood insurance available and to
    promote the use of flood insurance in areas of the country with
    flood    risk,   see    
    id.
       §   4002(b)    (declaration   of    congressional
    purpose).    Congress found that floods caused substantial economic
    and personal hardships, but that it was not economical for private
    insurance companies to provide flood insurance. Id. § 4001(a),(b).
    To remedy the situation, Congress authorized a program in which the
    United States would partner with private insurance companies to
    provide flood insurance.          Id. § 4001(b)-(d).
    Under the National Flood Insurance Program (NFIP), the
    United   States    makes      flood    insurance   available     in   states   and
    communities      that   agree     to   participate   in   the    program.      
    42 U.S.C. § 4012
    (c).       In flood-prone areas (i.e., those deemed "areas
    having special flood hazards" by FEMA) where flood insurance is
    available, the NFIA requires federally regulated lenders not to
    make mortgage loans unless the borrower obtains flood insurance at
    least up to the full principal balance of the loan (or in the
    maximum amount available, if that is less). 
    Id.
     § 4012a(b)(1). In
    addition, federal financial assistance for homes in special flood
    hazard areas is forbidden unless the home is covered by flood
    -29-
    insurance at least equal to the lesser of the loan balance or the
    maximum amount available.         Id. § 4012a(a).      Although the insurance
    is provided by private insurers to the extent possible, id. §
    4011(c), the United States supports the program by offering subsidy
    payments and reinsurance to the private insurers, id. § 4054, 4055.
    The FHA was created in 1935 as a result of the National
    Housing Act of 1934, 
    12 U.S.C. § 1701
     et seq..                 The FHA promotes
    affordable    home    ownership    by    providing    mortgage    insurance    to
    private lenders, cf. 
    id.
     § 1709; Mission/U.S. Department of Housing
    and       Urban      Development         (HUD),       http://portal.hud.gov/
    hudportal/HUD?src=/about/mission           (last     visited    May   16,   2013)
    (mission statement of HUD to "create strong, sustainable, inclusive
    communities and quality affordable homes for all").               If a borrower
    defaults on an FHA-insured mortgage, the lender can convey the
    mortgage or title to the property to HUD and collect insurance
    benefits from the United States to compensate for any losses on the
    mortgage.     See 
    12 U.S.C. § 1710
    .            However, if the property has
    suffered    damage   from   "fire,      flood,    earthquake,    hurricane,    or
    tornado," then the lender cannot collect insurance benefits from
    the United States unless it has repaired the damage or taken a
    deduction from the insurance benefits for the cost of repairing the
    damage.    
    24 C.F.R. § 203.379
     (emphasis added).           Effectively, this
    scheme allocates the risk of most defaults on FHA-insured mortgages
    -30-
    to the United States, but it allocates the risk of certain hazard
    losses (including flood losses) to the lender.
    Policy Arguments
    Given this background and context, it is not surprising
    that the United States is able to confirm that HUD has "never
    endorsed such a policy" of construing Covenant 4 as "a federal
    ceiling for flood insurance coverage rather than a floor."          The
    United States explains that Kolbe's reading conflicts with the
    overall structure of FHA mortgage insurance.           HUD's mortgage
    insurance program places the risk of flood and other hazard losses
    on the lender, see 
    24 C.F.R. § 203.379
    , and so gives the lender the
    authority to determine the amount of flood insurance necessary to
    protect its investment. As the United States describes, "[t]hat is
    the purpose of Paragraph 4: because the lender ultimately bears the
    risk of uninsured hazard losses, FHA's standard mortgage contract
    allows the lender to specify the types and amounts of all hazard
    insurance--including   flood   insurance--that   the   borrower    must
    carry."   United States Brief at 15.
    In addition, Kolbe's interpretation of Covenant 4 would
    lead to anomalous and untoward results.   Under Kolbe's reading of
    Covenant 4, the only sentence addressing flood insurance is the
    third sentence, which obligates the borrower to maintain insurance
    in the amount required by the Secretary of HUD.         But HUD only
    requires flood insurance in special flood hazard areas.           Thus,
    -31-
    under Kolbe's reading, a lender could not require a penny of flood
    insurance for homes in moderate flood risk areas.              Special flood
    hazard areas are defined as areas subject to at least a one percent
    chance of flooding in any given year, which equates to a twenty-six
    percent chance of flooding over the course of a thirty year
    mortgage.16 Homes in moderate flood risk zones, while falling short
    of   the   risk   threshold   for   a    special   flood   hazard   area,   may
    nonetheless face significant flood risk.              In fact, over twenty
    percent of NFIP flood-insurance claims and about one third of
    federal disaster relief payments for flooding are related to
    properties outside of special flood hazard areas.             National Flood
    Insurance     Program,    Flood     Facts,       http://www.floodsmart.gov/
    floodsmart/pages/flood_facts.jsp.              There would be no reason to
    forbid the lender from requiring any flood insurance on such homes,
    yet allow the lender to require as much insurance as it wishes for
    other hazards that are extremely unlikely to occur, such as
    earthquakes or tornados in certain parts of the country.              Such an
    irrational policy objective could not plausibly be attributed to
    HUD, and the United States' brief confirms that HUD did not intend
    such a result.
    The result urged by Kolbe would seriously impair federal
    housing policy as articulated by the United States.                   Kolbe's
    16
    See 
    44 C.F.R. § 59.1
    ; National Flood Insurance Program, What
    is a Special Flood Hazard Area (SFHA)?, http://www.floodsmart.gov/
    floodsmart/pages/faqs/what-is-a-special-flood-hazard-area.jsp.
    -32-
    interpretation would prevent lenders in some cases from requiring
    adequate     flood     insurance,       particularly       for     homeowners     with
    mortgages above $250,000 (the maximum federal requirement) or homes
    outside of special flood hazard areas, where the United States does
    not require any flood insurance.                United States Brief at 21-22.
    Kolbe's interpretation would not only frustrate HUD policy, but it
    "is impossible to reconcile with Congress's objective in the
    [NFIA], which was not to prohibit the use of flood insurance in
    federally insured housing but to encourage it."                    
    Id. at 24
    .       The
    United States finds it foreseeable that lenders would react to
    Kolbe's interpretation by "declin[ing] to offer FHA-insured loans
    in   areas    facing     even    marginal        flood    risks,      or   charg[ing]
    substantially    greater        interest    rates        for   such    loans,"    thus
    hindering affordable home ownership.               
    Id. at 24
    .
    Kolbe and supporting amici posit that federal housing
    policy   could   support        their   contract     reading.          These     policy
    arguments revolve around the fact that a primary purpose of HUD and
    the FHA is to promote affordable home ownership.                      Because flood
    insurance can be expensive, a provision limiting the lender's
    ability to require flood insurance could reduce one component of
    the initial cost of home ownership for FHA borrowers.
    This argument that the policy of lowering housing costs
    supports Kolbe's interpretation is anchored in speculation rather
    than the record of the Covenant's actual context and purpose.
    -33-
    Moreover,       its   economic   assumptions    do    not    bear    scrutiny.
    Restricting the amount of flood insurance only reduces the buyer's
    monthly payment if the lender, so restricted, fails to factor the
    increased risk into the interest rate charged.              Kolbe also ignores
    the fact that the purchase of flood insurance results in either an
    increase in home ownership costs (in the event of no flood) or a
    decrease in home ownership costs (in the event of a flood).                    And
    Kolbe offers no evidence that the FHA somehow considered the risk-
    adjusted balance of the effects on costs to be detrimental to
    consumers.       In short, the notion that the FHA wanted to make sure
    that consumers could under-insure for flood loss is complete and
    improbable speculation.17        And this interpretation by the United
    States was provided before Kolbe entered into his mortgage with
    Taylor Bean, as discussed below.
    Kolbe further dismisses the United States' brief as a
    "newly minted interpretation [that] is flatly inconsistent" with
    past    HUD     practice.    This   is    simply     not    so.     Earlier    HUD
    pronouncements support the United States' present assertions and
    the    Bank's    interpretation,    and   are   inconsistent        with   Kolbe's
    interpretation.
    Kolbe's inconsistency argument is largely based on HUD
    handbooks and guidance documents that list "flood insurance" and
    17
    The Covenant would also be a poor way even to lower up front
    housing costs, as it would provide much more benefit for those able
    to afford the most expensive homes.
    -34-
    "hazard insurance" as separate categories.18          Kolbe argues that
    these documents show that HUD has long treated hazard insurance and
    flood insurance separately, reflecting a broader industry practice
    of excluding flood coverage from hazard insurance policies.
    Because HUD and industry practice treat hazard insurance and flood
    insurance as separate categories, Kolbe asserts that the mention of
    hazards in the first sentence should be read to exclude floods.
    The panel majority found this separation to be significant. It is,
    but the difference reinforces the Bank's reading.
    Kolbe's argument confuses the question at issue.         The
    question is not whether the category of "hazard insurance" includes
    "flood insurance"; the question is whether floods are hazards, and
    thus whether a reference in Covenant 4 to "any hazards" includes
    floods.    On this question, both HUD practice and the pattern of
    industry    usage   favor    the   Bank   and   the    United   States'
    interpretation, not Kolbe's.
    We explain why.   In the middle of the twentieth century,
    insurance companies began issuing comprehensive hazard insurance
    18
    A HUD handbook on insured mortgages lists "hazard insurance"
    and "flood insurance premiums" as separate items that must be paid
    into an escrow account. See HUD Handbook 4330.1, ch.2, § 2-1(D),
    available     at     http://portal.hud.gov/hudportal/HUD?src=/
    program_offices/administration/hudclips/handbooks/hsgh/4330.1. A
    HUD guidebook on settlement costs separately lists "Hazard
    Insurance Premium" and "Flood Insurance" as separate settlement
    costs. See "Buying Your Home" (June 1997), Section III, available
    at     http://portal.hud.gov/hudportal/documents/huddoc?id
    =DOC12893.pdf.
    -35-
    policies that covered against a wide variety of risks. Crusto, The
    Katrina Fund: Repairing Breaches in Gulf Coast Insurance Levees, 
    43 Harv. J. on Legis. 329
    , 334 (2006).       These comprehensive hazard
    insurance policies consist of "named peril" policies that only
    cover an enumerated list of hazards, and "all-risk" policies that
    cover all physical hazards except those specifically excluded.
    Thomas & Randall, New Appleman on Insurance Law § 41.02[1][a], at
    41-15 (library ed. 2011).19   More recently, all-risk policies have
    eclipsed named peril policies as the most common form of homeowners
    insurance.    Id. § 42.02[1], at 42-60.   Yet virtually all standard
    hazard insurance policies, including all-risk policies, contain a
    specific "flood exclusion" provision that excludes flooding and
    water damage from coverage.    Id. § 43.02[3][a], at 43-14.
    The fact that HUD documents list "flood insurance" and
    "hazard insurance" as separate categories reflects the reality that
    homeowners who want flood insurance will need to purchase it
    separately from an all-risk hazard insurance policy.     It does not
    support an inference that HUD is stating that floods are not
    hazards; rather, it is stating the opposite.    The reason that such
    an express flood exclusion is necessary in a hazard insurance
    19
    In insurance industry parlance, the terms "hazard," "peril,"
    and "risk" are often used interchangeably.        See Black's Law
    Dictionary 786, 1442 (Bryan A Garner ed., 9th ed. 2009) (defining
    "hazard" as "Danger or peril" and defining "risk" as "Insurance.
    The type of loss covered by a policy; a hazard from a specified
    source").
    -36-
    policy covering all risks is because flooding is considered a risk
    (or alternatively, a hazard), and thus would be covered by the
    hazard insurance policy absent such an exclusion.
    HUD   regulations   and   the   NFIA   confirm   the   industry
    understanding that floods are hazards.      For example, HUD requires
    flood insurance on FHA-insured mortgages in "area[s] having special
    flood hazards."    
    24 C.F.R. § 203
    .16a(b); see also 42 U.S.C. §
    4012a(a) (mandating that federally regulated lenders require flood
    insurance on homes in "area[s] having special flood hazards").
    Other HUD pronouncements, including a different part of
    the 1994 HUD Handbook cited by Kolbe, also support the United
    States' interpretation but contradict Kolbe's interpretation.         As
    we have noted, under Kolbe's interpretation, a lender cannot
    require any more flood insurance than what HUD requires, which
    would mean zero flood insurance outside of special flood hazard
    areas.   Yet HUD has been quite clear on multiple occasions that
    lenders can require flood insurance outside of special flood hazard
    areas.
    For example, in a 1990 letter to mortgagees of FHA-
    insured loans, the FHA Commissioner wrote, "[l]enders are free to
    consider requiring flood insurance in participating communities on
    the basis of their own business judgement, even if the building
    that is the security for a loan is located outside of an SFHA
    [special flood hazard area]."       Mortgage Letter 90-16, 1990 WL
    -37-
    10022448, at *2.      A handbook issued by HUD in 1994 states, "In
    areas designated B and C (with suffixes) [on FEMA maps], [flood]
    insurance is available but not required by HUD (although mortgagees
    may require it under the same terms and conditions as those that
    apply to other dwelling insurance)."              HUD Handbook 4330.1, 2-
    11(E)(2) (emphasis added).
    Quite   significantly,   FEMA    recommended    in    its   2007
    guidelines that lenders do precisely what the Bank did: require
    homeowners in special flood hazard areas to maintain replacement
    cost flood insurance.       See FEMA, National Flood Insurance Program:
    Mandatory Purchase of Flood Insurance Guidelines 27 (2007).20              We
    will not read HUD regulations as preventing lenders from following
    FEMA    flood   insurance    guidelines    with   respect   to   FHA-insured
    mortgages.      See Mortgage Letter 90-16, 
    1990 WL 10022448
    , at *1
    ("[W]e want to bring HUD policy in conformance with that of
    FEMA.").
    Kolbe raised another example of purported inconsistency
    at oral argument.      Kolbe notes that the 1994 HUD Handbook states
    that a lender "may not insist on more [insurance] coverage than is
    20
    The 2007 guidelines were in effect at the time that Kolbe
    entered into his mortgage and at the time the Bank required the
    additional flood insurance. The United States has notified this
    court in a letter that FEMA has rescinded the 2007 guidelines as
    outdated, but that "it remains the policy of FEMA that . . .
    prudent mortgage lenders may often wish to require borrowers to
    carry more than the minimum amount of flood insurance coverage
    required by federal law . . . ."
    -38-
    necessary to protect its investment."              HUD Handbook 4330.1, 2-
    11(B).      He argues that only insurance in the amount of the
    principal    loan    balance   is     necessary   to   protect   the    lender's
    investment; thus, this handbook limited the lender's discretion and
    thereby conflicts with the conclusion of the United States' brief.
    Kolbe's argument fails for several reasons, including
    that its factual premise is untrue.           First, his argument conflicts
    with Covenant 7 of the mortgage contract. Covenant 7 is the force-
    pay provision that not only allows the lender to protect itself
    when the borrower fails to comply with his obligations, including
    those under Covenant 4, but also allows the lender to charge the
    borrower    for     the   resulting    cost   incurred    by   virtue    of   the
    borrower's breach.        It provides that "[i]f Borrower . . . fails to
    perform any . . . covenants and agreements contained in this
    Security Instrument, . . . then Lender may do and pay whatever is
    necessary to protect value of the Property and Lender's rights in
    the Property, including payment of taxes, hazard insurance . . . .
    Any amounts disbursed by Lender under this paragraph shall become
    an additional debt of Borrower . . . ."                The two covenants must
    therefore be read together in a manner that aligns duty, breach,
    and remedy.       That alignment appears perfectly and plainly if
    Covenant 4 is read, as we read it, to allow the lender to require
    the borrower to procure flood insurance up to an amount necessary
    to protect the value of the property.             Conversely, under Kolbe's
    -39-
    view, the Covenant 4 duty is only to buy flood insurance in amounts
    that will often be far less than that necessary to protect the
    value of the property, but the remedy for a breach of that duty,
    under the plain language of Covenant 7, is that the borrower may be
    required to reimburse the lender for the cost of flood insurance
    for the full amount necessary to protect the value of the property.
    Second, FEMA's guidelines confirm the fact, described by
    the United States in its amicus brief, that the lender has an
    economic interest in the borrower maintaining replacement cost
    flood insurance.    Finally, it is a matter of common sense that a
    lender has an interest not only in the principal balance of the
    loan but in maintaining a performing loan that will provide a
    stream of interest payments; if the borrower has enough insurance
    to rebuild his home in the event of a flood, it is more likely that
    the borrower will remain current on the loan and continue to make
    payments.
    We again explain why three strands of reasoning support
    our   conclusion.      Using   the   ordinary   tools   of   contract
    interpretation, we view the text of Covenant 4 in the context of
    federal housing policy.     This examination convinces us that the
    Bank's interpretation is correct.      Because this covenant is a
    uniform clause, we determine its uniform meaning as a matter of
    law, and do not allow Kolbe to vary from that meaning on the basis
    of extrinsic evidence unique to his transaction.    This leads into
    -40-
    the third strand: the fact that this language was drafted and
    imposed by the United States in a regulation.          On this record, we
    think the Covenant's purpose is plain.
    We have no doubts about the meaning of Covenant 4 under
    any of the three tests, but if we did, we would resolve those
    doubts    by    deferring    to     the      United   States'    reasonable
    interpretation.     See Auer v. Robbins, 
    519 U.S. 452
    , 461 (1997).
    Under the doctrine of "Auer deference," we accept an agency's
    interpretation of its own regulation "unless 'plainly erroneous or
    inconsistent with the regulation.'"            
    Id.
     (quoting Robertson v.
    Methow Valley Citizens Council, 
    490 U.S. 332
    , 359 (1989)).21
    Although Covenant 4 appears in a contract between private
    parties, it derives from a duly enacted HUD regulation, in which
    HUD promulgated the language and mandated that private parties
    include   the    language   in    mortgage    contracts   for   FHA-insured
    mortgages.     See Mortgage Requirements, 54 Fed. Reg. at 27,603-07.
    Auer deference applies here just as it does to any other agency
    interpretation of a regulation. Indeed, multiple courts of appeals
    21
    Although the Supreme Court commonly refers to this doctrine
    as "Auer deference," see, e.g., Decker v. Nw. Envtl. Def. Ctr., 
    133 S. Ct. 1326
    , 1337 (2013), the doctrine actually originated decades
    earlier in Bowles v. Seminole Rock & Sand Co., 
    325 U.S. 410
    , 414
    (1945)   ("[T]he   ultimate   criterion   is   the   administrative
    interpretation [of the regulation], which becomes of controlling
    weight unless it is plainly erroneous or inconsistent with the
    regulation."). We follow the Supreme Court's lead in referring to
    Auer deference, but we note that the doctrine has a much longer
    pedigree, and many of the decisions applying it were issued well
    before Auer.
    -41-
    have accorded deference to agency interpretations of contract terms
    that were promulgated and mandated by a federal regulation.
    See   Saavedra     v.   Donovan,    
    700 F.2d 496
    ,   499     (9th   Cir.    1983)
    (according "deference to an agency's reasonable and conforming
    interpretation of its own regulation"); Honeywell Inc. v. United
    States,    
    661 F.2d 182
    ,    185    (Ct.     Cl.   1981)     ("[I]n   construing
    administrative      regulations,          the     ultimate        criterion   is    the
    administrative interpretation, which becomes of controlling weight
    unless it is plainly erroneous or inconsistent with the regulation.
    . . . The fact that a regulation may be incorporated into a
    contract    does    not    require       a   different       rule    for   regulation
    interpretation.").22
    Applying Auer deference, it is a simple matter to uphold
    the United States' interpretation of Covenant 4, which accords with
    the Bank's interpretation.              Far from being "plainly erroneous or
    inconsistent       with     the      regulation,"           the     United    States'
    interpretation is consistent with the most natural reading of the
    regulation's     text.       Further,        it   is    supported     by   persuasive
    articulations of federal policy as discussed earlier and contained
    in the United States' brief.
    Kolbe insists that Auer                 deference is inappropriate,
    citing to Christopher v. SmithKline Beecham Corp., 
    132 S. Ct. 2156
    22
    In our case, moreover, the United States is not a party to
    the litigation, hence one possible reason for hesitating to defer
    to its position is absent.
    -42-
    (2012), a case in which the Supreme Court rejected and refused to
    extend     Auer    deference          to    a     United       States    brief     that    was
    inconsistent with past agency practice and the governing statute.
    The agency in Christopher submitted a brief declaring an industry
    practice       illegal,     but    the          Court    noted   that     this     brief   was
    inconsistent       with     decades         of    declining      to     bring    enforcement
    actions, which created a justified expectation that the practice
    did not violate the relevant regulations.                        See 
    id. at 2167-68
    .
    This case is distinguishable from Christopher.                           Nothing
    in     HUD's    past     practice          is     inconsistent        with   the       position
    articulated in its brief. To the contrary, HUD has declared in the
    past     that     lenders       can    require           flood    insurance       above     HUD
    requirements outside of special flood hazard areas, which supports
    the    position     in    its     brief         but     is   inconsistent       with   Kolbe's
    position.        Christopher provides no support for rejecting Auer
    deference in this case.
    We stress that Auer deference is not necessary to our
    conclusion.       Even if Kolbe were correct that Christopher governs
    this case, he would still lose.                       In Christopher, while rejecting
    Auer deference, the Court granted the agency a lesser measure of
    deference derived from Skidmore v. Swift & Co., 
    323 U.S. 134
    , 140
    (1944): "deference proportional to the 'thoroughness evident in
    [the agency's] consideration, the validity of its reasoning, its
    consistency with earlier and later pronouncements, and all those
    -43-
    factors which give it power to persuade.'" Christopher, 
    132 S. Ct. at 2169
     (quoting United States v. Mead Corp., 
    533 U.S. 218
    , 228
    (2001)).   Here,   the   United   States'   brief   contained    thorough
    consideration and valid reasoning, was consistent with other HUD
    pronouncements, and was persuasive of its own force.        The lesser
    Skidmore deference easily would have sufficed to sustain its
    interpretation.    Indeed, we would agree with the United States'
    interpretation even if we gave it no deference at all.          Kolbe has
    failed to state a claim for breach of contract.23
    23
    Kolbe has briefly articulated two other theories for breach
    of contract. First, Kolbe argues that the contract did not allow
    the lender to increase the amount of required flood insurance
    during the pendency of the loan. This contention is belied by the
    language of the contract, which requires the borrower to maintain
    insurance "in the amounts and for the periods that Lender
    requires," implying that the lender can require different amounts
    of insurance in different periods.
    Second, Kolbe argues that because Taylor Bean only required
    the principal balance amount of flood insurance, its conduct
    suggests that it believed it could not require additional flood
    insurance. This argument is off base. This uniform contract has
    a uniform meaning that does not depend on the intent of the
    specific parties. But even if it did, Taylor Bean's decision not
    to require more insurance more likely reflects a business judgment
    that more insurance was not economically necessary, rather than a
    legal judgment that it could not require more insurance. Moreover,
    the United States has explained that the purpose of Covenant 4 is
    to allow individual lenders to make business judgments about how
    much flood insurance to require. United States Brief at 2. That
    is precisely what happened here, with Taylor Bean requiring the
    amount of the principal balance and the Bank requiring replacement
    cost value.
    -44-
    VI.
    The claim for breach of the covenant of good faith and
    fair dealing also fails.           In every contract, there exists an
    implied covenant of good faith and fair dealing.             Kalogeras v. 239
    Broad Ave., L.L.C., 
    997 A.2d 943
    , 953 (N.J. 2010).                   Under this
    covenant, "neither party shall do anything which will have the
    effect of destroying or injuring the right of the other party to
    receive the fruits of the contract."                 
    Id.
     (quoting Palisades
    Props., Inc. v. Brunetti, 
    207 A.2d 522
    , 531 (N.J. 1965)) (internal
    quotation marks omitted).        In addition, where a contract grants a
    party    discretion,    the     party     must    exercise   that    discretion
    reasonably.      Wilson v. Amerada Hess Corp., 
    773 A.2d 1121
    , 1130
    (N.J. 2001).     Kolbe's complaint contains only a single allegation
    that    the   Bank   breached    the    implied    covenant:   "By    requiring
    Plaintiff and the Class to maintain and pay for flood insurance
    coverage in excess of the coverage required by their mortgage
    agreements, Defendants acted in bad faith and breached the implied
    covenant of good faith and fair dealing contained in the mortgage
    agreements."      This allegation is wholly dependent on the premise
    that the Bank breached the contract, and it therefore fails with
    the failure of the breach of contract claim.
    By failing to allege it in his complaint, Kolbe has
    waived any other claim regarding the covenant of good faith.               Even
    if we were to assume in Kolbe's favor that he preserved this
    -45-
    argument, raised for the first time on appeal, that "the only
    reason    Defendants   demanded   additional   flood   insurance   was   an
    improper effort to self-deal . . . collecting for itself or its
    affiliates insurance brokerage commissions and excessive premiums,"
    it fails.      Kolbe's self-dealing claim fails the standard of
    plausibility necessary to survive a motion to dismiss. Ashcroft v.
    Iqbal, 
    556 U.S. 662
    , 678 (2009).          Kolbe's allegations do not
    support a plausible inference that he personally has suffered any
    injury or that the Bank has abused him.
    The Bank sent Kolbe a letter in which it urged him to
    purchase his own insurance.24       This letter gave Kolbe about six
    weeks notice to purchase his own insurance. It warned Kolbe of the
    potential negative consequences of lender-placed insurance, stating
    that the insurance "may be more expensive and will likely provide
    less coverage than was previously in effect or that you can obtain
    on your own," as well as mentioning the potential commissions. The
    letter implored him to purchase his own insurance: "We encourage
    you to act now and obtain flood insurance in the necessary amounts
    to avoid incurring the cost of our buying Lender-Placed Insurance."
    The Bank followed up a month later with a second letter, again
    24
    The letter told Kolbe that the Bank had recently discovered
    the flood insurance coverage was not adequate, and the additional
    coverage required was $46,000. If Kolbe did not agree that the
    property was in a special flood hazard area, as the mortgage
    documents reflected, Kolbe was to notify the Bank. Kolbe did not
    and has not ever disputed that his property is in a special flood
    hazard area.
    -46-
    notifying Kolbe of the insurance requirement and stating that he
    could     avoid    lender-placed       insurance     by   purchasing      his   own
    insurance.25      The Bank's disclosure and warning hardly support a
    claim of abusive self-dealing.
    Of   course,    Kolbe     did     purchase   his    own   insurance,
    presumably at a fair market rate. The Bank did not force-place any
    insurance, and thus did not collect any commissions or premiums
    from Kolbe.       Kolbe did not suffer any harm; the only "injury" he
    claims to have suffered is from the cost of obtaining his own
    insurance.     But, as we have said, the requirement that he do so was
    legal, and so there was no injury.                He may not raise a claim,
    apparently on behalf of others, that affiliates of the Bank
    collected and profited from commissions or premiums on lender-
    placed    insurance.        Further,    even    as   to   that   issue,    Kolbe's
    complaint makes no allegation that plausibly suggests that his
    lender required he obtain additional flood insurance beyond an
    amount necessary to protect the lender's legitimate interests, or
    that it required him to purchase anything at all from the lender or
    anyone associated with the lender.                To the contrary, the very
    letters to which Kolbe points in his complaint make clear that, in
    requiring the additional coverage, the lender urged Kolbe–twice–to
    25
    Kolbe appended only the first page of the letter to his
    complaint, and the full letter does not appear in the district
    court or appellate record. It is unclear whether the later pages
    of the letter also include the same warnings about the negative
    aspects of lender-placed insurance that are in the first letter.
    -47-
    obtain the insurance on his own from someone other than the lender.
    In short, taking Kolbe's allegations on their face, they fail to
    make out any claim for a breach of the lender's contractual
    commitments, express or implied.
    Kolbe and supporting amici have attempted to turn this
    case into a broader hearing on alleged abuses in the practice of
    lender-placed insurance.26   That is a separate problem, and one
    independent of the clause we have construed.
    Accepting Kolbe's allegations as true, he ended up with
    more insurance than he would have chosen to purchase on his own,
    but he unquestionably received value for the additional cost:
    sufficient insurance to rebuild his home in the event of a flood.
    We take judicial notice that the Atlantic Coast suffered a major
    flood last fall from Hurricane Sandy; the damage was so significant
    that Congress appropriated $9.7 billion to replenish the NFIP's
    insurance fund, and an additional $51 billion to aid storm victims.
    Final Passage by Congress to $51 Billion in Storm Aid, N.Y. Times,
    Jan. 29, 2013, at A21; Congress Approves $9.7 Billion in Insurance
    Aid for Hurricane Victims, N.Y. Times, Jan. 5, 2013, at A14.
    Kolbe's hometown of Atlantic City sustained significant damage.
    Empty of Gamblers and Full of Water, Atlantic City Reels, N.Y.
    26
    Kolbe and supporting amici have argued at various points
    during the appeal that lender-placed insurance involves frequent
    abuse by banks that place insurance policies at excessive prices
    and then split the profits with insurers. That is not the case
    that Kolbe has pled or could plead.
    -48-
    Times, Oct. 30, 2012, at A1.      This event served as a sad reminder
    of the value of replacement cost flood insurance for homeowners,
    particularly in flood-prone areas.        Further, the Bank did not act
    unreasonably in requiring this insurance.          The Bank was following
    FEMA's guidance, and as discussed above, the increased insurance
    protected the Bank's reasonable and legitimate economic interests.
    Kolbe's complaint fails to state a claim for relief, and
    the district court correctly granted the motion to dismiss.
    VII.
    This opinion does not attempt to respond to the opposing
    opinion   written   by   Judge   Lipez    for   himself   and   two   of   our
    colleagues. Rather, the opinion of Judge Kayatta does respond, and
    I join him.
    -49-
    LIPEZ, Circuit Judge, with whom TORRUELLA, Circuit Judge,
    and THOMPSON, Circuit Judge, join.         Appellant Stanley Kolbe claims
    that he and his mortgage lender agreed in 2008 that his obligation
    to buy flood insurance was capped at the amount of his outstanding
    principal balance, consistent with their common understanding of a
    uniform covenant included in all mortgages insured by the Federal
    Housing Administration ("FHA").         Five years later, in an amicus
    brief submitted to the en banc court in this case, the federal
    government announced for the first time that the covenant at issue
    must be read to give lenders the discretion to increase the flood
    insurance requirement at any time.           Our colleagues conclude that
    the government's interpretation retroactively nullifies the bargain
    allegedly   struck   by   Kolbe   and   his   lender,   even    though   that
    agreement rested on a reasonable construction of the provision and,
    importantly, is consistent with federal law.
    Our   colleagues'     judgment     constitutes     extraordinary
    intervention into the contractual dealings of two private parties.
    In effect, they conclude that a federal agency, through court
    intervention, may rewrite an agreement even though the agency is
    not a party to the deal, and has no role in its enforcement, simply
    because a different agreement would better serve the government's
    newly clarified priorities.       There is no justification for such a
    wholesale abandonment of common law contract principles by our
    colleagues. Regrettably, the even division of views on the en banc
    -50-
    court means that the decision of the district court dismissing
    Kolbe's breach of contract and good faith and fair dealing claims
    against Bank of America will be reinstated.
    At bottom, this is a straightforward motion-to-dismiss
    case.    Kolbe asserts that he and his original lender, Taylor, Bean
    & Whitaker Mortgage Corp. ("Taylor Bean"), agreed that Kolbe was
    required to maintain only the statutory minimum amount of flood
    insurance on his property throughout the duration of his mortgage.
    Taking   that     factual   assertion    as   true,   as   we   must,   Bank   of
    America's demand that Kolbe increase his flood coverage provides
    the basis for a plausible claim that the Bank committed a breach of
    contract. Kolbe likewise alleges facts that would permit a jury to
    find that the Bank made its demand to serve its own financial
    interests, in violation of the implied covenant of good faith and
    fair dealing. Whatever the ultimate resolution of his contentions,
    Kolbe has done enough to defeat the Bank's motion to dismiss and,
    hence, is entitled to move forward with his case, including
    discovery.
    As we shall explain, denying him that opportunity is
    indefensible.
    I.
    We   will   not   here   reprise   the    textual     analysis    of
    Paragraph 4 of Kolbe's mortgage that appears in the majority panel
    opinion previously vacated by the en banc court.                See App'x.     The
    -51-
    discussion there makes plain that the provision is ambiguous, and
    its lack of clarity is underscored by the lack of consensus in the
    decisions of other courts.               Compare, e.g., Morris v. Wells Fargo
    Bank N.A., No. 2:11-cv-00474, 
    2012 WL 3929805
    , at *7-8 (W.D. Pa.
    Sept. 7, 2012) (denying motion to dismiss breach of contract claim
    involving same language) (stating that, "[a]t the very least,
    plaintiff's interpretation is tenable"), and Wulf v. Bank of Am.,
    
    798 F. Supp. 2d 586
    , 588 (E.D. Pa. 2011) (same), with, e.g.,
    McKenzie v. Wells Fargo Home Mortg., Inc., No. 3:11-cv-04965-JCS,
    
    2012 WL 5372120
    , at **13-15 (N.D. Cal. Oct. 30, 2012) (adopting
    reasoning of Kolbe panel dissent). Our colleagues, who acknowledge
    the "set of sharply conflicting district court opinions" on this
    issue        across   the   country,27    nonetheless   reject   the   notion   of
    ambiguity and assert that appellee Bank of America offers "the only
    plausible reading in the relevant context."
    27
    Indeed, at the en banc oral argument, one of our opposing
    colleagues explicitly acknowledged the poor drafting after another
    member of the court made the following observations:
    It seems self-evident that this was a lousy job of
    drafting by somebody. You have this court divided, you
    have courts around the country divided on this. . . .
    There are five ways in which this provision could have
    been written to completely avoid this controversy. . . .
    It seems preposterous to suggest this is plain language.
    Government counsel shortly thereafter came to the podium and was
    told by our colleague:
    [W]e don't need to repeat [the above] characterization of
    the drafting job on this, but you might want to convey
    that sentiment when you return to Washington.
    -52-
    The problem is that this conclusion of non-ambiguity is
    procured by means of hindsight,28 with substantial weight given to
    the government's newly announced view and the policies offered to
    justify it.   We do not minimize the importance of the government's
    interpretation of Paragraph 4.   We acknowledge that the additional
    context revealed in the government's amicus brief sheds helpful
    light on the meaning that was intended when the covenant was
    crafted by the Department of Housing and Urban Development in the
    1980s.    Our disagreement is not with our colleagues' lengthy
    exegesis on the nature of contract construction as applied to
    uniform clauses and language drafted by the United States. Rather,
    those principles are inapplicable to the specific issue before us.29
    Our colleagues insist that what the government says with
    clarity in 2013 overrides the meaning that Kolbe and his lender
    ascribed to Paragraph 4 five years earlier.    Yet the government's
    28
    We repeat the panel majority's reminder that this appeal
    concerns the grant of a motion to dismiss. Vacating that ruling
    would not deny the Bank the opportunity to develop a record in
    support of its position and, if appropriate, to seek summary
    judgment. Kolbe, however, is entitled to an equivalent opportunity
    to prove his case.
    29
    To the extent the panel majority suggested that the
    construction of Paragraph 4, a uniform covenant promulgated for all
    FHA-insured mortgages, is generally a question of fact to be
    decided by a jury, we disclaim that view. As we shall explain, the
    question for a factfinder in this case is the nature of the
    agreement reached by the two contracting parties, i.e., did they
    agree that the flood insurance requirement would remain at the
    statutorily required minimum (in this instance, the amount of the
    outstanding principal balance) for the duration of the mortgage?
    -53-
    effort now to dispel the confusion generated by its poorly drafted
    language cannot erase the ambiguity that confronted Kolbe and his
    lender when they signed their mortgage agreement.            As the panel
    majority explained, the textual signals in Paragraph 4 point in
    both directions, and there is nothing implausible about a federal
    agency charged with promoting home ownership choosing to adopt
    Congress's benchmark for flood insurance coverage as a way to
    balance   affordability   and   risk   avoidance.30    The   government's
    clarification   does   not   magically   eliminate    the   mixed   message
    communicated by the language and structure of Paragraph 4.              It
    therefore does not change the fact that Kolbe and his lender could
    have agreed that the phrase requiring flood insurance "to the
    extent required by the Secretary" fixed Kolbe's obligation at the
    statutory minimum for the duration of the loan.31
    30
    The same balance could plausibly explain Congress's decision
    to impose the minimum flood insurance requirement only for homes in
    areas at high risk for flooding ("special flood hazard areas") and
    not for those facing only a moderate, lesser, risk.
    31
    Our colleagues suggest that Kolbe's construction of
    Paragraph 4 cannot be correct because, inter alia, it conflicts
    with the language of Covenant 7, another standard HUD paragraph.
    Covenant 7 allows the lender to "do and pay whatever is necessary
    to protect the value of the Property," including payment of taxes
    and hazard insurance, and the lender is authorized to charge the
    borrower for any disbursements made for such purposes.          The
    proffered inconsistency is that the lender is authorized by
    Covenant 7 to protect the property's "value" and not only "the
    Lender's rights in the Property" -- arguably suggesting that the
    lender has an interest in flood insurance beyond the amount of the
    outstanding principal balance.
    Covenant 7, however, does not undermine Kolbe's interpretation
    of the flood insurance requirement.      The need to protect the
    -54-
    Hence,   the   pivotal    issue   --   the   one   that    sharply
    separates our view from that of our colleagues -- is not whether
    the text of Paragraph 4 is ambiguous, but whether the government's
    belated clarification should be decisive in this case.                   Our
    colleagues answer that question in the affirmative.                 In other
    words, even if they conceded the covenant's ambiguity, they would
    still refuse to allow Kolbe's lawsuit to proceed.            They maintain
    that the government's newly offered construction of Paragraph 4 not
    only governs mortgage agreements entered into subsequent to the
    pronouncement, see Auer v. Robbins, 
    519 U.S. 452
    , 457-58 (1997)
    (holding that agency's interpretation of its own regulations is
    owed deference), but also operates retroactively to supersede the
    shared understanding of private parties who previously entered into
    mortgages containing the flawed language.        Accordingly, ambiguity
    aside, they conclude that the district court properly dismissed
    Kolbe's complaint alleging that Bank of America, the successor-in-
    interest to Taylor Bean, improperly forced Kolbe to purchase
    additional flood insurance.
    "value" of the property would be triggered whether the borrower
    failed to secure flood insurance at the statutory minimum or in
    some greater amount.    Covenant 7's purpose is to authorize the
    lender to act if the borrower defaults, i.e., if the borrower
    "fails to perform any . . . covenants and agreements contained in
    [the] Security Instrument."    The scope of the authority to act
    depends on the nature of the default.     The critical issue thus
    remains the amount of flood insurance the lender may require under
    Paragraph 4.
    -55-
    Our   colleagues    identify       three    separate   strands   of
    reasoning to support their conclusion, all of which essentially
    reduce to the same proposition: the government's explanation of
    uniform contract terms that it promulgated trumps any other shared
    understanding     of   those   terms    by    private   contracting   parties.
    Whatever the force of that principle in other circumstances, we
    strongly disagree that the government may reach back in time to
    override lawful agreements between two private parties who shared
    the same understanding of their mutual commitment. Cf. Christopher
    v. SmithKline Beecham Corp., 
    132 S. Ct. 2156
    , 2168 (2012) ("It is
    one thing to expect regulated parties to conform their conduct to
    an agency's interpretations once the agency announces them; it is
    quite another to require regulated parties to divine the agency's
    interpretations in advance . . . .").            Federal law does not demand
    such a result, and our responsibility to respect private contracts
    should preclude such a substantial departure from legal norms.
    II.
    Even under the Bank's and government's view of Paragraph
    4, lenders may exercise their discretion to do what Kolbe maintains
    that Taylor Bean did here: issue a HUD-insured home loan contingent
    on   the   borrower's   maintaining      flood    insurance   throughout     the
    mortgage period in an amount equal to the loan's outstanding
    principal balance, i.e., at the statutory minimum for loans less
    -56-
    than $250,000.32     This is so because Paragraph 4 does not bar
    lenders from committing to a specific amount of required coverage
    for the duration of the mortgage.      The pertinent sentence in the
    uniform covenant states only that the hazard insurance required by
    the lender "shall be maintained in the amounts and for the periods
    that Lender requires."   The lender could thus choose the statutory
    minimum as its required "amount[]" for the entire "period[]" of the
    loan.
    The conflict in this case arises from the fact that,
    under the construction of Paragraph 4 advanced by Kolbe, specifying
    the amount and period was unnecessary because the uniform covenant
    itself capped the flood insurance requirement at the statutory
    minimum, while under the Bank's construction, the covenant allows
    the lender to change the amount at any time.     We presume that our
    colleagues would reach a different conclusion if Kolbe and Taylor
    Bean had signed a supplemental document setting the minimum amount
    of insurance as the amount required for the entire loan period. In
    that case, the lender would have expressly exercised the discretion
    to which the Bank claims entitlement by choosing an amount of
    coverage that Congress, in the National Flood Insurance Act, deemed
    adequate.    Our colleagues nonetheless contend that federal policy
    32
    Flood coverage for a residential property securing a
    mortgage issued by a federally regulated lender must be in an
    amount at least equal to the outstanding principal balance of the
    loan, or $250,000, whichever is less.             See 42 U.S.C.
    §§ 4012a(b)(1), 4013(b)(2); 
    24 C.F.R. § 203
    .16a; 
    44 C.F.R. § 61.6
    .
    -57-
    bars us from enforcing an agreement containing those terms -- based
    on the parties' joint understanding of Paragraph 4, rather than on
    a separate written document -- against Taylor Bean's successor-in-
    interest, Bank of America.        We elaborate below on why we believe
    our colleagues are wrong.
    A. Integrity of Contracts
    If we applied ordinary contract principles to this case,
    the ambiguity in Paragraph 4 would foreclose dismissal of the
    complaint   because     Kolbe   would   be   entitled      to   show   that   his
    understanding of the provision reflects the actual intention of the
    contracting parties.         The New Jersey Supreme Court "permit[s] a
    broad use of extrinsic evidence to achieve the ultimate goal of
    discovering the intent of the parties," Conway v. 287 Corporate
    Ctr. Assocs., 
    901 A.2d 341
    , 347 (N.J. 2006), and we could not
    achieve that goal here without giving Kolbe the opportunity to
    develop   the   facts   in    support   of   his   claim   that   Taylor      Bean
    understood Paragraph 4 as he did.33          The New Jersey high court has
    described the court's contract-interpretation role as follows:
    33
    Although the meaning of Paragraph 4 is a question of federal
    law, we use New Jersey's general framework for contract
    interpretation. The mortgage itself provides that it is governed
    by "federal law and the law of the jurisdiction in which the
    Property is located." App. at 34, ¶ 14. Cf. LPP Mortg., Ltd. v.
    Sugarman, 
    565 F.3d 28
    , 31 (1st Cir. 2009) (noting that, even where
    "federal common law governs as to contractual issues," courts
    typically borrow from state law and apply ordinary contract
    principles).
    -58-
    In the quest for the common intention
    of the parties to a contract the court must
    consider the relations of the parties, the
    attendant circumstances and the objects they
    were trying to attain. An agreement must be
    construed in the context of the circumstances
    under which it was entered into and it must be
    accorded a rational meaning in keeping with
    the express general purpose.
    Tessmar v. Grosner, 
    128 A.2d 467
    , 471 (N.J. 1957); see also, e.g.,
    Pacifico v. Pacifico, 
    920 A.2d 73
    , 77 (N.J. 2007) ("[I]t is a basic
    rule of contractual interpretation that a court must discern and
    implement the common intention of the parties.").
    If, as Kolbe maintains, the evidence demonstrated that
    both he and Taylor Bean understood Paragraph 4 to cap his flood
    insurance obligation at the amount "required by the Secretary" --
    i.e., at the statutory minimum -- application of traditional
    contract law principles would end the matter.        Where there is no
    dispute   between   the   contracting   parties   about   which   of   two
    reasonable interpretations of their agreement is correct, the
    parties' shared understanding surely would govern -- barring some
    collateral reason to depart from ordinary principles.       See Conway,
    901 A.2d at 347 ("'The polestar of construction is the intention of
    the parties to the contract . . . .'" (quoting Atl. N. Airlines v.
    Schwimmer, 
    96 A.2d 652
    , 656 (1953))).      The Bank, as Taylor Bean's
    successor-in-interest, would stand in the original lender's shoes,
    and would be bound by that shared understanding.
    -59-
    The Bank and our colleagues assert that this is an
    instance where ordinary contract principles do not apply because
    the language under scrutiny derives from a government source and
    must be interpreted uniformly in every instance.       The Bank cites
    federal and New Jersey case law to support its contention that the
    government's    construction   of    government-generated    contractual
    language, whether derived directly from a statute or drafted by an
    agency to carry out its regulatory mission, prevails even over the
    mutually agreed upon understanding of the parties.          The Bank, in
    other words, asserts that the government's wishes about how the
    parties should have understood the ambiguous language override the
    parties' actual understanding of the language.
    In so arguing, the Bank (and our colleagues) inexplicably
    treat this case as indistinguishable from the cases on which they
    rely to establish the principle of uniformity.          From multiple
    perspectives, however, this case is unlike that precedent.          Most
    significantly, each of the decisions highlighted by the Bank
    involved a dispute between the contracting parties about the
    meaning of language in their agreement.        See Ill. Steel Co. v.
    Balt. & Ohio R.R. Co., 
    320 U.S. 508
    , 508-509 (1944); Honeywell Inc.
    v. United States, 
    661 F.2d 182
    , 185-86 (Ct. Cl. 1981); Paul Revere
    Life Ins. Co. v. Haas, 
    644 A.2d 1098
    , 1103 (N.J. 1994).           Hence,
    some principle of contract interpretation was necessary to resolve
    the conflict.    When such a dispute is between parties of unequal
    -60-
    bargaining power, the stalemate is usually resolved by adopting the
    meaning most favorable to the non-drafting party, a method of
    interpretation known as contra proferentem. See Pacifico, 920 A.2d
    at 78.     That principle also operates in specific contexts.           See,
    e.g., Kieffer v. Best Buy, 
    14 A.3d 737
    , 743 (N.J. 2011) (stating
    that ambiguity in an indemnity provision is construed against the
    indemnitee); Marcinczyk v. N.J. Police Training Comm'n, 
    5 A.3d 785
    ,
    789 (N.J. 2010) (stating that ambiguity in exculpatory contracts
    "must be resolved against the drafter of the agreement" (quoting
    Gershon v. Regency Dining Ctr., Inc., 
    845 A.2d 720
    , 726 (N.J. App.
    Div. 2004))); Simonetti v. Selective Ins. Co., 
    859 A.2d 694
    , 698
    (N.J. Super. Ct. App. Div. 2004) (stating that ambiguity in an
    insurance contract "must be resolved against the insurer").
    Similarly, when government-generated language is ambiguous in a
    dispute between contracting parties, courts are inclined to defer
    to the government's interpretation of its own language. See, e.g.,
    US Bank, N.A. v. Hough, 
    42 A.3d 870
    , 877 (N.J. 2012) (noting that
    "we defer to an agency's interpretation of . . . [a] regulation,
    within the sphere of [its] authority, unless the interpretation is
    'plainly    unreasonable'"      (alterations   in   original)       (internal
    quotation marks omitted)).
    But   given   the   paramount   importance   of   the    parties'
    intentions in resolving contract disputes, it is a considerably
    more dramatic departure from basic contract law to accept the
    -61-
    government's interpretation of ambiguous language as decisive
    where both parties to a private contract manifested a contrary,
    consistent understanding of the language.                    The allegations in
    Kolbe's complaint permit a finding that such an understanding
    existed.    See, e.g., Marcinczyk,            5 A.3d at 788-89 ("[P]arties
    bargaining at arms-length may generally contract as they wish,
    subject    only   to   traditional    defenses        such   as   fraud,    duress,
    illegality or mistake." (citations omitted)).                     So long as the
    parties' agreement does not violate important policy objectives, we
    cannot accept that the government's interpretive authority may
    intrude so deeply into private contractual agreements. Cf. Shaw v.
    City of Jersey City, 
    811 A.2d 404
    , 411 (N.J. 2002) (adopting
    construction of statute that is "consistent with both legislative
    design and the reasonable expectations of [the insured]" (emphasis
    added)).    As we discuss in the next section, Kolbe's construction
    of Paragraph 4 of his mortgage agreement does not conflict with the
    policies embodied in the National Flood Insurance Act.
    The private nature of Kolbe's mortgage agreement also
    distinguishes this case from some of those cited by the Bank and
    our colleagues. In Honeywell, which arose in the unique context of
    military contracts, the United States was one of the parties and
    the   language     interpreted       was     purely     regulatory,        and   not
    incorporated into a contract.         See 661 F.2d at 184 (noting dispute
    concerning Armed Services Procurement Regulation 15-205.34).                     The
    -62-
    decision resulted from the appeal of a ruling by the Armed Services
    Board of Contract Appeals -- a far cry from this private contract
    action.    Similarly, in Saavedra v. Donovan, 
    700 F.2d 496
    , 499-500
    (9th Cir. 1983), cited by our colleagues, the court rejected a
    government contractor's claim in an enforcement proceeding that his
    failure to pay government-required fringe benefits was attributable
    to ambiguous language in the contracts.34           The decision in Lloyd v.
    Cincinnati Checker Cab Co., 
    36 N.E.2d 67
     (Ohio Ct. App. 1941), also
    cited by our colleagues, is similarly inapt.                The defendant there
    had sought to set off an insurance claim against a statutory
    assessment     it    owed   because   its    insurer   (a    mutual      assessment
    company)     had    been    liquidated      and   taken     over    by   the   Ohio
    Superintendent of Insurance.          The court held that the assessment
    was a non-contractual obligation of the defendant owed to the state
    as   trustee   for    the   insurer's    creditors     and    was   thus    "not   a
    contractual liability involving a meeting of the minds." 
    Id. at 69
    ("The debt of the defendant herein involved is a debt created by
    force of statute, not a debt created by any voluntary act of the
    parties.").
    Our colleagues also rely on Sharon Steel Corp. v. Chase
    Manhattan Bank, N.A., 
    691 F.2d 1039
     (2d Cir. 1982), for the
    proposition that "uniform contracts are interpreted uniformly
    34
    It is also significant that Saavedra is another instance
    where the contracting parties did not share a common understanding
    of their agreement.
    -63-
    across cases whenever it is reasonable to do so."      This principle,
    they say, means that "extrinsic evidence about what a particular
    party intended or expected when signing the contract is generally
    irrelevant."   However, the context of Sharon Steel, which involved
    the debt securities market, was markedly different from this
    personal mortgage dispute. The case concerned boilerplate language
    in "successor obligor clauses" in debenture indentures, and the
    Second Circuit emphasized that "uniformity in interpretation is
    important to the efficiency of capital markets."        
    Id. at 1048
    .
    Kolbe's and his lender's allegedly common understanding of his
    personal loan has no equivalent implications.
    Indeed,   the   very   cases   that   gave   birth   to   the
    interpretive principles that the Bank and our colleagues invoke
    also involve contexts far removed from the mortgage relationship of
    Kolbe and Taylor Bean.    In Auer, the plaintiffs were officers of
    the St. Louis Police Department who brought suit against the city's
    Board of Police Commissioners seeking overtime pay they claimed was
    owed under a provision of the Fair Labor Standards Act.        See 
    519 U.S. at 455
    .   The Board argued that the officers were not entitled
    to such pay based on a statutory exemption.     See 
    id.
       The Supreme
    Court deferred to the Secretary of Labor's interpretation of
    applicable regulations, which was provided in an amicus brief
    requested by the Court.      Unlike here, there was no contract
    provision in dispute that was reasonably subject to a common
    -64-
    understanding by the contracting parties.             The circumstances in
    Bowles v. Seminole Rock & Sand Co., 
    325 U.S. 410
     (1945), noted by
    our colleagues as the origin of the concept of Auer deference, are
    even more distant from the breach-of-contract case before us.              The
    dispute    there    was     between   a      government    official   --   the
    Administrator of the Office of Price Administration -- and a
    manufacturer of crushed stone that was subject to a maximum price
    regulation.     In determining the permissible price the manufacturer
    could charge pursuant to the regulation, the Court stated that it
    "must necessarily look to the administrative construction of the
    regulation if the meaning of the words used is in doubt."               
    Id. at 414
    .
    It is also noteworthy that, in all three of the cases
    cited by the Bank, the courts concluded that the disputed language
    was not ambiguous.        In Haas, which involved an insurance dispute,
    the New Jersey Supreme Court disagreed that "an ordinary insured"
    would read the policy as the plaintiff contended.                  644 A.2d at
    1107.     In Honeywell, the court stated that "the language and
    purpose of the regulation is plain."           661 F.2d at 186.    In Illinois
    Steel,    the    Supreme     Court    concluded     that    "the    reasonable
    construction" of a clause in a uniform bill of lading approved by
    the Interstate Commerce Commission was the one urged by the
    petitioner.     
    320 U.S. at 515
    .
    -65-
    It is a broad leap from these precedents to say that the
    government, through the intervention of the courts, may invalidate
    the contracting parties' joint adoption of one of two reasonable
    constructions       of    their    private    contractual     relationship.       We
    reiterate that we are not saying that the meaning of the FHA's
    uniform covenants is a question of fact to be resolved by a jury.
    We agree with our colleagues that, as a general proposition,
    "[w]hen dealing with uniform contract language imposed by the
    United    States,    it    is     the    meaning   of   the   United   States   that
    controls."     We further agree that that meaning is determined as a
    matter of law by the court.               The issue here, however, is not the
    meaning of the provision in the abstract.                      Where one of the
    contracting parties supportably alleges that both signatories
    reasonably     understood          the     provision     differently     from    the
    government, and where that alleged understanding does not conflict
    with the pertinent federal scheme, the plaintiff is entitled to a
    factfinder's determination on whether there was a contractual
    breach.    Briefly stated, there is no justification for interfering
    with basic contract law principles where the contracting parties'
    meeting of the minds is consistent with federal policy.
    Of course, it may be difficult for a mortgage holder to
    prove that he and his lender had a common understanding of a
    government-promulgated uniform provision that differs from the
    government's interpretation.              As our colleagues point out, it is
    -66-
    not enough in this case that Taylor Bean did not increase Kolbe's
    flood insurance requirement during the time that it held the
    mortgage.   That stability may reflect only the lender's choice at
    the time, not a commitment for constancy throughout the loan
    period.     Notwithstanding   the    difficulties,   however,   Kolbe   is
    entitled to move forward with his contract claim because, as we now
    explain, allowing it would not contravene federal policy.
    B. Federal Policy
    We do not doubt that, more often than not, it would be
    advisable for borrowers to obtain more than the minimum amount of
    flood insurance.    Such coverage is not, however, what federal law
    requires.     The mandate from Congress is that lenders ensure
    coverage in an amount at least "equal to the outstanding principal
    balance of the loan," up to $250,000.       42 U.S.C. § 4012a(b)(1).
    Our colleagues' policy concerns, therefore, cannot be directed
    toward a lender's decision to impose the minimum amount of flood
    insurance prescribed by statute -- which explicitly is allowed --
    but necessarily must question the lender's exercise of discretion
    to give up the right to increase that amount during the life of the
    loan.
    Neither the Bank nor the United States has demonstrated
    that federal law would be offended by such arrangements.                The
    National Flood Insurance Act was designed, in part, to reduce the
    heavy cost to the federal government for disaster relief, and the
    -67-
    resulting federal scheme thus placed on lenders the duty to ensure
    that flood insurance is obtained for properties purchased through
    HUD-guaranteed mortgages.        In its brief, the government points out
    that HUD enforces that duty, inter alia, by withholding payment on
    mortgage-insurance claims filed by lenders until the damage from
    floods (as well as fire, hurricane and tornado) has been repaired.
    See 
    24 C.F.R. § 203.379
    (a), (c).          According to the United States,
    "[t]his rule, by design, creates a strong incentive for the lender
    to ensure that the borrower maintains sufficient insurance to cover
    any form of hazard-related damage that may arise."
    The rule does not tell lenders they must secure more than
    the minimum amount of flood protection, however, or that they may
    not agree to a fixed amount.        The decision on how much to require,
    and when, is left up to individual lenders. Indeed, the government
    explicitly tells us that "HUD has organized its mortgage insurance
    program on the premise that lenders can and should make [the]
    determinations" on the "appropriate amount of flood insurance
    necessary to protect their investments."           Brief, at 2.    Thus, even
    accepting the government's construction of Paragraph 4, lenders are
    not   foreclosed    from   making    commitments    that   the    government,
    operating    with   different     priorities    from   banks     and   mortgage
    companies,    may   see    as   against   the   lenders'   self-interest.
    Dismissing Kolbe's complaint is to ignore the possibility that
    -68-
    Taylor Bean made a permissible choice different from the one the
    government expected.35
    Taylor Bean, of course, is no longer in the picture, and
    Bank of America now bears the burden of agreements made by its
    predecessor.       The change in lenders should not compromise Kolbe's
    contractual arrangement with Taylor Bean.            Although the government
    could choose to adopt a regulation barring lenders from binding
    possible     successors-in-interest       to     a   fixed    flood-insurance
    requirement at the statutory minimum, it has not done so by means
    of Paragraph 4.
    The    government   also    claims       that,   "[i]f   Kolbe's
    interpretation were to prevail, it is not difficult to foresee that
    lenders would simply decline to offer FHA-insured loans in areas
    facing even marginal flood risks, or charge substantially greater
    interest rates for such loans."           But that prediction is of no
    relevance to the evaluation of Kolbe's breach-of-contract claim.
    The issue before us is not future conduct, but the understanding of
    two parties who entered into a mortgage agreement before the
    government     clarified     Paragraph     4's       ambiguous   language.
    Prospectively, borrowers and lenders are on notice that Paragraph
    35
    Kolbe's theory is that Taylor Bean did not, in fact, make
    a choice because both he and the lender understood Paragraph 4 to
    set a ceiling on the flood insurance requirement. The pertinent
    point here is that, even under the Bank's interpretation, federal
    law permitted Taylor Bean to impose that requirement for the entire
    loan period. Hence, Kolbe's interpretation is not inconsistent
    with federal policy.
    -69-
    4, as interpreted by the government, affords lenders the right to
    increase their borrowers' flood insurance requirement at any time,
    at the lenders' discretion.               Kolbe reasonably maintains that
    Paragraph 4 meant something different to him and Taylor Bean.
    Moreover,      the     prediction        that    lenders      would   start
    charging    higher      interest    rates      or    abandon       FHA    mortgages   on
    properties at risk for flooding is entirely speculative and not
    borne out by the available facts.                    There is no evidence that
    lenders     have    routinely      required         more    than    the    statutorily
    prescribed minimum amount of flood insurance.36                    Indeed, Kolbe has
    pointed to evidence indicating that they routinely have not made
    such a demand.      For all we know, lenders may be promising a fixed,
    minimum flood insurance obligation as a way to sell themselves over
    competitors.       On the other hand, if lenders have routinely read
    Paragraph    4     as   Kolbe    does,   and    have        only   reluctantly    made
    commitments consistent with that understanding, the government can
    take steps to clarify its intentions by promulgating revised, or
    additional, regulations.
    Although our colleagues appear to fear that allowing
    Kolbe's lawsuit to proceed would trigger a catastrophe in light of
    "the nearly 7.8 million FHA-insured mortgages nationwide," we fail
    36
    We note that, to the extent the absence of such evidence
    reflects the lenders' understanding that Paragraph 4 bars them from
    demanding more than the minimum amount of insurance, Kolbe's
    ambiguity argument is strengthened.
    -70-
    to see how Kolbe's claim would significantly change the balance of
    risks nationwide among individual homeowners, lenders, and the
    government.   As noted above, the system tolerates lenders limiting
    their borrowers' flood insurance obligation to the amount "required
    by the Secretary," as that practice has been followed by at least
    some number of mortgage providers.     In addition, it is a fair
    assumption that many homeowners -- like Kolbe -- already maintain
    flood insurance in excess of their outstanding loan balances, and
    -- to the extent that they are financially able -- more homeowners
    can be expected to increase their coverage in the face of the
    recent major flooding highlighted by our colleagues.    Certainly,
    lenders may urge their borrowers to fully protect their equity, and
    it defies commonsense to presume that most homeowners will act
    against their own best interests.     In any event, homeowners and
    lenders will be protected from the most drastic outcome, as the
    required insurance coverage will take care of the outstanding
    mortgage debt (up to $250,000).   See 
    42 U.S.C. § 4013
    (b)(2).
    In sum, HUD allows the lender to set the statutory
    minimum (i.e., the amount of the outstanding principal balance or
    $250,000, whichever is less) as the required amount of flood
    insurance for the entire duration of a mortgage. Because Paragraph
    4 of Kolbe's mortgage agreement reasonably may be read to say that
    no greater amount will be demanded of him, Kolbe should be allowed
    to demonstrate that he and Taylor Bean in fact shared such an
    -71-
    understanding of their accord and that, consequently, Bank of
    America's threat of force-placed insurance was a breach of his
    mortgage contract.
    III.
    In the opposing opinion authored by Judge Kayatta, our
    colleagues cast our approach to this case as a threat to breach-of-
    contract class actions and as contrary to the principles applicable
    to government-mandated, standard contract provisions.               We address
    below why our colleagues' hypothesized concern about contract-based
    class actions is misguided.        As for the supposed conflict with the
    rules   governing       standard   provisions,   our        discussion    above
    demonstrates why those principles are inapt in a context where both
    contracting parties may have had the same understanding of the
    pertinent,     ambiguous    language.      Contrary    to    our   colleagues'
    assumption, we do not know at this point in the litigation whether
    any such understandings were stated or unstated or, indeed, whether
    Kolbe   and    Taylor   Bean   construed   Paragraph   4     the   same   way.
    Ascertaining those facts is the purpose of the discovery that our
    colleagues      prevent Kolbe from undertaking.
    Although we have chosen to rely primarily on the original
    panel decision on the issue of ambiguity, we add a few observations
    prompted by Judge Kayatta's opinion before turning to the class
    action discussion.
    -72-
    A. Ambiguity
    In finding the language of Paragraph 4 unambiguous, our
    colleagues point to passing references in HUD materials as evidence
    that Kolbe (and Taylor Bean) could not have reasonably construed
    the language as Kolbe proposes.            A "reasonable" consumer, however,
    could not have been expected to unearth and rely on such indirect,
    scant    references.           Although     FEMA,    by   contrast,     explicitly
    recommends that lenders require replacement cost insurance -- a
    fact deemed "[q]uite significant[]" by our colleagues -- that
    recommendation is unsurprising given FEMA's emergency response
    role.    No matter how clear FEMA's recommendation, FEMA's view
    cannot eliminate the ambiguity in Paragraph 4, which originated
    with a different agency -- the FHA -- charged with a different
    primary mission -- to promote affordable home ownership.                          In
    addition, the rejection of ambiguity at the motion-to-dismiss stage
    cannot turn on whether one construction reflects the best policy as
    determined by current government officials; the question before us
    is    whether    the    language    is     reasonably     susceptible    to     both
    interpretations.        On its face, Paragraph 4 is ambiguous, and, as
    the   panel     majority   explained,       the     extrinsic   clues   that    were
    available     when     Kolbe    signed    his     mortgage   agreement    did    not
    eliminate the ambiguity.
    -73-
    B. Class Actions
    Our colleagues claim that we have gone beyond the literal
    text of Kolbe's complaint in an "overly creative manner" and, in
    doing so, have "run[] the risk of materially harming the interests
    of consumers in a broad variety of actions."         This criticism
    misfires on multiple levels.
    1.   Beyond the Complaint
    Our colleagues disregard the progression of Kolbe's
    action beyond its original filing.       Although his complaint was
    drafted from the perspective that Paragraph 4 unambiguously limits
    the flood insurance obligation to the statutory requirement -- and,
    hence, has only one reasonable meaning -- his response to the
    Bank's motion to dismiss introduced the alternative argument that
    the motion also must be denied if the court found the paragraph to
    be ambiguous.     See Pl.'s Opp. to Defs.' Motion to Dismiss (filed
    May 9, 2011) ("Plaintiff's Opposition"), at 13.37         Nothing in
    37
    Kolbe's Opposition stated, in part:
    Plaintiff respectfully submits for all of the
    reasons discussed above, that the Court should conclude
    that paragraph four of the Mortgage unambiguously
    provides that Plaintiff was not obligated to maintain
    more flood insurance coverage on his Property than the
    outstanding balance of his loan and hence the Defendants'
    motion to dismiss should be denied.
    Plaintiff acknowledges, however, that the Court
    could conclude, as did the Magistrate Judge in Wulf, that
    some of the provisions of the Mortgage at issue are
    ambiguous.    Of course, if the Court reached that
    -74-
    Kolbe's complaint foreclosed such an evolution of his argument, and
    the narrowing of a complaint's scope to support an alternative
    litigating position is hardly unusual.         Cf., e.g., Rodríguez-Suris
    v. Montesinos, 
    123 F.3d 10
    , 20 (1st Cir. 1997) (citing McCalden v.
    Calif. Library Ass'n, 
    955 F.2d 1214
     (9th Cir. 1990), for the
    proposition   that    "allegations    should   not   be   construed   as   an
    admission against inconsistent claims"); Fed. R. Civ. P. 8(e)
    ("Pleadings must be construed so as to do justice.").             Both the
    district court and the original panel accepted this alternative
    view   of   Kolbe's   contentions.      The    district   court   expressly
    addressed the argument, albeit rejecting it:
    The Court also concludes that the three
    relevant sentences are not ambiguous and do
    not create a conflict. . . . The Court finds
    that plaintiff's proposed interpretation of
    his mortgage is unreasonable and that the
    mortgage contract, especially in light of the
    NFIA language, is eminently clear. Therefore,
    the contract is not ambiguous.
    conclusion the Defendant's Motion to Dismiss would still
    have to be denied. See, e.g., Aware, Inc. v. Centillium
    Commc'ns, Inc., 
    604 F. Supp. 2d 306
    , 310 (D. Mass. 2009)
    ("If the language of a contract is ambiguous a motion to
    dismiss must be denied."). See also Curtis v. Treloar,
    No. 96-1239, 
    1998 WL 1110448
    , at *4 (D.N.J. Aug. 27,
    1998) ("If we determine that the contract is ambiguous,
    then we must deny defendants' motion for summary
    judgment, as the interpretation of an ambiguous term in
    a contract is generally a question of fact.").
    Kolbe then went on to argue that any ambiguity in the contract must
    be construed against the defendants. See Plaintiff's Opposition at
    13-15.
    -75-
    The panel majority on appeal focused on ambiguity, concluding that
    "the mortgage is reasonably susceptible to an understanding that
    supports Kolbe's breach of contract and implied covenant claims."
    In addition, at the en banc oral argument, Kolbe's
    counsel emphasized the need to ascertain Kolbe's and Taylor Bean's
    intent at the time they entered into the mortgage contract.      Among
    other statements, Kolbe's counsel asserted that "[t]he government's
    position does not control what the parties' intent was.            The
    ultimate issue in any breach of contract case is what was the
    intent of the parties when they entered into the contract."
    Although this statement on its own is overly broad in the context
    of   government-promulgated   uniform   provisions,    it   nonetheless
    reflects Kolbe's consistent backup argument that Paragraph 4's
    ambiguity requires fact-finding on the parties' understanding of
    the language.   Confining Kolbe to his literal allegations would
    thus unfairly ignore the actual case history.
    Our colleagues further suggest that we should not expand
    Kolbe's allegations beyond the literal words of his complaint
    because that pleading was carefully crafted to promote class
    certification. But the class that Kolbe and his counsel originally
    contemplated -- all FHA borrowers from whom Bank of America had
    demanded an amount of flood insurance in excess of the principal
    balance -- appears to be no longer viable.            The government's
    intervention means that Paragraph 4 ordinarily must be read to
    -76-
    permit lenders to demand flood coverage up to the property's
    replacement value.         Under Kolbe's backup theory of ambiguity,
    however, his claims do survive for a smaller class of aggrieved
    borrowers     --   those    whose    original    lenders    understood   and
    implemented     Paragraph    4    consistently    with     Kolbe's   proposed
    construction.      By invoking ambiguity, Kolbe himself, and not the
    authors of this opinion, promoted this narrower version of his
    breach-of-contract claim.        Our colleagues are wrong to deny Kolbe
    his choice of a viable litigation strategy.
    To be sure, the need to inquire into the lender's
    understanding may impact when, or if, Kolbe will be able to obtain
    class certification.       A more limited class also may impact whether
    Kolbe's counsel -- or any other plaintiff -- will be interested in
    proceeding with the case.           Such consequences, however, are not
    properly our concern.       We should not be deciding whether the case
    is worth the investment.         We decide only whether Kolbe has stated
    claims against Bank of America.        If he has, it will be up to him to
    choose whether to proceed even if he is unable to represent a
    class.     As the case now stands, Kolbe has proffered a reasonable
    construction of Paragraph 4 that is consistent with his claims and,
    hence, the district court should have denied the Bank's motion to
    dismiss.
    -77-
    2. Future Class Actions
    Our colleagues appear to take the position that allowing
    Kolbe's case to move forward will compromise the entire universe of
    possible class actions involving contracts. They warn that counsel
    for consumers "in a broad variety of actions" would have difficulty
    drafting pleadings that could survive defense opposition to class
    certification because defendants would invoke the possibility of
    "subjective   and   unspoken   understandings   that   could   vary   from
    [person to person]."    At a minimum, they suggest that our approach
    would delay class status rulings "until after extensive discovery."
    These warnings exaggerate the risk and devalue Kolbe's
    individual interest in obtaining a remedy for allegedly improper
    and unfair treatment. This is an unusual contract case in that the
    defendant, an outsider to the original agreement, argues that it
    does not matter how the original parties understood their deal.
    The case is therefore an ill-suited exemplar for generalizations
    about contract-based class actions. In the ordinary contract case,
    where the signatories to an agreement dispute the meaning of a
    standard provision, an interpretive principle will likely be used
    to resolve the case.    Section 211 of the Restatement, cited by our
    colleagues, is one such principle.38 But in the rare instance where
    38
    Our colleagues' "Tom Sawyer" characterization of our view
    of section 211 is puzzling; we consider the principles it embodies
    important and necessary when the original contracting parties
    dispute the substance of their agreement.
    -78-
    both parties reasonably understood the ambiguous language the same
    way (consistently with government policies), such interpretive
    principles are unnecessary. Under basic contract law, the parties'
    meeting of the minds is decisive.39
    Any precedent set in this case would thus have limited
    reach. Indeed, contract claims as a general category -- as opposed
    to statutory or tort claims -- may be more difficult to bring as
    class actions precisely because their foundation is the parties'
    understanding.     Without question, claims such as those Kolbe
    originally   sought   to   bring,    based    on   assertedly    unambiguous
    standard   language   favoring     the   plaintiffs,    are   ideal    from   a
    potential class action perspective.          But when a court agrees that
    the   challenged   language   is    unambiguous,       this   case    will    be
    irrelevant and have no impact.             On the other hand, where the
    language is found ambiguous, and plaintiffs can prove that they and
    their contractual partner held the same reasonable (and consistent
    with policy) understanding, the principles we have outlined give
    39
    In disputing the limited impact of our approach, our
    colleagues observe that it is "anything but 'rare' for a plaintiff
    in a contract case to argue that the other party to the contract
    could be found to have shared her subjective understanding." The
    scenario to which we refer does not arise, however, every time a
    plaintiff claims that the parties understood their agreement the
    same way. Rather, we deem section 211 inapplicable in the context
    of uniform provisions only where a breach-of-contract claim rests
    on language determined by a court to be ambiguous and the
    plaintiff's allegation of a shared interpretation is not disputed
    by the other contracting party -- such as where, as here, the other
    party is not a defendant in the action. Those are not typical
    circumstances.
    -79-
    them the right to proceed.      Inexplicably, our colleagues think it
    is more favorable to plaintiffs for Kolbe to be allowed no claim at
    all.
    As our colleagues point out, looking to the contracting
    parties' understandings to resolve ambiguity may delay decisions on
    class certification until after discovery has taken place.            Such
    timing is not unusual. Courts must engage in "'rigorous analysis'"
    to determine if the requirements of Federal Rule of Civil Procedure
    23 have been met.    Wal-Mart Stores, Inc. v. Dukes, 
    131 S. Ct. 2541
    ,
    2551 (2011) (quoting Gen. Tel. Co. of Sw. v. Falcon, 
    457 U.S. 147
    ,
    161    (1982)).   That analysis "[f]requently . . . will entail some
    overlap with the merits of the plaintiff's underlying claim," 
    id.,
    and thus require the presentation of evidence, see, e.g., id. at
    2549 (listing three types of evidence offered to show presence of
    common issues among all plaintiffs).        The resulting delay is not
    always   bad.     See   Alba   Conte,   Herbert   Newberg   &   William   B.
    Rubenstein, 3 Newberg on Class Actions §§ 7:2, 7:3 (4th ed. 2013)
    (noting the potential advantages and disadvantages of early class
    certification for both plaintiffs and defendants). Our colleagues'
    concern about widespread future prejudice to contract-based class
    actions is thus overstated.
    The battle between the parties at this point is plainly
    about Kolbe's right to discovery and the Bank's desire to avoid any
    inquiry into its practices, which Kolbe challenges as motivated by
    -80-
    bad-faith profit-seeking. See Robert H. Klonoff, Class Actions and
    Other Multi-Party Litigation in a Nutshell 146 (4th ed. 2012)
    ("Aggressive, thorough discovery is frequently decisive in class
    certification battles."); id. at 147 ("In most instances, courts
    will not grant or deny class certification without discovery.").
    Even if this case turns out to be an individual action, Kolbe is
    entitled to discovery. We certainly have no authority to terminate
    a lawsuit that may turn out to be well-grounded on the merits based
    on the rationale, as articulated by our colleagues, that it is
    "without practical worth or purpose."
    IV.
    In sum, there is neither a legal nor -- as our colleagues
    assert -- "pragmatically progressive" justification for dismissing
    Kolbe's lawsuit at this early stage of the case.         Indeed, it is a
    considerable injustice to do so.           Our colleagues abandon basic
    contract law principles.      They ignore the government's sloppy
    drafting of Paragraph 4 and say that it does not matter that both
    signatories   to   the   mortgage     agreement   may   have   reasonably
    understood the provision as Kolbe alleges he did.              We do not
    minimize the importance of section 211 as a mechanism for dispute
    resolution.   A rule specific to uniform provisions makes sense
    where contracting parties disagree about the meaning of their
    accord.   But where the language is ambiguous, the parties construe
    it the same way, and their interpretation does not conflict with
    -81-
    federal policy, it does violence to traditional contract law
    precepts    to   allow   the    government's     explanation        of    its    murky
    language to override the parties' meeting of the minds.                            Not
    surprisingly,      the   caselaw    relied     upon    by    the   Bank     and   our
    colleagues does not speak to these circumstances.
    By allowing the district court's dismissal of this case
    to stand, our colleagues have, in effect, upended basic contract
    law to advantage a massive financial institution over individual
    homeowners whose circumstances necessitated resort to government-
    insured financing.       Kolbe and others like him may have sought a
    fixed   flood-insurance         obligation     to     help    offset       the    many
    unpredictable costs of homeownership.           Some of them are now facing
    demands for increased coverage after more than a decade of fixed
    coverage,   with    possibly     dire    consequences        for   their    economic
    security.    Cf. Lass v. Bank of Am., N.A., 
    695 F.3d 129
    , 132 (1st
    Cir. 2012) (involving a similar demand, though based on different
    contract    language,     for    approximately        $145,000     in    additional
    coverage fifteen years after mortgage was obtained).                    It should be
    unthinkable that Bank of America may rewrite agreements -- which
    were consistent with a reasonable construction of Paragraph 4 and
    federal law -- at the expense of such homeowners.
    Thus, the district court's unwarranted dismissal of this
    case should be vacated, and the action remanded for further
    proceedings on both of Kolbe's claims.
    -82-
    KAYATTA, Circuit Judge, with whom LYNCH, Chief Judge, and
    HOWARD, Circuit Judge, join.   My disagreement with the conclusion
    reached by three of my respected colleagues that the contract
    language is ambiguous even in context is not what prompts me to
    write this separate opinion. Judges frequently disagree about such
    matters, and Chief Judge Lynch's opinion well explains why a
    careful reading of Covenant 4 in context precludes a finding that
    the covenant can reasonably be read as Kolbe claims.     Rather, I
    write to highlight three other points. First, the opposing opinion
    authored by Judge Lipez relies on a theory of the facts that is
    unsupported by the allegations in the only complaint that is before
    us, and was not even argued below by Kolbe.        Second, in its
    reliance on unstated subjective "understandings" of the parties as
    a basis for rejecting what it concedes is otherwise the proper
    uniform meaning of Covenant 4, the opposing opinion directly
    rejects the wiser, consensus approach manifest in section 211 of
    the Restatement (Second) of Contracts.      Third, the cumulative
    impact of the approach taken by the opposing opinion would, on the
    margins, harm consumers who, unlike Kolbe, are the victims of a
    breach of a standard contract term.
    I.
    The opposing opinion urges reversal by relying on what it
    calls a "back-up" theory of the case:    If the writing is indeed
    ambiguous, then perhaps recourse to extrinsic evidence in the form
    -83-
    of   the   parties'    subjective   understandings     will   resolve   that
    ambiguity by showing that both parties understood the writing in
    the same manner.
    The initial problem with this theory is that it does not
    fit the complaint.       The only complaint before the court alleges
    that the "contract that governs the rights and obligations of the
    parties" is the "Mortgage Agreement," a written document attached
    to the complaint as Exhibit 1.       Compl. ¶ 17.     The complaint quotes
    language of the written agreement, id. ¶ 22, and cites federal
    regulations, id. ¶ 23, to advance a single assertion: "pursuant to
    the . . . quoted provision of the Mortgage Agreement and the
    applicable     FHA    regulations   Plaintiff   was   to   maintain     flood
    insurance coverage for the Property in an amount equal to the
    [lesser of $250,000 or the outstanding loan balance]."           Id. ¶ 25.
    The complaint concludes that, by demanding more flood insurance
    coverage, BAC breached the "mortgage agreements" of Kolbe and
    others.    There is no allegation of any subjective understandings
    concerning Covenant 4, shared or otherwise.           Nor does Kolbe even
    claim to be one of those unusual consumers who actually read
    through all of the printed documents for a home loan closing,
    forming understandings based on the types of nuanced textual
    analysis often on display in appellate litigation.
    To make certain that no one would read the pleadings as
    suggesting that resolution of the case need turn on any examination
    -84-
    of   individual     understandings,          the      complaint     also    alleges
    affirmatively that Kolbe is "typical" of "all other persons . . .
    who are or were obligors on loans that are or were owned or
    serviced   by   defendant    BAC      Home    Loans    .   .   .   whose   mortgage
    agreements required flood insurance in an amount that was related
    to the amount of the outstanding balance of the loan. . . ."
    Compl. ¶ 35.      Those other persons of whom Kolbe assures us he is
    typical include those who did not even deal with his lender, Taylor
    Bean.    In this manner, putative class counsel put together a
    pleading that simply cannot be read as seeking to enforce a
    subjective understanding coincidentally idiomatic largely to Kolbe
    and Taylor Bean, and perhaps a few other borrowers who, like
    entangled particles, arrived at similar subjective understanding
    through some uncertain mechanism.              Instead, this is a complaint
    that demands the uniform, class-wide enforcement of a standard
    written covenant that neither party drafted nor, as far as the
    complaint alleges, even read.
    The limited span of the pleading is underscored by the
    fact that Kolbe has never advanced the argument on which the entire
    opposing opinion now rests.           He did argue that he should prevail
    even if the writing were ambiguous. Such an argument is implicitly
    included (unless disavowed) in most breach of contract complaints.
    In   exercising    his   right   to    make    this     argument,     however,   he
    carefully stayed away from arguing that the court should consider
    -85-
    the extrinsic evidence of Kolbe's own subjective understanding to
    resolve the ambiguity. Rather, he urged that any ambiguity be
    resolved by a common rule of construction, and that the court not
    consider extrinsic evidence.       Wrote his counsel:        "courts should
    not consider extrinsic evidence in the case of an ambiguous
    adhesion   contract   because    such   contracts   should      be   construed
    strictly against the drafter."          Plaintiff's Oppos. to Motion to
    Dismiss at 13-14.     And the only "back-up" position he stated was
    that if a court did look at any extrinsic evidence, "the only such
    evidence applicable here would be the 'conduct of the parties,'
    which here is limited to the undisputed fact that at the time the
    mortgage   was   entered   into,   Taylor   Bean    did   not   require   the
    Plaintiff to maintain flood insurance in excess of the balance of
    his loan."    Id. at 15, n.18.
    I understand the concern of my respected and thoughtful
    colleagues that we not demand undue precision at the pleading stage
    of a lawsuit.      Here, though, we have a complaint conspicuously
    avoiding any hint that Kolbe had any subjective understanding
    material to this case.      And we have counsel waving "stop" signs
    insisting that the district court not contemplate the possibility
    that any such extrinsic evidence should be relied on here. I think
    it eminently fair to follow that direction.
    -86-
    II.
    Even were we to find the opposing opinion's back-up
    theory to have been pleaded and preserved, that theory would fail
    because it relies on a supposed "understanding" shared by Kolbe and
    Taylor Bean that conflicts with what the opposing opinion must
    concede    is    the     otherwise      proper   uniform      interpretation     of
    Covenant 4.          When private parties sign a contract containing a
    covenant     expressly       labeled    as   uniform    and    mandated   by    the
    government, they agree to be bound by the uniform meaning to be
    given by a court to that covenant based on the government's
    interpretation, at least where that interpretation is eminently
    reasonable      in    view   of   the   covenant's     language,   purpose,     and
    history.40
    In resisting this conclusion, the opposing opinion takes
    too cramped a view of section 211 of the Second Restatement of
    Contracts.      The opposing opinion justifies its approach in part by
    claiming that the written agreement is ambiguous, even in context.
    As stated above, I think not.           But let's assume that it is.           It is
    40
    Contrary to the opposing opinion's suggestion, the
    government's purpose in drafting (and mandating the use of)
    Covenant 4 has been consistent from the outset.         Had Kolbe
    researched the relevant federal policy in 2008 (a prospect that is
    both unpled and unlikely), he could have found the ample evidence
    of purpose and interpretation, from both HUD and FEMA, that Chief
    Judge Lynch discusses in her opinion. All that is "new" is that
    strained readings proffered in litigation have prompted the United
    States to come forward and reject, as inconsistent with that
    regulatory record, the position for which Kolbe now advocates.
    -87-
    precisely when a writing is ambiguous that the principle of
    section 211 has its greatest practical utility.                         After all,
    whenever the written agreement is plain and unambiguous, it will
    have only one meaning anyway.            The benefit of the section 211 rule
    thus arises precisely in cases where the writing is sufficiently
    ambiguous to raise the prospect of non-uniform interpretations. If
    we were nevertheless to adopt the cramped view of section 211
    proposed by the opposing opinion, we would reduce section 211 to a
    sort of Tom Sawyer, showing up only after most of the work is done.
    The    opposing      opinion   resists   this    characterization,
    reasoning that courts should circumvent section 211 only in "rare"
    cases,      such    as    this   one,   in   which   "both    parties   reasonably
    understood the ambiguous language the same way."                 But it is, in my
    experience, anything but "rare" for a plaintiff in a contract case
    to argue that the other party to the contract could be found to
    have    shared      her    subjective    understanding.41        My     colleagues'
    understanding of section 211 would therefore take that provision
    out of play at the motion to dismiss stage in almost all cases,
    precisely when the benefits of predictability and standardization
    are most substantial.            The limiting principle the opposing opinion
    offers is therefore hardly a limitation at all.
    41
    Indeed, what is notable here is that Kolbe, seeking to
    maintain a class action, went out of his way to disclaim any such
    argument.
    -88-
    The Restatement secures more work for section 211 by
    rejecting what is the heart of the opposing opinion's analysis:
    the contention that subjective understandings of the individual
    parties might be employed to determine the meaning of this standard
    written contract.        Leaving no doubt about the matter, the ALI
    drafters made that rejection express in section 211 itself.               This
    is what they wrote:          "Such a writing is interpreted wherever
    reasonable as treating alike all those similarly situated, without
    regard to their knowledge or understanding of the standard terms of
    the writing."
    The opposing opinion does just the opposite: it not only
    pays regard to the parties' understandings, but it actually treats
    those   understandings       as   controlling,     relegating   the    uniform
    covenants to varying and eccentric interpretations.                    And the
    opposing     opinion    cites     no   authority   for   this   rejection    of
    section 211.     Instead, the opposing opinion tries to argue by use
    of an analogy, suggesting that the unpleaded and unstated parallel
    subjective understandings of Kolbe and Taylor Bean are materially
    no different than a written supplemental agreement documenting such
    an understanding.        But a written supplementation on a subject
    matter addressed by Covenant 4, apart from perhaps making the loan
    non-conforming, would itself preclude a finding that the parties
    manifested     assent   to    a    "regularly    used"   writing,     rendering
    section 211 inapplicable.
    -89-
    Finally, the claim in the opposing opinion that we are
    "retroactively" "rewriting" Kolbe's agreement with Taylor Bean
    further evidences not just an unsupported hostility to the rule of
    section 211, but also a misapprehension of the facts.               The rule
    today was the rule when Kolbe signed his mortgage.             A party who
    "manifests assent to a writing and has reason to believe that like
    writings are regularly used to embody terms of agreements of the
    same type . . . adopts the writing as an integrated agreement with
    respect to the terms included in the writing."           § 211(1).     Here,
    Covenant 4 was expressly labeled a "uniform" covenant that neither
    Kolbe nor Taylor Bean could delete from the agreement without
    imperiling financing.          Even if we accept the contention that
    Covenant 4, in context, was materially ambiguous (which I do not),
    the controlling interpretative rule then, as now, was that the
    uniform   meaning   of   the    integrated   writing   would   be   resolved
    "without regard to" Kolbe's unwritten understanding.            § 211(2).
    Not a word in the agreement has been rewritten. Moreover, the
    meaning of these words as a matter of law was the same then as it
    is now.   In short, the fact that Kolbe's subjective understanding
    remains as irrelevant today as it was when he signed the agreement
    simply does not mean that the agreement has been changed in any
    way.
    -90-
    III.
    In rejecting the full force of section 211, and in
    accepting a theory of the case not pleaded, the opposing opinion
    would, at the margins, harm consumers in two respects.
    First, by disfavoring standardization and predictability
    in reading complaints and applying uniform agreements, the opposing
    opinion cuts at the margins against cost savings that benefit all.
    The ALI, which marshals the insights and perspectives not only of
    judges, but of law professors and practitioners, points us in a
    different   direction.      In   the    ALI's   view,   considerations   of
    predictability and practicality have weight, and rules supporting
    those values are to be given effect. Id. cmt. a. ("Standardization
    of agreements serves many of the same functions as standardization
    of goods and services . . . .     Operations are simplified and costs
    reduced, to the advantage of all concerned.").               The opposing
    opinion, by contrast, inadvertently calls us to act in this respect
    to the disadvantage of "all concerned," save perhaps this plaintiff
    in this case.    We rightly resist that call.42
    Second,   in   the   real     world,   interpreting   standard
    agreements uniformly, and especially applying mandated covenants in
    accordance with their one, legally determined meaning will tend to
    42
    And common sense and experience suggest that, as a practical
    matter, the "win" urged by the majority opinion would likely be
    Pyrrhic for Kolbe, who clearly did not commence this class action
    to recover a few hundred dollars.
    -91-
    facilitate class actions when contract terms actually are breached.
    The overly creative manner in which the opposing opinion reads the
    complaint, if applied even-handedly, would make it unnecessarily
    difficult to maintain class actions in consumer contract cases. We
    have before us a class action complaint drafted by experienced
    counsel who recognize that, absent class certification, the case is
    without      practical        worth       or   purpose.       Counsel       therefore
    understandably went out of their way to make sure that no defense
    counsel or court could plausibly read the complaint as alleging any
    claims that in any way hinged on a nonuniform, extrinsic evidence
    such as Kolbe's individual, subjective understanding.                    Otherwise,
    even before the decision in Walmart, Inc. v. Dukes, 
    131 S. Ct. 2541
    (2011), class certification in this case would have been hopeless.
    If a court could nevertheless read even this complaint as
    alleging     a    claim      by   Kolbe    based    on   subjective   and    unspoken
    understandings that could vary from borrower to borrower, then it
    would become quite difficult for counsel to draft pleadings that
    could not be read "to imply" individual issues.                       Such readings
    could   be       used   by    defendants       to   justify   putting    off    class
    certification rulings until after extensive discovery.                      Nor could
    plaintiffs avoid this problem by disavowing any such individual
    understandings: defense counsel would simply turn the assertion of
    broad affirmative defenses into fodder for further speculation
    about individual interactions and glosses.                    Confronted with the
    -92-
    possibility that ambiguous and uniform contract language mandated
    by the government might be interpreted contrary to a defendant's
    reading, creating a class-wide, common breach, defense counsel
    could    urge    that    each   class      member's     "understanding"     need    be
    assessed      individually      to   see    if     it   paralleled   that    of    the
    defendant, thereby trumping the uniform interpretation that would
    otherwise apply, and thereby cutting against class certification.
    This is not to say that we reach the result we do in
    order to facilitate the maintenance of class actions. Instead, I
    simply point out that the claim in the opposing opinion that the
    result   in     this    case    favors     large    institutions     over   ordinary
    consumers represents an overly simplified analysis that ignores the
    wider picture.          Both doctrinally and pragmatically, the opposing
    opinion's retooled and overly ambitious effort to rescue Mr.
    Kolbe's individual claim (for which it is not clear he has any
    damages) runs the risk of materially harming the interests of
    consumers in a broad variety of actions.
    IV.
    In sum, the opposing opinion substitutes speculation for
    pleaded allegations in reading the complaint, and then doubles down
    by substituting unstated individual understandings for predictable
    uniformity       when    interpreting       a    government-mandated,       standard
    covenant.       In rejecting both efforts, Chief Judge Lynch's opinion
    is both doctrinally correct and more pragmatically progressive.
    -93-
    TORRUELLA, Circuit Judge, with whom LIPEZ, Circuit Judge,
    and   THOMPSON,     Circuit   Judge,    join.      I    fully    agree   with   the
    arguments set forth by Judge Lipez in his opinion and thus join it.
    Like him, I see this case as a classic contracts dispute between
    two private parties.          Common law contract principles clearly
    dictate that, given Kolbe's evidently reasonable interpretation,
    his case should have been permitted to go forward.
    I   am    nevertheless      compelled   to    write    separately    to
    highlight the fact that the case garnered enough votes to convoke
    an en banc court and thereafter, by evenly divided votes, set aside
    the panel's decision, notwithstanding the clear mandate of the
    Rules of Appellate Procedure.          These rules establish that "en banc
    hearing or rehearing is not favored and ordinarily will not be
    ordered," except in the rare circumstances where such procedure is
    warranted because it is "necessary to secure or maintain uniformity
    of the court's decisions," or where we encounter a case presenting
    a "question of exceptional importance."            Fed. R. App. P. 35.
    Clearly, en banc resolution was not required to maintain
    the uniformity in our case law.
    It is telling that the opposing opinion totally fails to
    mention or explain why the issues decided by the panel are of
    "exceptional importance" within the meaning of Rule 35 warranting
    en banc consideration.        This is indeed troublesome for it sends a
    message that this court will rehear a case and set aside a panel's
    -94-
    well-reasoned decision whenever it is unhappy with the result or
    would   have   simply   decided   the     case   differently.      En   banc
    consideration is not for the purpose of correcting panel decisions.
    Calderón   v. Thompson, 
    523 U.S. 538
    , 569 (1998) (Souter, J.,
    dissenting)    ("[E]n   banc   rehearing    process   cannot    effectively
    function to review every three-judge panel that arguably goes
    astray in a particular case.").         Although it may seem that I am
    being unnecessarily fastidious by pointing out what is well-
    established jurisprudence, I am compelled to emphasize this point
    given that these requirements are vital in ensuring that these
    rules be equally applied to all litigants and issues raised by
    them.
    For some time now, I have been troubled by what I see as
    the recurring unprincipled denial and granting of petitions for
    rehearing en banc, without any attempt to define and apply a set of
    objective criteria to determine when a case is of exceptional
    importance.    See Igartúa v. United States, 
    654 F.3d 99
    , 105 (1st
    Cir. 2011) (Torruella, J., dissenting) ("Whether a question meets
    the standard of 'exceptional importance' should be determined by
    objective criteria, and should not depend -- as some have suggested
    -- on whether it is exceptional in the 'eye of the beholder' or
    because 'one knows it when one sees it.' Judging from a comparison
    of the cases in which we have granted or denied en banc review one
    cannot help but wonder if those are the criteria that are prevalent
    -95-
    in this circuit when considering en banc petitions.").        See also
    United States v. Vega-Santiago, 
    519 F.3d 1
    , 7 (1st Cir. 2008)
    (Torruella, J., dissenting) ("The convocation of this particular en
    banc proceeding highlights the whimsical and uneven manner in which
    this circuit often applies the rehearing rules.       Indeed, both the
    granting   and   denying   of   petitions   for   these   extraordinary
    proceedings evince a double-standard with respect to which issues
    are deemed meritorious of such review. . . . In this case, before
    either the appellant or the appellee had the opportunity to seek en
    banc review, the court undertook a rather unusual procedure and
    ordered en banc rehearing sua sponte.").
    A comparison of the issues involved in cases in which en
    banc petitions have been rejected with those in which we have
    allowed such revision clearly shows that we have had a double
    standard in applying the "exceptional importance" Rule 35 criteria.
    Compare SEC v. Tambone, 
    597 F.3d 436
     (1st Cir. 2010), United States
    v. Textron, 
    577 F.3d 21
     (1st Cir. 2009), Aronov v. Napolitano, 
    562 F.3d 84
     (1st Cir. 2009),   United States v. Giggey, 
    551 F.3d 27
     (1st
    Cir. 2008),   Vega-Santiago, and Conley v. United States, 
    323 F.3d 7
     (1st Cir. 2003), with Colón-Marrero v. Conty-Pérez, 
    698 F.3d 46
    (1st Cir. 2012), Donahue v. United States, 
    660 F.3d 523
     (1st Cir.
    2011), Dehonzai v. Holder, 
    654 F.3d 121
     (1st Cir. 2011), Igartúa,
    and Evans v. Thompson, 
    524 F.3d 1
     (1st Cir. 2008).         The present
    -96-
    case surely demonstrates this.   To say the least, this is an
    unsettling practice.
    -97-
    APPENDIX
    LIPEZ, Circuit Judge.    This putative class action is one
    of a number of breach-of-contract suits being brought against
    financial institutions nationwide by mortgagors who claim that they
    were improperly forced to increase flood insurance coverage on
    their properties.1   The plaintiff in this case, Stanley Kolbe,
    asserts that Bank of America's demand that he increase his flood
    coverage by $46,000 breached both the terms of his mortgage
    contract and the contract's implied covenant of good faith and fair
    dealing. The district court concluded that the pertinent provision
    of the mortgage unambiguously permitted the lender to require the
    increased flood coverage and, hence, it granted the defendants'
    motion to dismiss the complaint.
    Having closely examined the mortgage language at issue
    and the relevant context, we are persuaded that the mortgage is
    reasonably susceptible to an understanding that supports Kolbe's
    breach of contract and implied covenant claims.        We therefore
    vacate the judgment of dismissal in favor of the Bank.2
    1
    We address another one of these actions in a separate
    decision also issued today, Lass v. Bank of America, N.A., No. 11-
    2037.
    2
    Federal jurisdiction in this case is premised on the court's
    diversity jurisdiction over class actions alleging aggregated
    damages in excess of $5 million. See 
    28 U.S.C. § 1332
    (d).
    -98-
    I.
    The following facts are drawn from the allegations in the
    complaint.    See Román-Oliveras v. P.R. Elec. Power Auth., 
    655 F.3d 43
    , 45 (1st Cir. 2011).    In October 2008, appellant Kolbe borrowed
    $197,437 from a mortgage company to finance the purchase of his
    home in Atlantic City, New Jersey.        The loan is guaranteed by the
    Federal   Housing   Administration    ("FHA"),    an   agency   within   the
    Department of Housing and Urban Development ("HUD"), and Kolbe's
    mortgage in all material respects tracks the FHA's Model Mortgage
    Form for single-family homes.        See FHA Single Family Origination
    Handbook         4165.1,       App'x        II,        available         at
    http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4165.1/416
    51hbHSGH.doc (last visited Sept. 18, 2012); see also 
    24 C.F.R. § 203.17
    (a)(2)(i) (stating that FHA mortgages "shall be in a form
    meeting the requirements of the [Federal Housing] Commissioner").
    Paragraph 4 of both the model mortgage form and Kolbe's agreement
    describes the borrower's obligation to maintain hazard insurance,
    in pertinent part, as follows:
    4. Fire, Flood and Other Hazard Insurance.
    Borrower shall insure all improvements on the
    Property,   whether   now  in   existence   or
    subsequently erected, against any hazards,
    casualties, and contingencies, including fire,
    for which Lender requires insurance.      This
    insurance shall be maintained in the amounts
    and for the periods that Lender requires.
    Borrower shall also insure all improvements on
    the Property, whether now in existence or
    subsequently erected, against loss by floods
    -99-
    to the extent required by the Secretary [of
    HUD].
    Federal law required Kolbe to obtain flood insurance
    because his property is located in an area designated as a special
    flood hazard zone under the National Flood Insurance Act ("NFIA").
    See 
    42 U.S.C. §§ 4001-4129.3
       The minimum amount of such insurance
    also is mandated by law.   Under the NFIA, the flood coverage for a
    residential property securing a mortgage issued by a federally
    regulated lender must be in an amount at least equal to the
    outstanding principal balance of the loan, or $250,000, whichever
    is less.   
    Id.
     §§ 4012a(b)(1), 4013(b)(2); 
    24 C.F.R. § 203
    .16a;
    
    44 C.F.R. § 61.6
    .    Kolbe's complaint states that he purchased
    coverage in an unspecified amount in excess of the minimum.    See
    Compl. ¶ 26.
    In August 2009, Kolbe's original mortgage company went
    bankrupt, and appellee Bank of America took over Kolbe's loan.4
    Through appellee Balboa Insurance Company, the Bank sent Kolbe
    notices in October and November 2009 stating that he was required
    to increase his flood insurance by $46,000 so that the total
    3
    Technically, the statute requires the lender to require the
    borrower to obtain the insurance. See 42 U.S.C. § 4012a(b)(1).
    4
    BAC Home Loans Servicing, LP, a wholly owned subsidiary of
    Bank of America, N.A., was the entity that originally took over the
    mortgage. BAC has now been merged into the Bank, and we thus refer
    to the defendant mortgage holder as "Bank of America" or "the
    Bank." Defendant Balboa Insurance Company also is a subsidiary of
    Bank of America. For convenience, we at times refer only to "the
    Bank" when describing acts allegedly performed by both defendants.
    -100-
    coverage would equal the replacement cost of his property as
    identified in his homeowner's insurance policy.        The Bank warned
    that it would purchase the additional insurance itself, at an
    estimated cost to Kolbe of $237, if he did not acquire the
    insurance by December 6.         The Bank further advised that the
    insurance it would purchase -- commonly known as "force-placed" or
    "lender-placed"    insurance,"    see,   e.g.,   Williams   v.   Certain
    Underwriters at Lloyd's of London, 
    398 F. App'x 44
    , 45 (5th Cir.
    2010) (per curiam) -- might cost more and would likely be less
    comprehensive than coverage Kolbe could obtain on his own.           In
    response to these notices, Kolbe bought the additional $46,000 in
    flood insurance.
    In February 2011, Kolbe filed this action against Bank of
    America and Balboa on behalf of himself and others similarly
    situated for breach of the mortgage contract and breach of the
    contract's implied covenant of good faith and fair dealing.          He
    claimed that his mortgage contract did not permit the Bank to
    demand increased coverage, and he alleged that the Bank had
    implemented a nationwide policy of compelling borrowers to maintain
    greater flood insurance than required by their mortgages or federal
    law.   Kolbe's complaint asserted that the Bank was profiting from
    this improper policy because it often arranged for force-placed
    insurance to be purchased through its own affiliated companies and
    brokers.
    -101-
    The defendants moved to dismiss the complaint on the
    ground that Paragraph 4 of the mortgage unambiguously gives the
    lender the discretion to determine the amount of flood insurance
    the borrower must carry.        In its written decision, the district
    court agreed that the hazard-insurance provision can only be
    reasonably interpreted to afford discretion to the lender.                The
    court concluded that the reference to "any hazards" in the first
    sentence of the paragraph encompasses flooding,5 and, consequently,
    it held that the second sentence gives the lender the right to
    require that flood insurance, like other types of hazard coverage,
    "be maintained in the amounts and for the periods that [the] Lender
    requires."       The   court   then   considered    the   paragraph's   third
    sentence, which explicitly refers to flood insurance, and held that
    it "merely specifies the required minimum coverage for flood
    insurance" under federal law -- i.e., it imposes a floor on the
    Bank's discretion to set the amount of flood insurance.
    On appeal, Kolbe insists that Paragraph 4 addresses flood
    insurance solely by means of the third sentence -- which explicitly
    references such coverage -- and not by means of the generally
    phrased   "all     hazards"     language      in   the    first   sentence.
    Alternatively, he maintains that this understanding is one of two
    5
    As reproduced above, the first sentence states: "Borrower
    shall insure all improvements on the Property, whether now in
    existence or subsequently erected, against any hazards, casualties,
    and contingencies, including fire, for which Lender requires
    insurance."
    -102-
    reasonable constructions of the paragraph.            Kolbe asserts that his
    interpretation supports his claim that the Bank breached the
    mortgage agreement and violated the contract's implied covenant of
    good faith and fair dealing by compelling him (and others similarly
    situated) to purchase flood insurance in excess of the outstanding
    loan balance. Hence, Kolbe argues that the district court erred in
    dismissing his complaint for failure to state a claim.
    II.
    The issue in this case is one of straightforward contract
    interpretation.       Appellant Kolbe asserts that the hazard and flood
    insurance sentences in Paragraph 4 are independent and, indeed,
    mutually exclusive.          Appellees maintain that the flood insurance
    sentence is subordinate to the general hazard sentence, merely
    limiting the Bank's discretion by incorporating the minimum
    coverage required by federal law.             Kolbe, in other words, argues
    that the contract does not permit the Bank to demand insurance
    beyond the amount "required by the Secretary," while appellees
    argue    that   the   Bank    may   require   any   amount   so   long   as   the
    Secretary's minimum is met.
    Whether the contract language at issue here is ambiguous
    is a question of law, Nye v. Ingersoll Rand Co., 
    783 F. Supp. 2d 751
    , 759 (D.N.J. 2011),6 and, accordingly, our review of the
    6
    The parties agree that New Jersey law governs the state-law
    issue of contract interpretation because Kolbe's residence is
    located there, and Paragraph 14 of the mortgage provides that
    -103-
    district court's       interpretation is de novo, Sumitomo Mach. Corp.
    of Am., Inc. v. AlliedSignal, Inc., 
    81 F.3d 328
    , 332 (3d Cir.
    1996).7    A contract is ambiguous if it "is susceptible of more than
    one   meaning   or     if   it   is   subject      to   reasonable   alternative
    interpretations."       United States v. Pantelidis, 
    335 F.3d 226
    , 235
    (3d   Cir.   2003)     (citation      omitted)     (internal   quotation     marks
    omitted); see also Chubb Custom Ins. Co. v. Prudential Ins. Co. of
    Am., 
    948 A.2d 1285
    , 1289 (N.J. 2008).                   Under New Jersey law,
    extrinsic evidence of context may be considered in determining
    ambiguity if "such evidence provides 'objective indicia that, from
    the linguistic reference point of the parties, the terms of the
    contract are susceptible of different meanings.'" Am. Cyanamid Co.
    v. Fermenta Animal Health Co., 
    54 F.3d 177
    , 181 (3d Cir. 1995)
    (quoting Mellon Bank, N.A. v. Aetna Business Credit, Inc., 
    619 F.2d 1001
    , 1011 (3d Cir. 1980)).           We must "consider all of the relevant
    evidence that will assist in determining the intent and meaning of
    the contract." Conway v. 287 Corporate Ctr. Assocs., 
    901 A.2d 341
    ,
    346 (N.J. 2006); see also SmithKline Beecham Corp. v. Rohm & Haas
    Co., 
    89 F.3d 154
    , 159 (3d Cir. 1996) (stating that New Jersey law
    requires     "courts    [to]     interpret     a   contract    considering   'the
    objective intent manifested in the language of the contract in
    "federal law and the law of the jurisdiction in which the Property
    is located" govern.
    7
    Our review of a district court's dismissal of a complaint is
    likewise de novo. See Román-Oliveras, 655 F.3d at 47.
    -104-
    light of the circumstances surrounding the transaction'" (quoting
    Dome Petroleum Ltd. v. Employers Mut. Liab. Ins. Co., 
    767 F.2d 43
    ,
    47 (3d Cir. 1985))).
    A. Breach of Contract
    1.   The Language
    Kolbe argues that the first three sentences of Paragraph
    4 plainly address hazard insurance and flood insurance separately
    -- with hazard insurance covered by the first two sentences and
    flood insurance covered by the third -- and that only the amount of
    hazard insurance is left to the discretion of the lender.       For
    convenience, we again reproduce the pertinent language in full:
    4. Fire, Flood and Other Hazard Insurance.
    Borrower shall insure all improvements on the
    Property,   whether   now  in   existence   or
    subsequently erected, against any hazards,
    casualties, and contingencies, including fire,
    for which Lender requires insurance.      This
    insurance shall be maintained in the amounts
    and for the periods that Lender requires.
    Borrower shall also insure all improvements on
    the Property, whether now in existence or
    subsequently erected, against loss by floods
    to the extent required by the Secretary [of
    HUD].
    Multiple characteristics of the provision suggest that
    Kolbe's interpretation is correct.    Importantly, the paragraph is
    structured to address two different categories of insurance, with
    the first and third sentences containing identical introductory
    language directing the borrower to insure "all improvements on the
    Property, whether now in existence or subsequently erected."   The
    -105-
    repetition arguably denotes two parallel statements of coverage,
    each establishing a particular coverage requirement for the same
    property. The first two sentences also are distinct from the third
    because they address insurance required by the lender, while the
    third sentence addresses insurance required by the Secretary.   The
    second sentence, referring to "This insurance," is written as a
    modification of the first sentence, addressing the required amount
    of the previously identified form of insurance.   By contrast, the
    next sentence, referring to flood coverage, contains its own
    specification of amount -- "the extent required by the Secretary."
    The   view   that   Paragraph   4   imposes   independent
    requirements for hazard and flood insurance is lent force by the
    title for the paragraph, which breaks out "fire" and "flood" from
    all other hazards.     Each of those two specifically identified
    hazards is then explicitly referenced, separately, in one of the
    two parallel sentences.   The fact that both "fire" and "flood" are
    mentioned in the title, but the "all hazards" sentence refers only
    to "fire," further supports the view that the flood coverage was
    handled by the separate, linguistically parallel third sentence.
    Moreover, the word "also" in the flood-insurance sentence
    reinforces the independence of the two requirements by suggesting
    a separate, additional obligation -- i.e., in addition to the
    hazard insurance that is left to the lender's discretion for most
    types of hazards, the debtor must obtain flood insurance in the
    -106-
    requisite amount.          Indeed, if the flood-insurance sentence were
    meant   merely     to    limit   the    discretion      afforded         in   the   prior
    sentence, it arguably would have been framed in direct relation to
    that sentence.          For example, it could have said: "Notwithstanding
    any requirements of the Lender, flood insurance must be obtained as
    required by the Secretary."            The sentence as drafted, however, is
    not framed as a qualification on the previous sentence, but as an
    independent, further requirement.
    Bank    of    America      argues    that   the    first      sentence     in
    Paragraph 4, which applies generally to coverage against "hazards,
    casualties, and contingencies," must be understood to include flood
    insurance     because       flooding     is     embraced      by    any       reasonable
    understanding of those terms. Thus, the Bank asserts, the mortgage
    contract allows it to demand flood coverage as it chooses pursuant
    to   the    sentence      stating      that     the   hazard       (or    casualty     or
    contingency) insurance "shall be maintained in the amounts and for
    the periods that Lender requires."               The third sentence, according
    to the Bank, minimally cabins its discretion by requiring flood
    insurance at least "to the extent required by the Secretary."
    We think appellant has the better argument based on the
    language and format of the paragraph. Nevertheless, we acknowledge
    that the Bank's interpretation can also be deemed reasonable.
    Floods unquestionably are a type of hazard, and they are thus
    literally within the scope of the first sentence.                        Moreover, the
    -107-
    third   sentence   can    be   reasonably   understood   to   declare   the
    borrower's obligation to obtain flood insurance as required by the
    NFIA regardless of whether the lender requires any other form of
    hazard insurance, but not to override the lender's exercise of
    discretion to require more.
    Because the language is not decisive, we consider what
    the available extrinsic evidence tells us about the meaning of the
    provision.
    2. The Extrinsic Evidence
    As a preliminary matter, we note that the mortgage and
    certain public materials outside the complaint may properly be part
    of our inquiry in reviewing the district court's disposition of a
    motion to dismiss.       See, e.g., Giragosian v. Ryan, 
    547 F.3d 59
    , 65
    (1st Cir. 2008) (stating that a district court may consider
    "documents incorporated by reference [in the complaint], matters of
    public record, and other matters susceptible to judicial notice"
    without converting a motion to dismiss into a motion for summary
    judgment     (internal    quotation   marks   omitted)   (alteration    in
    original)). We therefore refer liberally to publicly available HUD
    materials.
    The debate over the clarity of Paragraph 4 centers on
    whether the reference to "any hazards" may reasonably be read to
    exclude the serious hazard of flooding.         Kolbe argues that flood
    damage ordinarily is not covered by standard homeowners' hazard
    -108-
    insurance policies, and that it therefore is reasonable to conclude
    that such coverage is excluded from the mortgage contract's hazard
    insurance requirement.       The Bank responds that the absence of any
    explicit exclusion for flood coverage in the "any hazards" sentence
    is the best evidence that flooding is a hazard within the meaning
    of that sentence.
    Kolbe's view is advanced by the distinctive treatment
    routinely given to flood insurance by HUD, the agency responsible
    for FHA programs.   Kolbe's mortgage contract contains standard HUD
    language   specifying   the     mortgagor's   insurance    obligations.8
    Appellant points out that HUD's handbook for the "Administration of
    Insured Home Mortgages" treats hazard insurance and flood insurance
    separately.   For example, in a list of items linked to a home sale
    that must be escrowed, hazard insurance is listed as the first item
    and flood insurance is listed as the sixth item.          See HUD Handbook
    4330.1,       ch.       2,       §      2-1(D),       available         at
    http://portal.hud.gov/hudportal/HUD?src=/program_offices/administ
    ration/hudclips/handbooks/hsgh/4330.1         (last   visited   Sept.   18,
    2012).   The HUD handbook also contains a section labeled "Payment
    of Bills and Taxes from Escrow Accounts" that lists the two types
    of coverage separately. See id. ch. 2, § 2-8(D) (Hazard Insurance)
    & (E) (Flood Insurance); see also id. at § 2-11(E) (separately
    8
    Paragraph 4 is one of sixteen "uniform covenants" included
    in the FHA Model Mortgage Form for single-family homes. See FHA
    Single Family Origination Handbook 4165.1, App'x II, supra.
    -109-
    listing "Dwelling Insurance," "Flood Insurance," and "Homeowner's
    Policies" under "Types of Coverage").                          Similarly, HUD's sample
    settlement      statement        for    a   home        purchase   separately        itemizes
    "Hazard Insurance Premium" on Line 903 and "Flood Insurance" on
    Line 904.        See "Buying Your Home" (June 1997), Section III,
    a   v       a        i      l      a        b      l       e                 a      t
    http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_12893.pdf
    (last visited Sept. 18, 2012).
    HUD's practice of treating flood coverage separately
    reflects Congress's specific concern about such insurance, which
    led to the enactment of the NFIA in 1968.                       Following years of major
    floods that required "unforeseen disaster relief measures and . . .
    placed an increasing burden on the Nation's resources," Congress
    identified a widespread gap in private flood insurance coverage.
    
    42 U.S.C. § 4001
    (a); see also H.R. Rep. No. 90-1585 (1968),
    reprinted       in   1968       U.S.C.C.A.N.        2873,      2966-2967     (noting    that
    "[h]eavy losses over the years from hurricanes in the coastal areas
    and from storms in inland areas of the Nation dramatize the lack of
    insurance protection against flood damage"). The legislators found
    that it was "uneconomic" for private insurers to make flood
    insurance       available         "on   reasonable             terms   and       conditions,"
    
    42 U.S.C. § 4001
    (b)(1), and they sought to bridge the gap through
    a cooperative program between the federal government and the
    -110-
    insurance industry, 
    id.
     § 4001(b)(2).9          Thus, in effect, Congress
    found that floods were not customarily among the hazards protected
    by standard homeowners' insurance policies.                See Mitchell F.
    Crusto,   The   Katrina   Fund:   Repairing     Breaches    in    Gulf    Coast
    Insurance Levees, 
    43 Harv. J. on Legis. 329
    , 335 (2006) ("The
    insurance   industry   has   generally     excluded   flood      damage   in   a
    homeowners policy because flood insurance is not commercially
    viable."); US Gov't Accountability Office, GAO 07-1078, National
    Flood Insurance Program: FEMA's [Federal Emergency Management
    Agency] Management and Oversight of Payments for Insurance Company
    Services Should be Improved, at 8 (2007) (noting that "flooding is
    generally excluded from homeowner policies that typically cover
    damage from other losses, such as wind, fire, and theft").10
    9
    Congress anticipated that the National Flood Insurance
    Program ("NFIP") authorized by the NFIA would rely on a pool of
    insurance companies "to assume a reasonable proportion of
    responsibility for the adjustment and payment of claims for
    losses." 
    42 U.S.C. § 4051
    (a)(2); see also 
    id.
     § 4011 (authorizing
    the program).   Federal funds would subsidize the program.      Id.
    §§ 4054(a) (directing the Administrator of the Federal Emergency
    Management Agency to make periodic payments to the pool to ensure
    that "flood insurance [is] available on reasonable terms and
    conditions"); 4055(a) (authorizing reinsurance provided by the
    government for losses in excess of the pool's assumption of
    responsibility); see also Suopys v. Omaha Prop. & Cas., 
    404 F.3d 805
    , 807 (3d Cir. 2005) (noting that "[t]he NFIP is underwritten by
    the United States Treasury in order to provide flood insurance
    below actuarial rates").
    10
    HUD also recognizes the standard industry practice in
    guidance about flood insurance requirements that is provided on its
    website:
    Generally,    homeowner      and   other    property     casualty
    -111-
    HUD's practice of treating flood insurance independently
    is pertinent to our interpretation of Paragraph 4 of the FHA's
    model language, see Pacifico v. Pacifico, 
    920 A.2d 73
    , 78 (N.J.
    2007) (noting that the terms of a contract are to be examined "in
    light of the common usage and custom"); Kearny PBA Local No. 21 v.
    Town of Kearny, 
    405 A.2d 393
    , 400 (N.J. 1979) (listing custom and
    usage        among    the   "interpretative   devices"     for    discovering
    contractual intent), and Kolbe's interpretation has particular
    force where, as here, the mortgage separately addresses flood-
    insurance coverage.           By contrast, if there were no explicit
    reference to flooding as a specific harm requiring insurance
    coverage,       the   assertion   that   flooding   is   not   embraced   by   a
    reference to "any hazards" would be considerably less potent. That
    was the situation in Custer v. Homeside Lending, Inc., 
    858 So.2d 233
     (Ala. 2003), on which the district court relied in rejecting
    the ambiguity of the language in Kolbe's mortgage.11             The explicit
    insurance policies do not provide coverage for potential
    financial loss that may be caused by flooding damage.
    Many of the private insurance companies are now marketing
    policies offered by the National Flood Insurance Program
    along with their own property casualty insurance
    policies.
    http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_pla
    nning/environment/review/qa/floodinsurance (last visited Sept. 18,
    2012).
    11
    The comparable provision in Custer stated:
    "7. That [the Mortgagor] will keep the improvements now
    existing or hereafter erected on the mortgaged property,
    -112-
    attention   to   flood   insurance   in   Kolbe's   mortgage   materially
    distinguishes that case from this one.
    The Bank, however, reasonably asserts that it makes no
    sense to read floods out of the "any hazards" sentence because it
    would be unreasonable to bar a mortgage provider from requiring
    more than the limited amount of insurance required by federal law,
    i.e., the amount of the outstanding loan balance.        It argues that
    lenders have an interest in ensuring the long-term performance of
    mortgage loans by protecting the replacement value of the property,
    as it sought to do in this instance.         It cites FEMA guidelines
    advising lenders to require replacement-value insurance.         See Fed.
    Emergency Mgmt. Agency, National Flood Insurance Program: Mandatory
    Purchase of Flood Insurance Guidelines 27-28 (2007), available at
    http://www.fema.gov/library/viewRecord.do?id=2954        (last   visited
    Sept. 18, 2012).   Interagency guidance makes explicit that lenders
    may demand more flood insurance coverage than is required by law,
    stating that "[e]ach lender has the responsibility to tailor its
    own flood insurance policies and procedures to suit its business
    needs and protect its ongoing interest in the collateral." 74 Fed.
    insured as may be required from time to time by the
    Mortgagee against loss by fire and other hazards,
    casualties and contingencies in such amounts and for such
    periods as may be required by the Mortgagee and will pay
    promptly, when due, any premiums on such insurance
    provision for payment of which has not been made
    hereinbefore."
    Custer, 858 So.2d at 237 (emphasis in original).
    -113-
    Reg. 35914, 35936 (July 21, 2009), 
    2009 WL 2143410
     (F.R.) (Question
    16);12 see also Notice, Loans in Areas Having Special Flood Hazards,
    
    76 Fed. Reg. 64175
    , 64182 (Oct. 17, 2011) (Question 9) (noting
    that, "[i]n cases involving certain residential . . . properties,
    insurance policies should be written to, and the insurance loss
    payout would be the equivalent of, [replacement cost]").
    We acknowledge that lenders may have good reason to
    require full replacement coverage.           Nonetheless, in mandating
    minimum coverage in an amount "equal to the outstanding principal
    balance of the loan," 42 U.S.C. § 4012a(b)(1), Congress in the NFIA
    appears to have incorporated an assumption that, at times, a more
    limited    amount   of   flood   insurance    may   be   reasonable   and
    appropriate.    The view that the amount of mandatory insurance
    should be kept to a minimum also is reflected in the insurance
    coverage section of HUD's Handbook, which provides that "[t]he
    mortgagee may not insist on more coverage than is necessary to
    protect its investment."     HUD Handbook 4330.1, ch. 2, § 2-11(B),
    supra.13
    12
    The FHA is not one of the agencies that issued the guidance.
    They were: Office of the Comptroller of the Currency, Treasury; the
    Board of Governors of the Federal Reserve System; the Federal
    Deposit Insurance Corporation; the Office of Thrift Supervision,
    Treasury; the Farm Credit Administration, and the National Credit
    Union Administration.
    13
    Of course, this statement may not mean that the insurance
    should be limited to the amount of the outstanding balance because,
    as discussed above, a lender may deem replacement-value coverage
    "necessary to protect its investment."
    -114-
    Indeed, it is plausible that the FHA, which prescribes
    Paragraph 4 as a "uniform convenant[] for national use," App'x at
    31 (Kolbe mortgage), would have sought to balance the need for
    privately funded disaster relief with a concern that insurance
    costs not become a barrier to home ownership.                    HUD's mission,
    carried out through the FHA and other programs, is in part "to
    create strong, sustainable, inclusive communities and quality
    affordable         homes    for        all."           See      HUD      Mission,
    http://portal.hud.gov/hudportal/HUD?src=/about/mission                        (last
    visited Sept. 18, 2012).          From the perspective of facilitating
    "affordable    homes,"     Paragraph     4   as   construed     by    Kolbe   could
    reasonably    be    understood    to    reflect    a   policy   choice    to    cap
    mandatory flood insurance at the amount of the outstanding loan
    balance.14    See generally S. Rep. No. 87-281 (1961), reprinted in
    1961 U.S.C.C.A.N. 1923, 1925-26 (discussing amendments to the
    National Housing Act of 1934 ("NHA") that, inter alia, created "a
    new FHA mortgage insurance program" to further "the national
    housing policy of 'a decent home and suitable living environment
    for every American family'"); Cienega Gardens v. United States, 
    503 F.3d 1266
    , 1270 (Fed. Cir. 2007) (noting that the 1961 amendments
    14
    Indeed, the model Paragraph 4 used in Kolbe's FHA mortgage
    does not mandate any insurance for hazards other than floods, as it
    leaves any such requirement to the lender's discretion. See HUD
    Handbook 4330.1, ch. 2, § 2-8(D), supra ("While HUD does not
    require mortgagors to carry hazard insurance, the mortgage does
    permit mortgagees to require it.").
    -115-
    were designed to "'meet[] the housing needs of moderate-income
    families'"    (quoting   S.    Rep.    No.    87-281,    reprinted    in   1961
    U.S.C.C.A.N. at 1926)).
    The dissent invokes the industry practice of limiting
    "all-risk" policies by means of express flood-exclusion provisions
    to argue that, absent such an exclusion in the FHA model mortgage,
    "any hazards" in the first sentence of Paragraph 4 can only
    reasonably be read to include flooding.                 That view, however,
    reflects the dissent's basic flaw of ignoring the reasonable
    arguments in Kolbe's favor.      It is plausible that HUD responded to
    the standard industry practice of treating floods as a distinct
    hazard by developing a mortgage document that deals with flood
    coverage separately from the coverage for other hazards.              Indeed,
    as discussed above, the repetitive format of the "any hazards" and
    flood-insurance    sentences    in     Paragraph   4     suggests    parallel,
    independent    obligations.      Hence,       contrary    to   the   dissent's
    assertion, the general industry practice is no more helpful to the
    Bank's position than it is to Kolbe's.15
    The extrinsic evidence thus leaves us in much the same
    place as our examination of Paragraph 4's text and structure. The
    HUD documents showing that the agency routinely treats hazard and
    15
    It bears repeating that we are reviewing the grant of a
    motion to dismiss. The Bank will have the opportunity to develop
    a record in support of its position and, if appropriate, to seek
    summary judgment.
    -116-
    flood insurance independently are persuasive evidence in support of
    Kolbe's assertion that Paragraph 4 separately addresses the two
    types of insurance and fixes the required amount of flood insurance
    at the statutory minimum amount.                 At the same time, however, the
    FEMA guidelines recommending replacement value coverage support the
    Bank's view that Paragraph 4 is not reasonably construed to prevent
    lenders from fully protecting their investments and, hence, must be
    read to give the lender discretion to increase the requirement
    above the statutory minimum.
    The question, of course, is not what amount of flood
    insurance           a    lender   reasonably    could    require,     but    what   this
    particular HUD mortgage provision in fact permits the lender to
    demand.        See Hofstetter v. Chase Home Fin., LLC, 
    751 F. Supp. 2d 1116
    ,        1127       n.3   (N.D.   Cal.   2010)   ("Simply      because   an   agency
    recommends          that      lenders   maintain     a   certain    amount   of     flood
    insurance coverage does not mean that lenders have carte blanche to
    do so without regard to the terms of their loan agreements with
    borrowers.").             As to that question, we conclude that a rational
    jury could construe Paragraph 4 in favor of either Kolbe or the
    Bank.        Though the text of Paragraph 4 and the extrinsic evidence
    both provide strong support for Kolbe's interpretation, his reading
    is not the only reasonable one.16                See Morris v. Wells Fargo Bank,
    16
    Indeed, the dissent plausibly marshals support for the
    Bank's interpretation of the mortgage language. It fails, however,
    to give comparable respect to the factors that favor Kolbe's
    -117-
    N.A., No. 2:11-cv-00474 (W.D. Pa. Sept. 7,2012) (denying motion to
    dismiss breach of contract claim involving same language) (stating
    that,     "[a]t   the   very   least,   plaintiff's   interpretation   is
    tenable"); Wulf v. Bank of America, 
    798 F. Supp. 2d 586
    , 588 (E.D.
    Pa. 2011) (same); Skansgaard v. Bank of America, No. C11-988 RJB,
    slip op. at 4 (W.D. Wash. Oct. 13, 2011) (same).              Kolbe has
    therefore stated a plausible breach of contract claim, and, hence,
    the district court erred in dismissing his complaint on the ground
    that the mortgage unambiguously permitted the Bank to demand the
    additional $46,000 in coverage.         See Ocasio-Hernández v. Fortuño-
    Burset, 
    640 F.3d 1
    , 12 (1st Cir. 2011) (holding that "an adequate
    complaint must provide fair notice to the defendants and state a
    facially plausible legal claim" (citing Ashcroft v. Iqbal, 
    556 U.S. 662
     (2009), and Bell Atlantic Corp. v. Twombly, 
    550 U.S. 544
    (2007)).17
    interpretation.
    17
    Kolbe argues that any ambiguity in the mortgage should be
    construed against the Bank as the "drafter" of the agreement. The
    Bank argues in response that the doctrine giving the advantage to
    the non-drafting party in a dispute over language does not apply
    where the language at issue is prescribed by law. See Restatement
    (Second) of Contracts § 206(b) ("The rule that language is
    interpreted against the party who chose it has no direct
    application to cases where the language is prescribed by law, as is
    sometimes true with respect to insurance policies, bills of lading
    and other standardized documents."). Kolbe acknowledges that the
    "FHA required that the Mortgage Agreement conform to its
    requirements," Compl. ¶ 18, and we thus reject the doctrine as a
    basis for judgment against the Bank at this stage of the case.
    Kolbe remains free to re-argue the issue as warranted upon further
    development of the facts.
    -118-
    B. The Covenant of Good Faith and Fair Dealing
    Kolbe alleges that the defendants acted in bad faith and
    consequently breached the implied covenant of good faith and fair
    dealing by demanding flood insurance in an amount in excess of the
    coverage required by his mortgage.    The covenant, implied in every
    contract in New Jersey, imposes a duty on each party to refrain
    from "'destroying or injuring the right of the other party to
    receive the fruits of the contract.'"     Sons of Thunder, Inc. v.
    Borden, Inc., 
    690 A.2d 575
    , 587 (N.J. 1997) (quoting Palisades
    Props., Inc. v. Brunetti, 
    207 A.2d 522
    , 531 (N.J. 1965)); see also
    Kalogeras v. 239 Broad Ave., L.L.C., 
    997 A.2d 943
    , 953 (N.J. 2010);
    Restatement (Second) of Contracts § 205 (1981) ("Every contract
    imposes upon each party a duty of good faith and fair dealing in
    its performance and its enforcement.").
    The New Jersey Supreme Court has described good faith
    conduct as "conduct that does not 'violate community standards of
    decency, fairness or reasonableness,'" Brunswick Hills Racquet
    Club, Inc. v. Route 18 Shopping Ctr. Assocs., 
    864 A.2d 387
    , 395
    (N.J. 2005) (internal quotation mark omitted) (quoting Restatement
    (Second) of Contracts § 205 cmt. a), and that is "'consisten[t]
    with the justified expectations of the other party,'" Wilson v.
    Amerada Hess Corp., 
    773 A.2d 1121
    , 1126 (N.J. 2001) (quoting
    Restatement (Second) of Contracts § 205 cmt. a).    In New Jersey, a
    showing of "'bad motive or intention' is vital to an action for
    -119-
    breach of the covenant."     Brunswick Hills Raquet Club, 864 A.2d at
    225 (quoting Wilson, 773 A.2d at 1130).
    The Bank asserts that no jury could find that the Bank
    acted in bad faith by taking the objectively reasonable step of
    requiring insurance in the amount recommended by FEMA.          We agree
    that, given the ambiguity in Paragraph 4, requiring replacement-
    value coverage would on its own fall short of demonstrating bad
    faith.   Kolbe's claim, however, does not rest solely on the demand
    for increased coverage.    The Bank warned Kolbe that if he failed to
    purchase    additional   coverage,   force-placed   insurance   would   be
    obtained, possibly through entities related to Bank of America, at
    a premium that "may be more expensive and will likely provide less
    coverage than . . . you can obtain on your own."           App'x at 43
    (Notice to Kolbe, Oct. 18, 2009).
    This ultimatum could constitute bad faith under either of
    two scenarios.   The first would be if the Bank, notwithstanding our
    conclusion that Paragraph 4 is ambiguous, had in fact believed that
    the mortgage required flood insurance coverage only in the amount
    of the outstanding principal balance of the mortgage (or $250,000,
    if that were the lower amount) and, hence, did not authorize the
    Bank's demand for additional coverage at additional expense to the
    borrower.    Evidence that the Bank made the demand despite this
    belief, so that it might have the opportunity to gain financially
    from the purchase of insurance through its related entities, would
    -120-
    plainly suggest the "bad motive or intention" that is at the core
    of a breach of the implied covenant.     See Brunswick Hills Raquet
    Club, 864 A.2d at 225.       A finding of bad faith also would be
    supportable if the Bank had recognized the ambiguity in Paragraph
    4 and, instead of acting out of concern for protecting its security,
    had seized upon the ambiguity as a money-making opportunity. Again,
    a decision to demand additional insurance for the purpose of
    generating business for its affiliated insurance companies, and
    thereby increase Bank profits, would reflect the improper motive
    necessary to demonstrate a breach of the covenant of good faith and
    good dealing.
    We conclude that the allegations plausibly support such
    a contention of improper motivation: Kolbe alleges that the Bank
    demanded flood insurance in excess of his obligations under the
    contract, see Compl.     ¶¶ 13, 25-26, 32,18 that it did so in bad
    18
    These paragraphs allege, in pertinent part, as follows:
    13.    Defendants have a nationwide policy and
    practice of requiring mortgagors of mortgages on real
    estate located in geographic areas designated by the
    United States government as having "special flood
    hazards" to maintain flood insurance coverage in an
    amount equal to the lesser of an amount established by
    Defendants or the maximum flood insurance coverage
    available under the National Flood Insurance Act of 1968
    . . . . Defendants apply and enforce Defendants' Flood
    Insurance Coverage Requirement even if it exceeds the
    mortgagor's flood insurance coverage obligations and
    Defendant BAC Home Loans' flood insurance rights under
    the mortgage agreements.
    25.   [P]ursuant to the . . . provision of the
    -121-
    faith, id. ¶ 55,19 and that the Bank or its related entities would
    profit through the purchase of force-placed insurance, id. ¶¶ 15,
    16.20        These allegations, in effect, amount to a claim that the
    Mortgage Agreement and the applicable FHA regulations,
    Plaintiff was required to maintain flood insurance
    coverage for the Property in an amount equal to the
    lesser of the outstanding balance on the Loan (less
    estimated land costs) or the $250,000 maximum flood
    insurance available under the Flood Insurance Act.
    26. At all times . . . Plaintiff has maintained
    flood insurance coverage on the Property in excess of the
    outstanding balance of the Loan . . . .       That flood
    insurance coverage was greater than the amount of flood
    insurance that Plaintiff was contractually obligated to
    maintain on the Property pursuant to the Mortgage
    Agreement and the above-referenced applicable FHA
    regulations.
    32. Defendants' requirement that Plaintiff purchase
    additional flood insurance was neither required by, nor
    permitted by, the Mortgage Agreement.       . . . [T]he
    Mortgage Agreement requires Plaintiff to maintain flood
    insurance coverage of at least the outstanding balance of
    the Loan less estimated land costs.        Plaintiff was
    already maintaining this level of flood insurance
    coverage on the Property when the Defendants sent him the
    October 18 and November 16, 2009 letters. Accordingly,
    Plaintiff was fully satisfying his flood insurance
    coverage obligation under the Mortgage Agreement and
    fully fulfilling the Defendant BAC Home Loans' flood
    insurance coverage rights under the Mortgage Agreement.
    19
    Paragraph 55 alleges:
    By requiring Plaintiff and the Class to maintain and
    pay for flood insurance coverage in excess of the
    coverage   required   by  their   mortgage    agreements,
    Defendants acted in bad faith and breached the implied
    covenant of good faith and fair dealing contained in the
    mortgage agreements.
    20
    These paragraphs allege:
    -122-
    Bank's motivation for demanding additional flood insurance coverage
    was to increase corporate profits by funneling new coverage to its
    own affiliates.21   See, e.g., Abels v. JPMorgan Chase Bank, N.A.,
    
    678 F. Supp. 2d 1273
    , 1276, 1278-79 (S.D. Fla. 2009) (declining to
    dismiss claim alleging breach of implied covenant where plaintiffs
    asserted that defendant "engaged in self-dealing by purchasing
    insurance from one of its own affiliates"); cf. Artuso v. Vertex
    Pharm.,   Inc.,   
    637 F.3d 1
    ,   9   (1st   Cir.   2011)   (holding   that
    "plaintiff's implied covenant claims founder because his complaint
    15. Defendants enforce Defendants' Flood Insurance
    Coverage Requirement by demanding that the mortgagors
    obtain the amount of flood insurance coverage required by
    Defendants.    If the mortgagors fail to comply with
    Defendants' demand, Defendants purchase flood insurance
    coverage so that the total insurance coverage on the real
    estate will meet Defendants' Flood Insurance Coverage
    Requirement. Defendants then charge the mortgagors for
    the cost of that additional insurance by either deducting
    the insurance premiums from the escrow accounts
    maintained by the mortgagors with Defendant BAC Home
    Loans or by increasing the mortgagors' monthly mortgage
    payments.
    16. Defendants or their corporate subsidiaries or
    affiliates profit when Defendants buy insurance for
    mortgagors. Defendants often purchase the insurance from
    Defendants' own affiliated insurance companies, including
    Defendant Balboa, and/or place the insurance through
    Defendants'   own    affiliated   insurance   brokers.
    Defendants'   affiliated    insurance   brokers   receive
    commissions   on   these   insurance   transactions   and
    Defendants' affiliated insurance companies, including
    Balboa, receive the insurance premiums involuntarily paid
    by the mortgagors.
    21
    Appellant argues that this alleged self-dealing would breach
    the implied covenant even if the mortgage gave the Bank the
    authority to require increased amounts of flood insurance.
    -123-
    contains only a threadbare allegation that 'the defendant terminated
    [him] in bad faith . . . unaccompanied by any factual allegations
    that might give rise to an inference of bad-faith conduct").22
    The Bank contends that such a self-dealing claim fails as
    a matter of law because Kolbe responded to the Bank's ultimatum by
    purchasing the insurance himself, and the Bank therefore did not
    benefit from Kolbe's acquisition of additional insurance.    The Bank
    cites no cases in support of its implicit contention that bad-faith
    conduct designed to provide an opportunity for self-dealing cannot
    constitute a breach of the implied covenant of good faith and fair
    dealing under New Jersey law.    Kolbe's decision under duress to
    avoid the higher cost of force-placed insurance would seem an
    inadequate defense if the Bank's motivation were improper.    In any
    event, in the absence of developed argument from the Bank, no more
    needs to be said on this issue at this early stage of the case.
    We thus conclude that the complaint alleges sufficient
    facts to establish a breach of the covenant of good faith and fair
    dealing that is "'plausible on its face,'" Iqbal, 
    556 U.S. at
    678
    22
    The equivalent allegations in the other flood insurance case
    we decide today, Lass v. Bank of America, N.A., No. 11-2037, are
    more explicit.    The plaintiff there alleged that the Bank had
    breached the covenant of good faith and fair dealing by, inter
    alia, "charging borrowers sham 'costs' for flood insurance that did
    not reflect the true cost to Bank of America because a portion of
    such 'costs' were retained by Bank of America and/or its affiliates
    (or kicked back to them) as commissions or 'other compensation.'"
    Compl. ¶ 75, App'x at 45.
    -124-
    (quoting Twombly, 
    550 U.S. at 570
    ).    Hence, the claim should not
    have been dismissed.
    III.
    Defendants argue that the district court's judgment in
    favor of Balboa should be affirmed even if the complaint is
    reinstated against Bank of America.    We agree.   Balboa's alleged
    involvement in the matters underlying Kolbe's lawsuit was limited
    to preparing and sending the letters notifying Kolbe that he needed
    to purchase additional flood insurance.    See Compl. ¶ 29.   Those
    letters were sent on the letterhead of the Bank's predecessor, BAC
    Home Loans Servicing, LP.   The complaint is devoid of allegations
    showing a contractual relationship between Kolbe and Balboa, and
    Kolbe's bald assertion that Balboa "acted on its own behalf" in
    "all of the actions described herein," id. ¶ 21, is inadequate to
    state a plausible claim against the insurer for breach of contract
    or breach of the implied covenant of good faith and fair dealing.23
    Hence, we affirm dismissal of the complaint against Balboa.
    IV.
    For the foregoing reasons, the judgment of the district
    court is affirmed in part, vacated in part, and remanded for
    further proceedings consistent with this opinion.        Costs are
    awarded to the appellant.
    So ordered.
    23
    Of course, the allegations concerning Balboa's role in
    providing force-placed insurance at the Bank's behest remain
    relevant to the implied covenant claim against the Bank.
    -125-