Force-Placed Insurance Lawsuits Spell Bad News for Banks

For years, force-placed insurance has been a common practice among banks and mortgage lenders. However, many consumer advocates are of the opinion that force-placed insurance is a burden for individuals who cannot afford these lender-placed insurance policies.

Furthermore, according to recent force-placed insurance lawsuits, some individuals are challenging banks’ force-placed insurance policies, alleging illegal and unfair practices committed by the financial institutions to the detriment of home owners.

In response to a force-placed insurance class action lawsuit filed against them, Citigroup Inc. has agreed to a class action settlement to resolve plaintiffs’ claims of unfair practices. Similarly, Bank of America Corp. and Wells Fargo & Co. have signed off on their own force-placed insurance class action settlements. J.P. Morgan Chase & Co. have also entered into a force-placed insurance settlement with a class of homeowners.

Recent reports state that in addition to cases brought against big banks like the ones mentioned above, it seems that even smaller financial institutions have also engaged in illegal force-placed insurance practices and are being sued in insurance class action lawsuits.

It is important to note that force-placed insurance (sometimes referred to as hazard insurance) in and of itself is not illegal. However, if banks charges exorbitant and unnecessary prices for lender-placed insurance or receives kickbacks from insurers for forcing hazard insurance policies on homeowners, then financial institutions’ practices are suspect and may be illegal.

What is Force-Placed Insurance?

In a nutshell, this is how force-placed insurance works: Most home mortgage agreements include a clause that states that if the homeowner ceases to pay property insurance for an existing property insurance policy, then the bank can buy and force-place a policy on the property in order to protect their assets should a natural disaster like a flood, fire, or hurricane occur. The catch is that the homeowner is then financially responsible for the new policy, which more often than not is more expensive than their previous insurance policy.

According to some force-placed insurance lawsuits, some of the lender-placed insurance policies are as much as 10 times more expensive than insurance policies available on the open market.

Additionally, many of these force-placed insurance policies are more expensive and cover less than policies homeowners could find on their own. For example, many do not cover the cost of replacing lost possessions or the cost of having to stay in a rental while the damaged housing property is repaired.

In exchange for enacting these insurance policies on homes, many banks receive kickbacks or “commissions” from the insurance companies that issue these mortgage insurance policies.

In 2013, Wells Fargo and QBE agreed to pay $19 million to compensate Florida homeowners who were alleged victims of the bank and home owners insurance company’s force-placed insurance scheme. Similarly, J.P. Morgan and Assurant agreed in September 2014 to pay 780,000 homeowners $300 million in their force-placed insurance class action, while Citigroup and Assurant have worked out a $110 million settlement.

These consumer victories bode well for future plaintiffs seeking to file a force-placed insurance lawsuit or for those who wish to join a class action against both their bank and insurer.

Join a Free Force-Placed Insurance Class Action Lawsuit Investigation

If you paid for force-placed insurance from a lender, you may be eligible to join a free class action lawsuit investigation into the improper charges you may have paid.

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