U.S. Bank Force-Placed Insurance Class Action Lawsuit Certified

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In a move that baseball fans would understand and appreciate, a group of plaintiffs who survived pickoff attempts from two separate companies have been deemed safe by a federal judge after he decided to certify a putative U.S. Bank force-placed insurance class action lawsuit.

The long-running class action lawsuit alleges that U.S. Bank and American Specialty Insurance Company colluded in the adoption of premiums and other purported kickbacks in force-placed insurance. It is a practice in which a mortgage lender or servicer is allowed by contractual language to purchase various insurance policies for homeowners. In the case of plaintiff Steven Ellsworth, the lender purchased flood insurance that later turned out to be unnecessary.

However, it is not just the fact that they were not contractually obligated to purchase those policies. Rather, the group and their class action attorneys allege that U.S. Bank bought backdated policies and charged them for expired coverage as well as received kickbacks from American Specialty Insurance Company, which was the sole provider of these policies. Those extra fees and costs are reportedly not allowed per the mortgage document, leading to breach of contract claims.

However, both financial services firms alleged that Ellsworth and another plaintiff currently lack standing to bring the class action lawsuit. During the course of discovery, the companies found that both did not require the flood insurance policies ASIC provided them and issued refunds. This, known as “picking off” plaintiffs, could not sink the case, according to U.S. Magistrate Judge Laurel Beeler. One plaintiff did not accept the settlement offer, and Ellsworth’s check did not cover his legal expenses.

Moreover, Judge Beeler took issue with the companies’ response in asking to deny certification of the class action lawsuit. The decision noted that many of the claims that the defense teams made represented novel legal theories which they could have argued long before the motion for class certification following two amended complaints. Beeler also decided that the language in the mortgage documents cited by the plaintiffs was plausible in alleging a breach of contract.

The National Association of Insurance Commissioners define insurance as “prospective in nature” and caution that it “should not be backdated to collect premiums for a time period that has already passed.” In addition, the federal Office of the Comptroller of the Currency has noted that homeowners should not be charged during the 45-day period between when they are notified that they need flood insurance and when a bank or other lender may issue a forced-place insurance policy.

Finally, the decision granting certification noted that while the rates were approved by various state insurance commissioners, that was not the target of the litigation in question. Rather, the plaintiffs have focused on the alleged kickbacks made by American Specialty Insurance Company.

In recent years, many lenders have come under fire for their force-placed insurance policies. Earlier this month, a federal judge gave final approval to a $300 million class action settlement with JPMorgan Chase Bank NA and Assurant Inc., resolving claims that they overcharged policyholders for hazard insurance. Citibank NA, Wells Fargo Bank NA and HSBC Bank USA NA have also agreed to settle force-placed insurance class action lawsuits in the past few months.

The plaintiffs are represented by class action attorneys Matthew C. Helland, Rebekah L. Bailey, E. Michelle Drake, Kai H. Richter and Megan D. Yelle of Nichols Kaster PLLP.

The U.S. Bank Force-Placed Insurance Class Action Lawsuit is Steven Ellsworth, et al. v. U.S. Bank NA, et al., Case No. 12-cv-02506, in the U.S. District Court for the Northern District of California.

UPDATE: A California federal judge has granted preliminary approval for a $500,000 class action settlement to resolve this U.S. Bank Force-Placed Class Action Lawsuit.