MidFirst Force-Placed Insurance Class Action Settlement Preliminarily Approved

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U.S. District Judge David N. Hurd has granted preliminary approval to MidFirst Bank’s $2.7 million class action settlement with a class of 15,000 homeowners who allege that the bank profited by forcing them to buy unnecessary flood insurance at inflated costs.

The force-placed insurance class action settlement will allow MidFirst to resolve borrowers’ claims by giving them a 20-percent refund of the total amount paid by homeowners during the period between May 2006 and May 2014.

The MidFirst Bank class action settlement also calls for an arrangement in which the affected borrowers may carry only the legal minimum of flood insurance coverage for three years. Attorneys’ fees and costs will also be paid by MidFirst up to $230,000, less than 9 percent of the total settlement value.

The ruling in the MidFirst force-placed insurance class action lawsuit came after co-defendant Citibank NA reached a $110 million class action settlement in February over similar claims charged against MidFirst, claiming that it forced borrowers to purchase excessive flood insurance coverage.

The lead plaintiff in the MidFirst Bank class action lawsuit is Gordon Casey, a disabled former factory worker in Syracuse, N.Y. He filed the class action lawsuit in the U.S. District Court in the Northern District of New York in 2012. According to the force-placed insurance lawsuit, MidFirst subsidiary Midland Mortgage required Casey to carry flood insurance coverage at a rate that was 14 times the outstanding principal balance on his home loan.

Midland reportedly informed Casey that his insurance coverage was insufficient and force-placed additional flood insurance on the property. The higher monthly payments of the insurance were then passed on to Casey, resulting in an increase in his monthly mortgage payments by $154.

Midland admitted that its affiliate FirstInsure earned income from commissions and premiums from the forced placement of flood insurance. Midland also received commission and other income from force-placed flood insurance, the class action lawsuit claimed.

Understanding Force-Placed Insurance

When the borrower’s own hazard insurance policy lapses, some major lenders are allegedly forcing homeowners to get overpriced homeowners and hazard insurance. This practice is called force-placed insurance, a hazard insurance that a lender obtains and “forces” on the borrower.

The problem with force-placed insurance is that it is usually more expensive that what a homeowner can get on his or her own. There are allegedly excessive fees and “kickback” commissions attached to the cost, resulting in highly inflated premiums. There are reports also where insurance companies that issue new policies are wholly owned by the banks themselves.

Because of “kickback” commissions, there is an incentive for the lender to activate force-placed insurance. During the financial crisis, billions of dollars on insurance policies were reportedly made due to force-placed insurance policies. This has also resulted in several force-placed insurance class action lawsuits and settlements.

The MidFirst Force-Placed Insurance Class Action Lawsuit is Gordon Casey, et al. v. Citibank NA, et al., Case No. 5:08-cv-00820, in the U.S. District Court for the Northern District of New York.