Bank of America, IBM Hit With Force-Placed Insurance Class Action

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Several companies, including units of Bank of America and IBM, have been named as defendants in a potential force-placed insurance class action lawsuit filed in New Jersey federal court.

The Bank of America, IBM class action lawsuit claims that the companies engaged in “wrongful conduct in manipulating force-placed insurance market through collusive agreements involving kickback arrangements and other forms of improper compensation.”

Plaintiffs James and Barbara Bowles filed the force-placed insurance lawsuit alleging that Wilshire Credit Corp. (formerly owned by Bank of America Corp. and currently owned by International Business Machines Corp.) purchased force-placed hazard insurance from ZC Sterling (currently known as QBE First) as part of a prearranged agreement that returned a financial benefit to Wilshire.

Homeowners who have a mortgage are required to carry hazard insurance on their home as a mandatory requirement from their lender. This insurance is responsible for protecting the mortgage lender’s financial interest in the property.

When homeowners’ insurance lapses, many mortgage companies partner with insurance companies to establish a force-placed policy on the home. This allows the insurance coverage on the property to remain consistent rather than experience a lack in hazard insurance coverage. The cost of the insurance is passed on to the homeowner rather than declaring the borrower in default.

The class action lawsuit claims that as a result of an investigation conducted by the New York State Department of Financial Service (NYSFDS) into the force-placed insurance dealings of the QBE defendants, Wilshire purchased force-placed hazard insurance from ZC Sterling (now known as QBE First Insurance Agency Inc.) that returned a financial benefit to Wilshire and affiliates.

According to the Bank of America, IBM class action lawsuit, “Pursuant to its agreement, Wilshire purchased unconscionable high-priced insurance policies from ZC Sterling, and in exchange, Wilshire and/or its affiliates, received fees, payments, commissions, kickbacks or other things of value from ZC Sterling.” This led to inflated rates for customers who received force-placed insurance on their homes, according to the Bowles.

The plaintiffs seeks to represent a nationwide class and a New Jersey class of individuals that include any homeowner who had the forced placement of insurance by Wilshire and ZC Sterling/QBE First. The estimated number of class members is at least in the thousands, according to the claim.

The couple made it clear in their complaint that the use of force-placed insurance was not the issue, but rather, it is the manner in which the manipulation of the force-placed insurance process where the defendants enriched themselves at the expense of the consumers.

According to the class action lawsuit, the “force-place insurance scheme” worked as follows: Wilshire, through ZC Sterling, purchased insurance policies that “covered the entire Wilshire portfolio of mortgage loans through ZC Sterling/QBE First.”

In return for their purchase, the complaint stated that “ZC Sterling QBE First was given the exclusive right to force insurance on a property securing a loan within the portfolio when the borrower’s insurance lapses or the lender determines the borrower’s existing insurance is inadequate.”

The Bowles stated that the force-placed insurance policies on their home from May 2007 through January 2010 and the premiums charged roughly twice per year ranged from $2,300 to almost $2,500, costing them nearly $5,000 per year. Under their previous coverage obtained on the open market, the plaintiffs stated that they paid only $1,306 per year.

The IBM, Banks of America class action lawsuit alleges eight counts against the defendants including breach of contract, breach of implied covenant of good faith and fair dealing, multiple violations of the New Jersey Consumer Fraud Act, tortious interference with a business relationship, breach of fiduciary duty and multiple violations of Racketeer Influenced and Corrupt Organizations Act (RICO).

The plaintiffs are seeking class certification, general damages, treble damages, compensatory damages, punitive damages, injunctive relief declaratory relief and attorneys’ fees and costs on behalf of themselves and the proposed class.

The Bowles are represented by Roosevelt N. Nesmith of the Law Office of Roosevelt N. Nesmith LLC, and by Catherine E. Anderson and Jason Solotaroff of Giskan Solotaroff Anderson & Stewart LLP.

The Force-Placed Insurance Class Action Lawsuit is Bowles, et al. v. Wilshire Credit Corp., BAC Home Loans Servicing LP et al., Case No. 2:16-cv-00221, in the U.S. District Court for the District of New Jersey.