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American Modern Insurance Group Inc. was hit with a proposed class action lawsuit that alleges the company schemed with a home mortgage services and a financial services company to impose artificially high rates on homeowners and in returned received kickbacks.
Lead plaintiffs Barbra Bowles and Latasha Jackson filed their complaint in New Jersey federal court. In it, they claim that American Modern, along with Fay Servicing, a mortgage servicer, and Southwest Business Corp., conspired to profit from homeowners who took out “force-placed” insurance coverage.
According to the class action lawsuit, force-placed insurance coverage is taken out by lenders when borrowers do not maintain homeowners insurance required under mortgage contracts and then charge it to the borrowers. The practice is nationwide, say the plaintiffs, and has come under state and federal scrutiny recently due to high rates.
“In exchange for providing American Modern and Southwest with the exclusive right to monitor the entire Fay loan portfolio and force-place their own insurance coverage,” allege the plaintiffs. “American Modern provided Fay with various kickbacks that defendants disguise as legitimate compensation. The kickback essentially provides a rebate on the cost of the insurance coverage. The benefit of that rebate is not, however, passed on to the borrower.”
The class action lawsuit alleges that the mortgage service provider, Fay, has “arrangements” with American Modern and Southwest to service their mortgage portfolios and provide force-placed insurance coverage. Force-placed insurance coverage is imposed if a homeowner’s coverage is determined to be insufficient or lapses. If this happens, allege the plaintiffs, homeowners are sent a notice that Fay will purchase insurance and the borrower will be responsible for the charges; however, homeowners are not notified that Fay already has a master insurance policy and “no individualized underwriting ever takes place for the force-placed coverage.”
The plaintiffs further allege that borrowers subject to force-placed coverage are then charged inflated fees, which Fay allegedly kicks back to American Modern and Southwest in the form of “commissions” or “expense reimbursements.”
According to the class action lawsuit, the cost of force-placed insurance is far greater than the actual cost of the insurance to the mortgage servicer Fay, but does not typically provide additional coverage.
The plaintiffs seek to represent a nationwide Class of borrowers who were subject to force-placed insurance policies, along with a subclass of New Jersey borrowers. The plaintiffs are asking for compensatory and punitive damages, injunctive relief, as well as attorney’s fees for claims of unjust enrichment, breach of contract, breach of good faith and fair dealing, and for fraud.
The plaintiffs are represented by Roosevelt N. Nesmith; Catherine E. Anderson of Giskan Solotaroff & Anderson LLP; Aaron S. Podhurst of Podhurst Orseck PA; Adam M. Moskowitz, Thomas A. Tucker Ronzetti, Rachel Sullivan and Robert J. Neary of Kozyak Tropin & Throckmorton LLP; Lance A. Harke, Sarah Engel and Howard M. Bushman of Harke Clasby & Bushman LLP; and Jeffrey W. Gutchess and Daniel Tropin of AXS Law Group.
The American Modern Force-Placed Insurance Kickback Class Action Lawsuit is Bowles, et al. v. Fay Servicing LLC, et al., Case No. 2:16-cv-02714, in the U.S. District Court for the District of New Jersey.
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2 thoughts onAmerican Modern Insurance Class Action Filed over Kickback Scheme
my insurance company ( sentry) quit it’s coverage of homes. my independent agent sent a letter to me stating i would be getting a copy of a new policy from an insurance company and to review it and sign it for new coverage. i was placed with safeco home insurance. within a few weeks i get a call stating i would be getting a check from safeco and to cash it and send a check to the independent agent made out to american modern. i did what i was told never seeing a policy from new american modern. the policy was paid from my escrow accountant through bank of america.
i just recently had a water pipe explode in my home and cause mold and water damage, my claim was turned down by american modern. when we got a copy of our policy we had coverage for volcano damage, water sump coverage (we have no water sump pump) etc. the policy coverage was a joke. long story short we never signed for the coverage and the company refuses to call us back nor let us come in for an appointment. they cannot provide a signature page and they are staying away from us.someone called into safeco claiming to be me cancelling the initial home policy with them. then they called bank of america and told them i was now with american modern and they would be receiving payments from my escrow account.
the independent agent was assurant or worked with assurant