Class action attorneys are now taking a closer look at the practice of lender-placed insurance in California.

Homeowners in that state whose lenders imposed a hazard, flood or other insurance policy on them may be eligible to participate.

Lender-placed insurance, also known as force-placed insurance, is a type of insurance that kicks in automatically if and when a homeowner’s own insurance policy lapses or fails to meet the lender’s insurance requirements.

When coverage starts under a force-placed policy, the homeowner is obligated to pay the premiums.

These lender-placed policies aren’t a new phenomenon, and they’re not inherently unlawful either.

For years, lender-placed insurance in California has kept properties covered with earthquake, flood, flood-gap, or other hazard insurance.

These provisions work in conjunction with the homeowner’s obligation to buy their own insurance to help protect the lender’s interest in the property.

Lender-Placed Insurance in California Gets a Closer Look

In practice, however, lender-placed insurance in California can be a bad deal for borrowers.

When banks choose their own lender-placed policies, they don’t have the same incentive to get the maximum coverage for the minimum premium that homeowners themselves have.

As a result, lender-placed policies can end up costing the borrower much more than any policy they would have bought on the open market – as much as 10 times more, according to recent research. At the same time, these pricey force-placed policies may offer less coverage.

Things can get worse for consumers when lenders accept “commissions” (or “kickbacks,” depending on your point of view) from insurance companies to impose those companies’ policies on homeowners. Those commissions may translate to higher premiums for homeowners.

What’s more, these arrangements align the banks’ and insurance companies’ financial interests against those of the homeowner – giving banks a reason to cut borrowers no slack on their payment schedule.

There have also been reports of lender-placed policies being imposed retroactively, sometimes resulting in double coverage in cases where the homeowner’s own policy is simultaneously in effect.

Force-Placed Insurance Lawsuits Yield Payouts for Homeowners

Fortunately, legal action taken against some of the lenders behind these policies has yielded some compensation for the affected homeowners.

U.S. Bank recently agreed to a $28 million settlement that is expected to offer relief to an estimated 139,000 Class Members.

Plaintiffs claimed U.S. Bank had arranged a kickback deal with insurer Assurant Inc. and its affiliated companies. They claimed these deals resulted in homeowners paying more than they should have had to pay, and for less coverage than they would have gotten on the open market.

Other claims have led to significant compensation for homeowners. Settlements have won back millions from big-name lenders like Wells Fargo, J.P. Morgan and Citigroup.

The current class action lawsuit investigation covers lender-placed insurance in California. Attorneys in the investigation are looking for California homeowners who within the last two years were subject to a force-placed insurance policy after they either stopped paying for or failed to obtain adequate homeowner’s, flood or similar insurance.

Qualifying homeowners may be able to join this investigation free of charge