Chase “Force-Placed” Hazard Insurance Lawsuit Moves Forward

A federal judge has ruled that former customers of JPMorgan Chase can pursue a class action lawsuit challenging overpriced, “force-placed” hazard insurance policies they say were forced on certain borrowers.

Lenders typically include force-placed hazard insurance clauses in their mortgage loan contracts as a way to protect their interest in the secured property. According to the class action lawsuit, however, Chase purchases force-placed insurance “from insurers that provide a financial benefit to Defendants and/or their affiliates and at rates that far exceed borrower-purchased hazard insurance (while providing substantially less coverage).”

The class action lawsuit further alleges that Chase backdates the force-placed insurance policies to collect premiums for periods that have already passed and duplicates coverage by purchasing force-placed insurance policies immediately following the termination of the homeowners’ coverage.

For example, Plaintiff Andrea North says that after her $1,084 policy was cancelled for non-payment after she became seriously ill in 2009, Chase purchased a backdated policy for $5,377 in December 2009 and then renewed the policy at the same rate six months later. North obtained her own insurance coverage after that renewal notice for $1,134, but claims Chase never refunded the charges for the force-placed insurance coverage.

All the Plaintiffs say there were no damages or losses at any of their properties from the time their own policies lapsed and Chase obtained backdated policies for them.

The Plaintiffs accused JPMorgan Chase of violating RESPA’s prohibition on accepting kickbacks, breach of contract, unlawful business practices, and violation of New Jersey’s Consumer Fraud Act.

U.S. Magistrate Judge Joseph Spero dismissed the RESPA claim, but allowed the Plaintiffs to proceed with their breach of contract and breach of implied covenant claims, as well as the Consumer Fraud Act claim.

Spero also said that while the Plaintiffs failed to state unlawful business practices under the unlawful and fraudulent prongs of the statute, that the unfair prong could not be ruled out at this stage.

“Plaintiffs allege that Defendants unfairly force-placed exorbitantly priced hazard insurance on their property and backdated the policy despite no damage to the property or claims arising out of the property during the backdated period. This practice was disadvantageous to Plaintiffs and unsupported by any apparent reason other than the fact that Defendants stood to benefit financially from the high-priced, backdated policy. Moreover, Defendants’ arrangement with ASIC resulted in financial gains to Defendants, at Plaintiffs’ expense, and created incentives for Defendants to seek policies with the highest premiums. The Court cannot say that this allegation fails as a matter of law,” Spero wrote.

The Plaintiffs have 30 days to file an amended complaint to address the RESPA inadequacies, Spero said.