A new class action lawsuit investigation is seeking homeowners who have been subject to force-placed insurance in California.

Practices surrounding this type of supplemental home insurance may put homeowners in a position to bring a valid legal claim.

What Is Force-Placed Insurance?

Generally, lenders require home buyers to purchase and maintain homeowners insurance as a condition of their mortgage. Having this insurance in place protects the lender’s interest in the property in case of unexpected loss.

Some mortgages provide that if the homeowner fails to maintain homeowners insurance, or if the policy they buy fails to meet certain criteria, then another insurance policy of the lender’s choosing will automatically kick in, and the borrower will have to pay the premiums on that new policy.

This automatic policy is what’s known as force-placed insurance.

Homeowners can get stuck paying for force-placed insurance in California if, for example, they allow their own policy to lapse, or if the borrower’s policy does not meet the lender’s requirements, or even if the borrower fails to submit proof of insurance to the lender.

When force-placed insurance is engaged, the borrower gets stuck with the bill – and that’s where problems arise, according to some consumer advocates.

These policies can be much more expensive than those that lenders purchase for themselves – as much as 10 times more expensive, according to some advocates.

Despite their higher cost, force-placed insurance policies also tend to provide less coverage.

They generally don’t cover ancillary expenses like lost personal property or the cost of staying in rental accommodations while the home is being repaired.

These types of insurance policies aren’t necessarily illegal in and of themselves. However, force-placed insurance in California is coming under increasing scrutiny.

Some financial institutions and insurance companies have been challenged successfully over the way they implement these policies.

Some insurance companies have been paying banks kickbacks – or “commissions,” depending on whom you ask – in exchange for writing those companies’ force-placed insurance policies into the banks’ mortgages.

Sometimes these kickbacks come directly out of the premium the homeowner pays on the force-placed policy.

This practice incentivizes the bank to serve the insurance companies’ interests at the expense of the borrower’s.

The cost of the kickback only serves to increase the premium the homeowner pays, often far above what they would pay for a policy they purchased on the open market.

Other banks have reportedly billed for force-placed insurance when a valid insurance policy was still in effect, or have billed homeowners retroactively for past periods in which their own policies has lapsed.

Legal claims brought over practices like these have yielded significant successes for homeowners.

In what’s been called the first major settlement over force-placed insurance, Wells Fargo and QBE agreed to pay as much as $19 million to homeowners who alleged they were overcharged on their premiums.

Other settlements with institutions like J.P. Morgan, Citigroup and Assurant have gotten compensation for thousands of affected homeowners.

Force-Placed Insurance in California

The way some lenders and insurance companies implement force-placed insurance in California is now under the microscope, as class action attorneys investigate those practices for possible legal claims.

Borrowers who were hit with force-placed insurance in California may be eligible to participate in this free investigation. It covers not just homeowner’s policies but also flood, earthquake or other types of insurance.