SunTrust Mortgage Force-Placed Insurance Class Action Lawsuit Will Continue

Mortgagors of SunTrust Mortgage Inc. who were forced to purchase hazard insurance will be allowed to continue a class action lawsuit against the bank despite their own breaches of contract, after a Florida federal judge refused to dismiss the case.

Judge James I. Cohn ruled that although the SunTrust mortgage holders breached their mortgage contracts by defaulting on payments or letting their hazard insurance lapse, the bank still must be held accountable for the subsequent alleged contract breaches of its own. In the March 25 decision, he wrote, “[a]lthough the mortgage contracts gave SunTrust substantial discretion to force-place insurance, that discretion was not absolute. Rather, because SunTrust had ‘the power to make a discretionary decision without defined standards,’ … the implied covenant of good faith limited SunTrust’s ability to ‘act capriciously to contravene the reasonable contractual expectations of the other party.'”

Lead plaintiffs Carina Hamilton and David Weider allege in the SunTrust Mortgage class action lawsuit that SunTrust made them pay inflated premiums for hazard coverage when their policies lapsed, and did so in collusion with QBE Specialty Insurance Company. The plaintiffs allege that the bank paid kickbacks to QBE, masquerading as commissions, for the overpriced premiums. In some cases the premiums were as much as 15 times more than what they had previously paid for their policies.

The SunTrust class action lawsuit alleges that, not only did SunTrust force some of its mortgage holders to pay inflated premiums for hazard insurance, but it also did so without notifying them how much more expensive it would be than the previous insurance. The defendants also allege that they were not told the bank was paying kickbacks to the insurance company.

Plaintiffs Hamilton and Weider include in their SunTrust class action lawsuit other Florida homeowners with mortgages held by SunTrust who also had force-placed, exhorbitantly-priced QBE policies, with the cost of the premium either automatically deducted from mortgage escrow accounts or added to the borrowers’ underlying debt to SunTrust.

SunTrust lawyers argued that two appellate court decisions, Feaz v. Wells Fargo Bank N.A. in the Eleventh Circuit and Cohen v. American Security Insurance Co. in the Seventh Circuit, both supported dismissal “as a matter of law.” Judge Cohn, however, found that neither was applicable. They both “involved different state law and materially distinct claims,” he said. Feaz found the lender had sole discretion under Alabama law to charge higher rates, and Cohen found that nothing in the mortgage contract prohibited higher premium payment.

The SunTrust Mortgage class action lawsuit is part of a number of class action lawsuits across the country with banks whose exclusive contracts with insurers for hazard, wind or flood coverage are alleged to be collusive. The banks are accused of forcing their mortgage holders to buy insurance at premiums that are many times the previous premiums’ cost, and paying “commissions” back to the insurance companies that are, the class action lawsuits allege, illegal kickbacks. A $300 million class action settlement over JPMorgan Chase force-placed insurance was approved in February.

The plaintiffs are represented by Kozyak Tropin Throckmorton PA, Podhurst Orseck PA, Harke Clasby & Bushman LLP, Merlin Law Group PA, the Law Offices of Jeffrey N. Golant PA, Giskan Solotaroff Anderson & Stewart LLP and Golant & Golant PA.

The SunTrust Force-Placed Insurance Class Action Lawsuit is Hamilton v. SunTrust Mortgage Inc., et al., Case No. 0:13-cv-60749, in the U.S. District Court for the Southern District of Florida.