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According to Bloomberg (05/06/12), banks and mortgage services have agreements with insurance companies to buy policies on behalf of a homeowner whose insurance coverage has lapsed. The ability to provide force-placed insurance allows banks to protect properties that they have the mortgage for in case of disaster. The bank forwards the premium to the insurer, the insurer pays a commission to the bank and the homeowner is billed for the premium and commissions.
Forced-Place Insurance Complaint
Critics say that once the financial firms realized there was profit to be made in force-placed insurance, reportedly to the tune of $5.5 billion in 2010, financial institutions formed their own specialty insurance companies, so they could offer force-placed insurance on properties without insurance coverage.
Furthermore, some critics argue that force-placed policies have less protection than cheaper policies and the policies usually protect the lender, not the homeowner.
Force-placed insurance lawsuits have reportedly been filed against insurers and banks for force-placed insurance. A lawsuit against Wells Fargo and QBE was recently granted class-action status by a judge in Florida who alleged the two companies "colluded in a scheme to artificially inflate the premiums charged to homeowners" (as quoted in Business Insider; 02/27/12).
Force-Place Insurance Lawsuits
Plaintiffs claim consumers are charged excessive and unreasonable premiums for their force-placed insurance. They argue that force-placed insurance can cost up to 10 times more than traditional homeowners insurance, often with inferior coverage. Meanwhile because banks have set up their own specialty insurance affiliate companies, there are concerns that the financial institutions are involved in a conflict of interest. Finally, there are allegations that unrelated companies may have offered kickbacks for forced-place insurance policies, offering the banks an incentive to pass customers along to force-placed insurance providers.
According to reports, up to 31 financial institutions have been subpoenaed by the New York State Department of Financial Services for an investigation into the overlap between banking and insurance. Meanwhile, more force-placed insurance lawsuits may be filed against insurance companies and banks for unreasonably high force-placed insurance premiums.
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Last updated on Apr-15-14
FORCE-PLACE INSURANCE LEGAL ARTICLES AND INTERVIEWS
Bank of America, QBE Settle Forced-Placed Insurance Class Action for $228 Million
Miami, FL: Even though they have agreed to settle a proposed class-action Lender insurance lawsuit for $228 million, co-defendant Bank of America nonetheless doesn’t think it did anything wrong, according to a statement released by a spokesperson when the settlement was revealed. And while the announced settlement did not clarify if the defendants were required to admit to any wrongdoing, the brief statement pretty much says it all [READ MORE]
Federal Judge Gives Nod to $300 Million-Plus Force-Placed Insurance Settlement
Miami, FL: A tentative $300 million Lender insurance settlement that was announced last September and given preliminary approval a month later has been granted final approval by a federal judge in Florida. The settlement not only provides some compensation for plaintiffs embroiled in the Force-Place insurance battleground, but legal experts agree the settlement has the potential to energize future plaintiffs in various other Forced-Placed Insurance Lawsuits to go after the big money [READ MORE]
Settlements Reached in Multiple Force-Placed Insurance Lawsuits
Miami, FL: Banks and mortgage lenders who thought their use of force-placed insurance on homeowners would be an easy way to increase profits might be thinking twice, following numerous settlements in force-placed insurance lawsuits. According to reports, settlements have been reached in lawsuits filed against Bank of America, HSBC Holdings Plc, Citigroup and Wells Fargo, concerning their use of force-placed insurance [READ MORE]
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