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Insurance companies, banks and other financial firms face force-placed insurance lawsuits alleging their force-placed insurance is offered at outrageous rates because of the relationship between banks and insurance companies. Allegations have been made that force-placed home insurance is much more costly than traditional home insurance and could be a conflict of interest for some financial institutions.
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 Sep-20-14
FORCE-PLACE INSURANCE LEGAL ARTICLES AND INTERVIEWS
AIG Escapes Defense Bill in Force-Placed Insurance Litigation
New York, NY: It may be a legal drop in the bucket, but a New York judge has ruled in QBE Americas Inc. et al. v. Ace American Insurance Co. et al., that American International Group Inc. (AIG) escapes from having to pay defense costs for individual and proposed Force-Placed insurance class action lawsuits against QBE Holdings Inc. as the AIG policy lacks any provision for duty-to-defend [READ MORE]
Multistate Forced-Placed Insurance Class Action to Go Ahead
San Francisco, CA: A broad Lender insurance class action that spans 40 different states was given the go-ahead earlier this summer by a US Magistrate. The now-certified class-action lawsuit alleges US Bank benefited from kickbacks by placing lenders insurance through American Security Insurance Co. (ASIC). Plaintiffs claim the insurance was also expensive and backdated needlessly [READ MORE]
Force-Placed Insurance Companies Could Face Government Lawsuit
Washington, DC: In addition to force-placed insurance lawsuits filed by homeowners who allege illegal kickbacks have been involved in lender insurance, companies could face a lawsuit from the federal government. According to reports, the government may sue some mortgage servicers over force-placed insurance kickbacks that may have cost Fannie Mae and Freddie Mac hundreds of millions of dollars [READ MORE]
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