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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 Jan-13-15
FORCE-PLACE INSURANCE LEGAL ARTICLES AND INTERVIEWS
Forced-Placed Insurance Lawsuits Close to Settling
New York, NY: Two major players in the mortgage and insurance business are close to settling a putative Force-placed insurance lawsuit, after documents related to the class action and details of an ongoing settlement were filed with the courts this week [READ MORE]
Approval Given for Two More Force-Placed Insurance Class-Action Settlements
Miami, FL: Two more forced-place insurance lawsuits have been given final approval by the courts, putting an end to claims that mortgage lenders force-placed insurance with excessive costs on homeowners. Meanwhile, other financial institutions have announced that they’re getting out of force-placed insurance (also known as lender insurance) [READ MORE]
Force-Placed Insurance Lawsuit Settlement Approved at $31 Million
Portland, OR: While there is little doubt that Lender insurance will always be a potential player of the mortgagee-lender relationship, the concept of Force-Place Insurance as an incentive to acquire commissions v. the need to protect property and investment appears to be alive and well, with one defendant in a recent case agreeing as part of a settlement, not to accept commissions on lenders insurance for a period of three years [READ MORE]
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