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Force-Placed Insurance FAQ

What is force-placed insurance?

Force-placed insurance, also known as lendor-placed insurance, is insurance that has been placed by a lender, bank or mortgage servicer when the homeowner’s insurance is canceled, has lapsed or is not deemed sufficient (such as if the homeowner requires additional flood coverage but does not have that coverage on his or her current policy).

Is force-placed insurance legal?

Yes, force-placed insurance is legal. It allows lenders, banks and mortgage servicers to protect their financial interest in a property or home. There are, however, concerns about some practices surrounding force-placed insurance.

What are the complaints about force-placed insurance?

There are many concerns about force-placed insurance. Among them is that the insurance is more expensive than commercially available insurance - sometimes 10 times as expensive - but often comes with less coverage (such as not covering lost possessions); that the companies that place the insurance have policies that are worth more than their financial stake in the company; that companies pay/receive illegal kickbacks or fees for using certain force-placed insurance policies, with the cost of those fees or kickbacks being passed onto the homeowner; that the policies are sometimes applied retroactively, to periods when no claims were made; and that the insurance was placed even when the homeowner had adequate insurance coverage and proof of that coverage.

Why are there lawsuits about force-placed insurance?

Plaintiffs have filed lawsuits against force-placed insurance companies alleging they were unjustly enriched through kickbacks, commissions and/or fees; that the companies force-placed excessive insurance that was unnecessary; and that companies maintained insurance that was greater than required by law or greater than the defendants’ financial interest in the company.

What companies have faced force-placed insurance lawsuits?

Among the companies that have faced force-placed insurance lawsuits (some of which have settled) are GMAC, Bank of America, QBE, CitiGroup, HSBC, J.P. Morgan Chase & Co., and Wells Fargo.

What do regulators say about force–placed insurance?

Regulators in some states have filed lawsuits against companies involved in force-placed insurance. Some of those lawsuits have resulted in settlements. In 2013, New York Governor Andrew M. Cuomo announced settlements with Assurant, Inc.; QBE; Balboa; and American Modern for their force-placed insurance practices. Included in that settlement was restitution for homeowners.

Have there been any settlements in force-placed insurance lawsuits?

Yes, in the past year there have been numerous settlements with force-placed insurance companies. In April 2014, a proposed settlement for $6.25 million was announced in a class action against GMAC. If approved, the settlement would cover approximately 66,000 reinsured loans. Also in 2014, a settlement between Bank of America, QBE and homeowners was announced. That settlement (in Cheryl Hall et al v Bank of America N.A. et al, US District Court, Southern District of Florida, Case No. 12-cv-22700) was for around $230 million, although neither of the defendants admitted liability.

Other companies that have announced settlements include Wells Fargo, HSBC Holdings, and J.P. Morgan Chase & Co.

What do I do if I think a company has improperly used force-placed insurance on my property?

Contact an attorney to determine your rights and to determine if anything illegal has been done in your situation.

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Last updated on Jun-9-14

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