Force-placed insurance is insurance placed on a home by a bank or lender when borrowers do not have the coverage - or proof of coverage - that their mortgage requires. The insurance provider is usually chosen by the bank or lender. As a result, the premiums are often much higher than commercially available premiums. Furthermore, plaintiffs in force-placed insurance lawsuits allege that the financial institutions involved receive commissions for using certain companies for insurance, place insurance coverage far greater than the amount the financial institution needs to protect its interest in the property and sometimes apply the insurance retroactively.
Lawsuits against force-placed insurance providers and mortgage lenders allege homeowners often receive much less coverage with the insurance, but at much higher rates.
Bank of America and QBE recently agreed to pay $228 million to settle a class-action lawsuit regarding force-placed insurance, although Bank of America denied wrongdoing. In March, JPMorgan Chase and Assurant Inc., had their $300 million force-placed insurance settlement approved by a judge.
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Bank of America did not admit to any wrongdoing in agreeing to the settlement.
According to the Herald-Tribune (4/21/14), Praetorian Insurance Co and American Security Insurance Co have been told to change their force-placed insurance practices. Both companies were reportedly told to lower their rates, and Praetorian was also reportedly told to stop paying commissions to mortgage servicers, stop paying incentives to mortgage servicers and notify customers about their force-placed insurance options.