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Midfirst Bank Settles Forced-Placed Class Action for $2.7 Million

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New York, NYYet another Force-placed insurance lawsuit accusing a major bank of forcing unnecessary flood insurance onto the backs of homeowners at inflated rates and profiting from the forced placement has settled for $2.7 million.

The lender insurance class-action lawsuit, which involved Midfirst Bank in a consolidated action that also had Citigroup Inc. in its sights, involved hundreds of thousands of consumers. Lead plaintiffs Gordon Casey, Duane Skinner and Celeste Coonan claimed in their class action that the defendants forced them to purchase excess flood insurance on their properties that wasn’t necessary - only to profit needlessly from a product that historically carries higher rates for the consumer, often with less coverage than standard insurance products.

The higher rates are due in part, or so it is alleged, to the presence of kickbacks and other payments between banks and insurance carriers.

Force-Place Insurance is a necessary evil in the lending business. When banks and lending institutions offer mortgages to homeowners, the mortgage is set against the real property - and that property is an investment for the lender that requires protection. It is customarily the homeowner’s responsibility to carry adequate property insurance, together with flood insurance if the property is situated in a flood plain or flood-prone area.

Were a homeowner to drop the ball in this responsibility, the mortgage holder has the right to place additional insurance on the property to ensure it is adequately covered, and pass those costs onto the consumer.

Where banks and insurance companies have gotten themselves into trouble, however, is the placement of expensive and unnecessary insurance that plaintiffs allege is undertaken out of simple greed.

Various states have been pushing back against such forced-placed insurance terms, and plaintiffs have been joining the fight by launching Forced-Placed Insurance Lawsuits. This latest volley of litigation saw Citigroup agree to a $110 million settlement, announced this past February, that would return 12.5 percent of premiums paid to class members. That percentage, broken out, represents the vast majority of allegedly unlawful commissions Citi earned from Force-Place Insurance.

15,000 class members in this deal

The Midfirst deal affects up to 15,000 class members and will pay them 20 percent of the total amount paid by affected homeowners for the time during which Midfirst was accused of overcharging them. The deal is described in favorable terms, in that the refund is calculated against the entire amount paid, rather than that paid just for the excessive coverage.

“Notably, these refund percentages will be applied to the entire amount that was charged for [insurance] during the class period and not just the allegedly inflated or excessive amount that was charged,” the parties wrote in the settlement documents. “As a result, the actual recovery percentage is higher than the refund percentage.”

The Force-Place Insurance class action still requires judicial approval. However, it suggests the continuation of a trend that sees individual states, together with plaintiffs, pushing back against big banks and insurance carriers entering into alleged collusion in an effort to line their pockets on the backs of well-meaning homeowners.

Various plaintiffs have complained that while they do not argue against the right for a mortgage holder to force-place lenders insurance when a homeowner’s own policy is allowed to lapse - either out of poor management or financial hardship - they do argue that forced-placed insurance terms should be similar to those of traditional insurance policies.

Instead, banks and their insurance partners are alleged to have force-placed insurance products that carry fewer benefits, but with higher premiums than traditional insurance. In some cases, plaintiffs allege that banks have placed lender insurance when it hasn’t been at all necessary.

The resulting Forced-Placed Insurance Lawsuits are a means for homeowners to push back against unjust and unnecessary greed. The case is Gordon Casey et al. v. Citibank NA et al., Case No. 5:08-cv-00820, in the US District Court for the Northern District of New York.


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