Force-placed insurance class action out; separate suits possible
A class action lawsuit against five major U.S. mortgage lenders cannot proceed, according to a decision from a Miami federal judge. The plaintiffs were suing Bank of America, Citibank, JPMorgan Chase, Wells Fargo and HSBC, as well as two insurance companies, regarding the practice of forcing homeowners to pay higher-than-average premiums for insurance when their coverage lapses. The court did say that the 21 plaintiffs could file individual suits if they wished.
The controversy surrounding force-placed insurance has grown in the wake of the financial industry meltdown. Consumers have become more wary, more savvy or both about their mortgage lenders’ actions and the relationships between the lenders and the insurers. In the cases in question, the chief allegation is that lenders received sizeable commissions for placing insurance with force-placed carriers.
Even if the practice did not smack of kickbacks, consumers would object because the insurers pass the added costs on to the policyholders by hiking their premium rates. Those premiums are then rolled into the borrowers’ mortgage payments.
Specifically, the plaintiffs accuse the banks and the two insurance companies of racketeering, unjust enrichment, breach of contract and breach of fiduciary duty. Force-placed insurance may also, the plaintiffs said, violate the Truth in Lending Act.
The plaintiffs did score one victory — perhaps. The judge that dismissed the class action said he would hear the individual cases. This way, he said, the lawsuits and any resulting orders will be consistent with one another.
According to one of the attorneys working with the homeowners, Florida is the appropriate venue for the cases because the majority of force-placed policies — a full 75 percent — are here. And, he said, the problem is not that the banks placed the insurance. Rather, the problem is that homeowners are paying too much for the coverage.
Source: Daily Business Review, “Federal judge Moreno tosses suit against banks that forced homeowners to buy insurance,” Paola Iuspa-Abbott, March 15, 2013
Our firm handles matters like the insurance case discussed in this post. If you would like to learn more about our practice, please visit our Miami, Florida, homeowners insurance page.
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