We’ve blogged extensively about force-placed insurance in the past, covering the multiple lawsuits that accuse banks of forcing unnecessary (and at times illegal) insurance coverage onto homeowners. This happens when borrowers – homeowners in this case – let insurance payments lapse or are told that their current coverage is “inappropriate”. In these situations, lenders are permitted to purchase insurance and add the cost of the coverage to the borrower’s repayments. The problem? Banks have allegedly forced extensive and unnecessary insurance onto borrowers, sometimes at ten times the cost of an adequate policy. The types of insurance vary – flood, hazard, fire, property, homeowners, wind, hail, storm, hurricane and even collateral protection for motor vehicles – have all allegedly been forced upon homeowners – while more than sixty banks are being investigated by attorneys.
Banks have allegedly forced extensive and unnecessary insurance onto borrowers.
Last week, Citibank agreed to pay more than $110 million to settle a force-placed insurance class action filed in New York federal court. The putative lawsuit, filed by named plaintiffs Gordon Casey, Duane Skinner and Celeste Coonan, accused the bank of forcing excessive flood and hazard policies onto customers, profiting in the process. The plaintiffs filed a motion for preliminary approval of the settlement on February 5, under which Citibank agrees to refund class members for premiums they paid on force-placed insurance policies.
The agreement has class members receiving 12.5 percent of their premiums upon submitting a claim, and also bars Citi from accepting commissions for force-placed insurance for the next six years. The premiums to be repaid represent more than 80% of the allegedly unlawful commissions that companies associated with Citi received from the vendor, plaintiffs said. The settlement has yet to be approved by the court but there’s no indication of problems on the horizon. Approval of the settlement will bring to an end the lawsuit, which was first filed in May 2012. Last year the court set a mediation deadline of December 31, and on January 10, the discussions ended with the current settlement proposal.
This is good news for consumers and a huge step in the right direction. Last September, JPMorgan Chase, along with the U.S.’ largest force-placed insurer, Assurant, Inc., agreed to a $300 million settlement, (See our blog about the settlement here). At the time the arbitrator, retired judge Harry Low, noted that the ruling could affect banks facing similar lawsuits to JPMorgan’s. Well, how right he was.
Shanon J. Carson, counsel to the plaintiffs, called the agreement a “great settlement.” One thing’s certain – banks are learning their lessons about force-placed insurance and, hopefully, will think twice before so flagrantly abusing their power at consumers’ expense. The case is Gordon Casey, Duane Skinner and Celeste Coonan, individually and on behalf of all others similarly situated vs Citigroup Inc, Case No. 12-00820, U.S. District Court, Northern District of New York.