JPMorgan has agreed to settle a lawsuit accusing the company of imposing high rates on force-placed insurance in a scheme to boost the company’s profits. The company, along with Assurant Inc., was accused of forcing homeowners to pay more than what was necessary for insurance policies covering properties that the bank claimed were underinsured or, in some cases, not insured at all. With this staggering $300 million settlement now agreed upon, other force-placed insurance lawsuits could soon find things heating up as plaintiffs and attorneys become more aggressive.
Some consumers allege they have then been forced to pay for the coverage unnecessarily.
The suit claimed that insurance companies orchestrated with banks and lenders to pay ‘kickbacks’ – such as free administration services – in exchange for force-placing insurance policies. Plaintiffs also raised concerns over suspect reinsurance agreements with companies affiliated with the banks. The settlement, which is likely to be watched closely by companies that are also facing lawsuits, such as Bank of America, HSBC, Citibank and Wells Fargo, will see JPMorgan pay 12.5% in refunds from the annual premiums for force-placed insurance policies. The company will also be banned from inflating premiums for the next six years.
The deal was overseen by retired judge and arbitrator Harry Low, who noted in his ruling that the settlement could have an effect on banks facing similar litigation.
"The precedent set by Chase Bank may encourage other lenders to follow by making significant payments to the similar class of borrowers," said Low.
Force-placed insurance lawsuits have been active for some time, but this is the first nationwide settlement to come to fruition. Following a sluggish start and limited progress in arguing that plaintiffs were forced to pay for policies that were exorbitantly priced, attorneys’ arguments turned to the alleged kickbacks and incentives, with far more success. A Florida settlement from Wells Fargo has already been agreed upon and valued at $19.2 million. The final hearing on the matter will occur later today. An additional settlement from Chase, unrelated to the most recent result, saw the company pay $4.75 million over its wind damage force-placed insurance. The most recent ruling relates to hazard insurance, which covers fires, among other risks.
The practice of force-placing insurance, whereby financial institutions require homeowners to insure properties for often unnecessary reasons, is facing increasing scrutiny. The policies are typically bought by insurance firms on behalf of borrowers when their insurance policies lapse. Although this is legally permitted, companies have been accused of abusing this practice to increase fees and to impose unnecessary insurance policies. Some consumers allege they have then been forced to pay for the coverage unnecessarily, with the premiums added to their existing home loans. Force placed insurance may take the form of flood, hazard, fire, property, homeowners’, wind and hail, storm and hurricane, or motor vehicle coverage.
While consumers may continue to face unfair insurance premiums, the recent settlements provide a slight hope, at least, that the tide is now turning.