Multistate Force-placed Insurance Class Action to Move Forward

An extensive force-placed insurance class action lawsuit spanning 40 states was slated to advance by a U.S. Magistrate earlier this summer. The suit alleges U.S. Bank profited from bribes by place-forcinglenders insurance through American Security Insurance Company (ASIC). Plaintiffs claim the coverage was expensive and activated unnecessarily. Stephen Ellsworth is the chief plaintiff in the lawsuit.

Court documents indicate that U.S. Bank allegedly bought flood insurance from ASIC to cover mortgaged properties. Furthermore, the plaintiffs allege the coverage was unjustly activated and billed retroactively to the homeowners. The lawsuit contends that the designated properties showed no proof of damage for the coverage period in question.

Force-placed Insurance

Force-placed, or lender-placed insurance, is a product purchased by lien holders to protect their collateral. The majority of mortgage agreements require a homeowner to retain homeowner's coverage on the property. In the event a homeowner allows the coverage to lapse, the lender will force-place the homeowner's insurance with a provider of the lender's preference.

Issues arise however, when lenders take advantage of their situation by force-placing homeowner's insurance with providers who charge rates as high as ten times the average cost. Mortgage companies agree to pay these inflated fees because of mutually beneficial relationships they have established with homeowner's insurance providers. For example, mortgage companies will place the coverage with a provider owned by the mortgage company, or one that will pay commissions to the mortgage company.

Additional questions of unethical behavior arise when a lender force-places coverage when unnecessarily and retroactive to a period when proof of insurance was not in question.

Class Action Lawsuit

U.S. Magistrate Judge Laurel Beeler has authorized classes of borrowers in forty states to examine alleged breaches of mortgage contracts. Additionally, classes of borrowers in New Mexico and California have been authorized to prosecute allegations of bad faith, unfair business practices, and unjust enrichment.

Judge Beeler issued a ruling on June 13, 2014 in which she determined there were enough similarities amongst the classes to move forward with the action. The three principle classes will be represented by an assortment of subclasses.