Multistate Forced-Placed Insurance Class Action to Go Ahead

San Francisco, CAA broad Lender insurance class action that spans 40 different states was given the go-ahead earlier this summer by a US Magistrate. The now-certified class-action lawsuit alleges US Bank benefited from kickbacks by placing lenders insurance through American Security Insurance Co. (ASIC). Plaintiffs claim the insurance was also expensive and backdated needlessly.

The lead plaintiff in the Force-placed insurance lawsuit is Stephen Ellsworth. According to court documents, the plaintiffs allege that US Bank purchased flood insurance to cover mortgaged properties. The allegations hold that US Bank purchased the Force-Place Insurance from American, significantly backdating the coverage and then charging the homeowners for the expired coverage.

According to the Force-placed insurance lawsuit, there had been no damage evident to the property represented by the backdated coverage period.

Forced-place insurance, as the term suggests, is an insurance product lenders rely upon when a homeowner’s insurance is found to have either lapsed or is insufficient to cover the value of the loan in the event of a loss. If the homeowner drops the ball on the insurance front, the lender has every right to force-place insurance on the property as a means to protecting the lender’s investment.

The problem, say various critics and plaintiffs, is that forced-place insurance terms all too often favor the lender and the insurance provider. Forced-place insurance has been seen by some as affording significantly less coverage than traditional insurance products, at a much higher rate. Plaintiffs also hold that in some cases, the lender insurance is placed needlessly and backdated to a period before proof of insufficient or lack of insurance was even determined.

Forced-place insurance lawsuits often follow, with plaintiffs claiming that lenders have cozied up with insurance providers in various kickback schemes aimed at lining their pockets at the expense of the homeowner.

US Magistrate Judge Laurel Beeler, addressing the forced-placed insurance class action, certified multistate classes of borrowers in 40 states to pursue alleged breaches of mortgage agreements, as well as classes of borrowers in California and New Mexico to pursue claims of bad faith, unjust enrichment and unfair business practices. There are to be various subclasses stemming from the three primary classes, with Beeler finding sufficient commonality amongst the classes to move forward.

Furthermore, the classes “allege a common scheme to force place insurance on borrowers in a way designed to increase kickbacks to US Bank from a captive insurance provider (ASIC) in the form of [qualified-expense-reimbursements] or discounted tracking services, and to maximize costs collected from borrowers by force-placing [lender-placed flood insurance] policies that were backdated more than 60 days.” The 56-page ruling was issued June 13 of this year.

The case is Stephen Ellsworth, Marilyn Weaver, and Lawrence and Donene Skelley, individually and as representatives of the classes and on behalf of the general public v. US Bank, N.A., and American Security Insurance Company, Case No. C 12-02506 LB, in the US District Court for the Northern District of California, San Francisco Division.