HSBC, Assurant Agree to Settle Force-Placed Insurance Class Action for $1.8 Million

Colorado Springs, COA well-known national bank that is alleged to have accepted kickbacks from an insurance provider when placing lender insurance on uninsured or under-insured properties, agreed last week to pay $1.8 million to settle a Force-placed insurance lawsuit.

As part of the settlement, HSBC Bank will return some 90 percent of the commissions it earned from insurance partner Assurant Inc. during the scheme to consumers. A subsidiary of Assurant, American Security Insurance (ASI), was involved in the scheme - and it’s not the first time Assurant and ASI have become embroiled in the lenders insurance tenterhooks.

It was three years ago, in 2012 that ASI got into some hot water with the California Department of Insurance (CDI). At that time ASI agreed to reduce the premiums charged on Force-Place Insurance by 30.5 percent. The following year, Assurant reached a settlement with state regulators in New York. As part of that deal, Assurant returned premiums to some borrowers and agreed to a penalty of $14 million.

The current Lender insurance settlement requires approval from the Federal court in Colorado. “The proposed settlement returns approximately 90 per cent of the commissions that were paid to the HSBC defendants in connection with [lender insurance] placed during the class period, provides an excellent recovery for settlement class members, and is plainly adequate under the governing standards for evaluating class action settlements in this circuit,” wrote the plaintiffs in the Force-placed insurance lawsuit, in their motion for approval.

Force-place insurance, or lender insurance, is a necessary evil in the world of real estate, property ownership and mortgages. While the homeowner duly owns the property, the lender has a stake in the property through the issuance of a mortgage, and thus shares in any loss from a fire or other catastrophic event unless the property carries adequate insurance.

The Catch-22 is that the property owner is responsible for keeping adequate insurance on the property. That said, there is a loophole for the lender; if insurance is found to have lapsed or is inadequate, lenders have the right to force-place insurance on the property in order to protect their investment.

Where lenders and various insurance companies got into hot water was when they allegedly partnered up in a kickback scheme that resulted in various nightmares for the property owner. Those headaches included more insurance than was necessary for the property, at rates that were often far higher than traditional policies, and often with less attractive coverage for the homeowner.

Allegations of kickbacks have swirled for several years, with various states lowering the hammer against banks and insurance companies.

The Force-Place Insurance class action, the settlement for which was given preliminary approval April 7, resulted in some 11,000 consumers becoming saddled with inflated forced-placed insurance terms.