There has been lots of litigation around the country involving what is referred to as force-placed insurance. There have been several settlements in this litigation. Force-placed insurance is taken out on homes by banks or mortgage servicers when, for example, a homeowner’s policy lapses or when the bank decides the borrower doesn’t have enough coverage. Most of the litigation over this type insurance is in the form of class actions. Homeowners have alleged in the class-action lawsuits that the banks received a financial windfall by making deals with insurance companies and over-charging borrowers for the coverage. The following are settlements that have been reached in some of these cases.
$300 Million Settlement By JPMorgan Approval
A federal judge in Miami has approved the settlement of the class-action lawsuit against JPMorgan Chase for its force-placed insurance practices. The settlement agreement could pay out more than $300 million to about 750,000 mortgage borrowers. The national settlement prohibits the bank for six years from getting commissions, kickbacks or reinsurance from the insurance, which it obtains when a homeowner’s policy lapses.
Under the order issued by U.S. District Judge Federico Moreno, class members will have to file claim forms to recover 12.5 percent of the net premiums they were charged between Jan. 1, 2008, and Oct. 4, 2013. Judge Moreno also barred JPMorgan Chase and Assurant and its insurance subsidiaries “from inflating premiums” for six years. New York-based JPMorgan Chase announced that the court’s decision formalizes a tentative agreement reached months ago about practices they claim to have stopped before that.
Premiums for force-placed insurance, which were deducted from a homeowner’s escrow account or added to the mortgage loan balance, were often much higher than the homeowners’ initial premiums. Many of those covered by the lawsuit lost their homes to foreclosure. The lawsuit estimated the value of injunctive relief from the bank changing its practices at $690 million. Judge Moreno wrote in his order:
During those six years, Chase will accept no financial interest in the placement of force-placed hazard insurance policies outside of the premium itself and the protection of the policy. Assurant defendants are prohibited from providing force-placed hazard insurance commissions to Chase-affiliated agents or brokers, hazard quota-share reinsurance agreements, payments for any administrative or other service associated with force-placed hazard insurance policies for a period of six years.
HSBC And Wells FargoSettlement
In another forced insurance settlement, HSBC Holdings Plc and Wells Fargo & Co. have agreed to settle lawsuits filed by mortgage holders who alleged they were forced to pay for property insurance at inflated rates. HSBC will pay as much as $32 million to resolve the claims, according to the proposed settlement agreement, which was filed in federal court in Miami. The Wells Fargo settlement agreement didn’t specify the total amount the lender will pay.
As we previously reported, Citigroup, Inc. reached a $110 million settlement in cases that involved force-placed insurance. The case was in a New York federal court. One of Citigroup’s units had received a 15 percent commission on hazard insurance premiums.
Bank Of America Settlement
Bank of America Corp. has also reached an agreement in principle to settle a class-action by lenders over force-placed insurance. Similar settlements are expected to follow in lawsuits against some other major banks.
Hopefully, the banks that have taken unfair advantage of folks in this area of concern will clean up their act. Fortunately, the litigation, in addition to the settlements, has caused Congress and a number of government agencies to take a look at this practice.
Sources: Claims Journal and Insurance Journal
AIG Unit Must Cover Titeflex In Gas Spill
The Pennsylvania Superior Court on March 4 affirmed a trial court ruling that said an American International Group subsidiary had a duty to defend Titeflex Corp. in the remaining litigation over a connector device that was implicated in a 1998 gas leak. The three-judge panel concluded that National Union Fire Insurance Co. (NUFIC), as Titeflex’s excess liability insurer, was obligated to defend the manufacturer because, under Pennsylvania law, the company had exhausted coverage under its primary insurer.
The court said that Pennsylvania law, rather than New York law, applies to the case, and emphasized the state does not recognize the “multiple-trigger theory” for this type case. That theory is used in asbestos cases to apportion liability across multiple coverage periods. Instead, the court said the incident in this case just triggered one policy year for the primary insurer, Kemper Corp., and as a result the $1 million limit on that policy was depleted. Senior Judge Eugene Strassburger wrote in the opinion:
The 1997-1998 policy covered any “occurrence” that happened during that time period. Thus, even though some alleged injuries did not manifest until years later … only the policy of the year of the occurrence is implicated.
The litigation stems from a leak at a gas station in Montgomery County owned by Thomas Wagner, which led to leakage on a number of neighboring properties. Wagner and Titeflex, which made a flexible connector used at the site, along with other manufacturers and installers, were sued in a series of lawsuits. Wagner, the owner, filed cross claims against Titeflex. According to the court’s opinion, Titeflex held a primary insurance policy with Kemper, which had a limit of $1 million per occurrence and an aggregate limit of $2 million. NUFIC provided an umbrella policy with limits of $50 million per occurrence with a $100 million aggregate.
The court’s opinion says that Titeflex and Kemper together paid $1 million to settle some of the claims in 2007, while NUFIC paid another $9 million in the settlement under its umbrella coverage. That same year, Titeflex filed a declaratory judgment suit against NUFIC in a Philadelphia court, seeking to hold the insurer responsible for coverage. That suit also included claims of bad faith and breach of contract.
In June 2012, the trial court ruled in favor of Titeflex in multiple motions for summary judgment, concluding that the insurer was obligated to defend the company against Wagner in the remaining portions of the underlying lawsuits. NUFIC appealed. Titeflex initially argued that the Superior Court did not have jurisdiction over the case, contending that no final orders had been entered by the trial court. But the appeals court disagreed, concluding that the only thing left for the trial court to decide was “the amount of indemnification,” which could not be resolved until “the resolution of the underlying lawsuits.”
The Superior Court, in dealing with the substance of the appeal, said that NUFIC had asserted a false conflict between Pennsylvania and New York law in the case. The court concluded that both state’s laws would treat the accident as one occurrence, thereby triggering the excess policy. Judge Strassburger wrote in his order:
Because the instant case does not concern a toxic tort, but instead emanates from injuries alleged to have occurred as a result of one specific event, a gasoline leak, we conclude that NUFIC’s argument is without merit.
This was a most interesting case and the conclusions reached by both the trial and appellate courts appear to be factually and legally sound. Insurance Companies continue to find ways to attempt to avoid covering claims under their policies.