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, 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
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
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