Citigroup Inc. has agreed to pay $110 million to thousands of homeowners who were forcibly charged expensive property insurance premiums. The class-action lawsuit, filed in the U.S. District Court, Northern District of New York, involves “force-placed insurance.” We have described this insurance product in previous issues. It is insurance placed by a bank or other mortgage lenders to protect their interests in a property in the event the homeowner’s insurance lapses. Banks have been under increasing scrutiny from regulators regarding force-placed insurance. As we have previously reported, several U.S. banks and insurers have been criticized by regulators for such practices.
The class action lawsuit was filed by a man who says he was forced into a 400-percent increase in his flood insurance premium. Gordon Casey of Syracuse sued the mortgage lender two years ago over the cost of homeowner’s insurance for his home. His premium had skyrocketed during a decade from $325 a year to $1,478 a year. Casey and a Maryland man sued Citibank on behalf of all homeowners who had been forced by the company into paying increased premiums to insure their homes against floods or hazards.
The class members who were charged for force-placed hazard insurance will receive back 12.5 percent of the premium upon submitting a claim, pursuant to the agreement between Citigroup and the Plaintiffs. The agreement, which must be approved by the court, calls for Citigroup to stop accepting commissions for force-placed insurance for a period of six years from the effective date of the settlement. Mortgage agreements give lenders the right to force-place insurance, but the banks and insurance companies have pushed up policy prices with improper commission and reinsurance agreements.
In September, JPMorgan Chase & Co and the nation’s largest force-placed insurer Assurant Inc. agreed to a $300 million settlement. One of Citi’s units that deals with the insurance received a 15 percent commission on hazard insurance premiums during the proposed settlement class period, according to a court filing. Citi has also agreed to refund 8 percent of the force-placed flood insurance premiums and force-placed wind insurance premiums, even though no commissions were paid to Citi or its affiliates on flood or wind insurance. It was stated in the filing that the Plaintiffs in total were charged about $758 million in hazard insurance premiums and $173 million in flood insurance premiums. The law firm of Nichols, Kaston, with offices in Minneapolis and San Francisco, represents the Plaintiff class in the Citigroup case.
Source: Insurance Journal
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