Homebuyers Sue Force-Placed Insurers

LOS ANGELES (CN) - Insurers with ties to OneWest Bank "exacerbated the foreclosure crisis" and abused elders by forcing struggling homeowners to pay sky-high costs for force-placed insurance products, a class action claims in Superior Court.

Lead plaintiff Geraldine Doyle sued OneWest Bank, IndyMac Bank and its subsidiary Financial Freedom Senior Funding, force-placed insurance providers QBE Insurance Group, and Assurant, and its affiliate American Security Insurance Co.

Doyle seeks class damages for breach of contract, unjust enrichment, breach of fiduciary duty, financial elder abuse, tortious interference and other counts. Her co-plaintiff Kuda Mujeyi lives in New York and owns property in Arizona.

OneWest bought IndyMac after the company collapsed in 2008.

A force-placed insurance policy is placed on a borrower's home when a homeowner's policy lapses, often because the borrower is struggling to pay his mortgage, according to the complaint.

Homeowners typically have to carry insurance on their homes. But Doyle says lenders force-place borrowers into costly insurance policies without giving them the chance to shop around for more affordable products.

That, Doyle claims, tips many homeowners into default.

By way of example, Doyle says her annual premium for homeowners insurance through the California Fair Plan was $384. When that insurance lapsed, Doyle says, she was hit with a $2,754 annual premium through QBE.

The New York State Department of Financial Services recently investigated Assurant's force-placed insurance policies, leading to a $14 million settlement. Assurant agreed to compensate homeowners who faced financial hardship after they were forced to pay for the products.

QBE and Assurant, dominant players in the force-placed insurance market, both have close ties to OneWest and IndyMac, Doyle says in the complaint.

She claims that Assurant and QBE make tremendous profits from force-placed mortgage products. Assurant collected $2.7 billion in premiums from force-placed insurance products in 2010 alone, according to the complaint.

"Force-placed insurance policies are generally meant to protect a mortgagee's interest in the borrower's property when the borrower's insurance policy has lapsed. Defendants, however, have turned them into a severely inflated profit-making machine for themselves at the expense of the homeowner," the complaint states.

The more costly the insurance policy, the more lenders and insurance companies reap in commissions and kickbacks, Doyle says. She claims commissions are not disclosed to borrowers, and that inflated premiums are blamed on the increased risk of the borrower.

Banks routinely pass onto borrowers the cost of kickbacks and commissions, though banks do next to nothing to service the account, Doyle says in the complaint.

"The premiums on force-placed insurance policies generally cost at least five to six times, and often up to ten times, more than what the borrower was either paying originally for homeowner's insurance or what the borrower could obtain on the open market," the complaint states.

QBE and Assurant also backdate force-placed insurance products, charging for retroactive coverage, the complaint states.

"Regulators have begun to take notice," the 36-page lawsuit states. "Indeed, after pressure from the California Insurance Commissioner, defendant American Security announced that it will be slashing its force-placed insurance rates by approximately 30 percent."

Doyle says that all 50 states recently entered into settlements to try to eliminate the shadier sides of force-placed insurance, including kickbacks and referral fees.

"By securing these force-placed insurance policies through these exclusive relationships and not seeking competitive bids on the open market or attempting to continue or reestablish the prior insurance policy, the OneWest defendants are not only obtaining the highest non-competitive premium rate, but also engaging in self-dealing and profiteering," the complaint states.

Doyle seeks refunds of all "unjust benefits," and exemplary damages, restitution, and costs.

She is represented by Michael Everly with Deblase Brown Everly.

Hundreds of lawsuits and many class actions have been filed challenging force-placed insurance products. Many of those challenge specific products, such as a bank insisting that a homebuyer purchase flood insurance from a specific insurer. Doyle's complaint is more wide-ranging.

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