U.S. Bank Settles|Kickback Allegations

SAN FRANCISCO (CN) - A federal judge Thursday preliminarily approved a $500,000 settlement for a class of homeowners who challenged U.S. Bank's practice of force-placing insurance through American Security Insurance.

Multistate classes of borrowers from 40 states were certified in June 2014 to pursue breach of mortgage agreement claims, and classes in California and New Mexico were certified to pursue claims of unjust enrichment, unfair business practices and bad faith.

They claimed that U.S. Bank took kickbacks for having clients purchase force-placed flood insurance from American Security Insurance (ASIC).

U.S. Bank bought backdated flood insurance and charged borrowers for expired coverage, even when there was no damage to the borrowers' property during the backdated period, the class claimed.

They said the coverage predated any notice that their coverage had lapsed or become deficient.

The collusive scheme brought U.S. Bank and ASIC extra income, while borrowers paid grossly inflated amounts for flood insurance that provided them little to no benefit, the class claimed.

On Thursday, U.S. Magistrate Judge Laurel Beeler preliminarily approved a settlement for more than 2,800 homeowners, who would get refunds of 12.5 percent of the amount they were charged for lender-placed flood insurance.

Given the more than $4 million in unrefunded charges during the class periods, this amounts to $506,728.

Class members who were charged for coverage backdated 120 days or more will receive additional compensation that depends on how far back the coverage was backdated. They will receive $50 if it was backdated 90 to 180 days, $75 if backdated 180 to 365 days, and $100 if backdated more than one year.

U.S. Bank also agrees not to accept commissions, qualified expense reimbursements, administrative payments, reinsurance payments, or compensation in connection with forced-placed flood insurance on property owned by class members for the next three years.

The settlement also prohibits ASIC and its affiliates from giving U.S. Bank below-cost or free outsourced services in connection with forced-placed insurance for the next three years.

U.S. Bank and ASIC will pay class counsel's attorney fees and expenses up to $625,000, which will not come out of the settlement fund.

Beeler found that the settlement treats all class members fairly.

"It provides for a flat refund, and all class members will receive the same prospective relief. The relief compares favorably to other lender-placed insurance settlements that have been approved by courts," the judge wrote.

Attorneys in the case did not immediately respond to requests for comment.

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