JPMorgan Chase NA and Assurant Inc.’s $300 million settlement of a class action claiming they profited handsomely from high rates on forced-placed insurance policies will energize plaintiffs to pursue similar blockbuster deals at a time attorneys say force-placed actions are ripe for resolution.
Chase has agreed to dole out millions to settle the suit in Florida federal court as financial giants like Bank of America NA, HSBC USA NA, Citibank NA and Wells Fargo NA are dogged by similar putative class actions. Plaintiffs claim they were overcharged for insurance policies that the banks forced on properties that were underinsured or not insured at all by homeowners. According to plaintiffs, the high cost of these policies stemmed from kickbacks that insurers paid lenders that provided their force-placed business.
Those kickbacks included commissions and low-cost or free administrative services, as well as questionable reinsurance arrangements with bank affiliates.Under the deal announced Friday, the first nationwide settlement among several high-profile cases in Florida, Chase will provide refunds of 12.5 percent of the annual premiums for force-placed policies and refrain from inflating premiums for six years. Harry Low, an arbitrator, retired judge and former California Insurance commissioner, said there’s a good chance that other banks and lenders would strike pricey deals with plaintiffs to resolve force-placed claims.“The precedent set by Chase Bank may encourage other lenders to follow by making significant payments to the similar class of borrowers,” Low said.
“There’ll be others, I’m sure, that will follow soon,” Oppenheim said. “It’s probably in their best interest to get these huge cases behind them as soon as they can. The longer these types of cases drag on, the more it hurts their stock price and the more it affects the public’s perception of them.”
The Chase settlement gives a big boost to plaintiffs’ lawyers who have aggressively pushed lawsuits over force-placed practices under a variety of theories, attorneys say. Plaintiffs’ attorneys have had limited success with claims that focused on the excessive prices charged for policies, but they’ve gained some leverage with allegations of secret kickbacks, according to Mark Goodman, a Freeborn & Peters LLP partner who advises the insurance industry.
Because litigation over force-placed insurance has been kicking around for a while, more deals can be expected, Goodman said.
Already, Wells Fargo has agreed to pay $19.2 million to settle a Florida-only class action, a deal that is up for a final hearing Wednesday. Plaintiffs have also struck a separate settlement with Chase, worth $4.75 million, over force-placed practices related to homeowners’ policies that covered wind damage. The $300 million settlement is tied to hazard policies, which cover fire and other risks.
Plaintiffs and potentially some judges will look at the $300 million paid by Chase and prod other defendants to work out a resolution, according to Goodman. Chase’s agreement to pay hundreds of millions of dollars to resolve the claims has undoubtedly captured the attention of defense attorneys, but they will maintain that their clients’ practices were different from Chase’s or that the banks they represent provided more disclosures, he said.
“It is an eye-popping number, but given the size of their mortgage market, maybe it’s not that outsize,” Goodman said. “JPMorgan is so big, and they were worried about their reputation in the mortgage industry. A smaller or more regional player may not have the same concern.”
Adam Moskowitz, a Kozyak Tropin & Throckmorton PA attorney who represents the plaintiffs that sued Chase and other banks in Florida, told Law360 on Tuesday that defendants in the other suits had reached out for talks. Moskowitz said he was optimistic that the Chase settlement could be a model for the other defendants.
Friday’s settlement of the force-placed suit against Chase comes after insurers QBE Holdings Inc., Assurant Inc. and four other insurers promised New York regulators that they would not pay commissions to banks for their force-placed business. QBE also agreed to fork over $10 million, while Assurant settled with New York for $14 million.
Insurance regulators in California and Florida have pressured force-placed insurers to slash their rates as well.
In the end, bad press surrounding force-placed practices could push more banks to settle, attorneys said.
“The bottom line is it smelled, and they knew it and everyone else knew it,” Oppenheim said about the Chase case. “They had to get away from the stench.”
The plaintiffs are represented by Kozyak Tropin & Throckmorton PA, Podhurst Orseck PA and Harke Clasby & Bushman LLP, among others.
JP Morgan Chase is represented by Morgan Lewis & Bockius LLP.
The case is Alfred Herrick et al. v. JPMorgan Chase Bank NA et al., case No. 1:13-cv-21107 in the U.S. District Court for the Southern District of Florida.
–Editing by Elizabeth Bowen and Chris Yates.
Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.