N.Y.S. Department of Financial Services Expands Probe Into Force-Placed Insurance

In October 2011, The New York State Department of Financial Services (“DFS”), which supervises both the insurance and banking industry, commenced an investigation into “force-placed insurance.”  That investigation has recently intensified with several days of public hearings.

In order to obtain a mortgage, lending banks usually require homeowners to maintain insurance on their property. If a homeowner fails to maintain his/her required insurance, pursuant to the terms of the mortgage agreement, the bank is entitled to forcibly place insurance on the property (i.e. purchase insurance for the home and then charge the homeowner/borrower the full cost of the premium). Several lawsuits (see our blog post here) have been brought by homeowners against certain banks alleging that the forced placed insurance practices are unfair because their lender: (i) purchased exorbitant insurance coverage that costs far greater than the homeowner’s previous coverage;  (ii) received commissions or kick-backs from the insurer for the forced-placed coverage; (iii) billed homeowners for additional coverage that was not required under their mortgage agreement; and (iv) allowed the homeowner’s existing coverage to lapse without providing notice that it would purchase force-placed insurance.

Last week, on May 17, 2012, the DFS commenced public hearings to “review whether rates for force-placed insurance are appropriate or excessive and to examine the relationships between and payments to and from insurers, banks, mortgage servicers and insurance agents and brokers.”  Prior to the hearings, the DFS sent formal document requests, issued under Section 308 of the Insurance Law to 15 financial services companies and directed them to provide written and oral testimony and answer specific questions regarding forced-placed insurance practices. These firms included Balboa Insurance Company, QBE Insurance Corporation, QBE Financial Institution Risk Services, Inc., American Security Insurance Company (Assurant), American Bankers Insurance Company of Florida (Assurant), Meritplan Insurance Company, American Modern Home Insurance Company, Empire Fire and Marine Insurance Company, and Fidelity and Deposit Company of Maryland.

In a recent press release Benjamin M. Lawsky, Superintendent of the Department of Financial Services stated, “The object of these hearings will be to probe all the inner workings of this important industry and examine its impact on homeowners and investors. We will use the information gathered at the hearings to determine whether force-placed insurance rates are justified or need correction. We are looking into all aspects of this industry, and will take whatever action is necessary to root out any misconduct and to make sure that homeowners and investors are treated fairly.”

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.