Massachusetts Attorney General Maura Healey’s Office has announced that the largest force-placed insurance company in Massachusetts has agreed to provide refunds to homeowners who were improperly charged for force-placed insurance policies.
Lender placed insurance paid by homeowner
Force-placed insurance is the insurance coverage that mortgage lenders place, at the borrower’s expense, on a mortgaged property when the borrower does not properly maintain the insurance to protect the lender’s interest in the property as required by mortgage document.
Massachusetts settlement on duplicate coverage and commercial premiums charged for dwellings
The settlement announced provides full refunds for the periods of duplicate insurance coverage for any person who had acceptable homeowners insurance at the same time he or she was force-placed by a mortgage servicer. The settlement also requires refunds for policyholders who were overcharged for force-placed insurance policies because they were mistakenly sold commercial policies rather than less expensive residential policies.
Attorney General Healey will continue to seek “accountability” from force-placed insurance carriers
In announcing the agreement with American Security and its parent company, Assurant, Inc., Attorney General Healey was quoted saying: “Force-placed insurance is only necessary when a borrower fails to maintain a homeowner’s insurance policy. This agreement ensures that affected consumers receive the restitution they deserve.”
Attorney General Healey went on to state her Office’s commitment to recovering insurance overcharges for consumers: “We will not allow consumers to be overcharged for insurance products they do not need and will continue to seek accountability from mortgage servicers and their business partners, including force-placed insurance carriers.”
Refund of premium overcharges in the millions possible to thousands of insureds
In announcing the agreement filed in Suffolk Superior Court with the American Security Insurance Company, the Attorney General asserted that American Security will have to refund premiums to thousands of Massachusetts homeowners who were required to purchase unnecessary or overpriced force-placed insurance policies.
The total amount of the premiums that American Security will have to refund depends upon the results of an audit to be conducted by the Attorney General’s Office under the terms of the assurance of discontinuance filed with the Court. However, the Attorney General’s Office has stated that to date they have “identified thousands of potentially improper charges that could result in millions of dollars in relief to Massachusetts homeowners.”
Beside the amounts payable as a result of the required audit, the agreement also requires American Security to pay $565,000 to the state.
Attorney General reserves rights to take further action based on pending market conduct investigations
In the agreement filed with the Superior Court, the Attorney General noted that the National Association of Insurance Commissioners (NAIC) was conducting a market conduct review of American Security’s force-placed insurance practices, a process in which the Massachusetts Division of Insurance was participating.
As a result of the court-filed agreement, the Attorney General obtained an additional provision that the statute of limitations to bring further actions against American Security for other force-placed insurance violation would be extended until fifteen months after the NAIC examination concluded.
Additionally, American Security is required, under the agreement, “to cooperatively discuss” with the Attorney General “any examination findings or issues relating to the NAIC review.”
Force-placed coverage found subject to multiple abuses
Since 2011, mortgage borrowers have been filing class action lawsuits against their mortgage servicers and forced-place insurers in earnest. These actions have claimed, with good reason, that the mortgage services had worked with the forced-place insurers to push up the premiums by:
- charging forced-place rates that included unearned commissions and lucrative reinsurance premiums for the mortgage servicing companies;
- colluding with forced-place insurers to artificially inflate premiums to unjustly get commissions and reinsurance premiums at the expense of the borrowers.
The lawsuits, that have resulted in settlement by mortgage servicers of up to $300 million, have been supported by regulatory actions in several states that have investigated forced-place insurance company practices and premium charges and found them wanting.
For example, in 2011, the New York Department of Financial Services obtained by consent orders against American Security and another subsidiary of Assurant, for $14 million. The consent decree also provided restitution to affected borrowers. The consent decree also barred American Security from paying commissions or entering into reinsurance arrangements with mortgage servicers and further prohibited American Security from offsetting the $14 million fine from any insurance.
Federal Agency may have been clipped $150 million on force-placed insurance
It is not just consumers, however, that have been nicked by forced-place insurance practices.
The Federal Housing Finance Agency (FHFA), is the federal agency appointed in 2008 as the conservator of federally chartered Federal National Mortgage Association (Fannie Mae) and of Federal Home Loan Mortgage Corporation (Freddie Mac) that went bust in 2008.
A June 25, 2014 report by the FHFA’s Office of the Inspector General made the unequivocal recommendation that the agency sue mortgage servicing companies that dealt with Fannie Mae and Freddie Mac for overcharges on force-placed insurance placement in excess of $150 million. Fannie Mae and Freddie Mac had overpaid that amount, according to the report. Under the servicing contracts when foreclosed homeowners could not pay the force-placed insurance premiums Fannie Mae and Freddie Mac had the obligation to pay the force-placed insurance premiums.
Because of these abuses, the FHFA banned banks and mortgage servicers in June, 2014 from accepting commissions on force-placed insurance policies issued by affiliated companies.
Copy of assurance of discontinuance filed with Superior Court
A copy of the agreement filed with the Suffolk Superior Court can be accessed by clicking on this link: In re: American Security Insurance Company, Assurance of Discontinuance pursuant to M.G.L. Chapter 93A. § 5