Bank of America Corp. was sued in a Florida federal court by homeowners who allege the company overcharged them for so-called force-placed insurance.
Force-placed insurance, which mortgage companies can purchase for homeowners when their policies lapse, is a “financial windfall” for Bank of America, according to a complaint filed yesterday in West Palm Beach.
“A substantial portion of the premiums are refunded to Bank of America or its affiliates and subsidiaries through various kickbacks, reinsurance and/or unwarranted commissions,” according to the homeowners, who seek to proceed on behalf of a U.S. borrowers who were charged for the insurance by Bank of America or an affiliate.
In April, New York’s Department of Financial Services, saying it was seeking a basis for “consistently high profits” at the expense of homeowners and investors, said it was investigating whether force-placed insurance rates are excessive. It said that it was requiring information from insurers including Balboa Insurance Co., which is also a defendant in the Florida case.
The New York regulator said there are “serious concerns” that premiums for the insurance have been “artificially inflated.” The inquiry was also looking into relationships among the insurers, banks, mortgage servicers and insurance agents and brokers.
Joseph Gallagher, one of the Florida plaintiffs, was charged $4,491 annually for his force-placed policy even though he already had insurance, according to the complaint. The force-placed policy, which only covered wind and hail damage, was twice as expensive as Gallagher’s regular, comprehensive insurance policy, according to the complaint.
The premium payments for the force-placed policy were added to Gallagher’s monthly mortgage payment, which contributed to his home going into foreclosure, according to the suit.
The Florida plaintiffs are seeking unspecified damages.
Rick Simon, a spokesman for Charlotte, North Carolina-based Bank of America, said the company hasn’t been served with the complaint and doesn’t usually comment on pending litigation. Paula Symons of Sydney-based QBE Insurance Group Ltd., which bought Balboa from Bank of America last year, had no immediate comment.
The case is Gallagher v. Bank of America, 12-cv-8068l, U.S. District Court, Southern District of Florida (West Palm Beach).