Hagens Berman brought a case against Wells Fargo alleging it used “force-placed” insurance clauses in mortgage agreements, a practice that enables the bank to charge homeowners insurance premiums up to 10 times higher than normal rates, according to the firm.
Wells Fargo, attorneys claimed, used these “force-placed” clauses to arrange for insurance that is much more expensive than typical market rates and provides less coverage, because it had exclusive contracts with insurers that provide Wells Fargo with kickbacks in the form of “commissions” and free services.
Hagens Berman represented homeowners in cases filed in New Jersey and California, and investigated the practice nationwide.
The firm alleged that these provisions intended to protect the lender’s interest in the underlying property when a borrower’s policy does not, but Wells Fargo twisted and exploited them to make millions upon millions of extra profit each year and that through exclusive dealing arrangements with insurers, the insurers actually decided which homeowners must get new or extra insurance. The insurers then charged exorbitant rates for their policies in order to kick-back profits to Wells Fargo as so-called ‘commissions’ and cover their costs of managing the bank’s loan portfolio.
The lawsuits claimed that Wells Fargo forced homeowners to buy backdated policies which covered past periods of time in which no losses occurred and it forced the purchase of excess insurance, over and above the value of the loan on the property, solely to increase its kicked-back ‘commissions.’
Force-place policies have also come under scrutiny by government officials and regulatory groups, including the New York Department of Financial Services, the National Association of Insurance Commissioners, and the Federal Housing Finance Agency.
Hagens Berman reached a settlement in this case, under which all class members will be sent checks for more than double the amount of commissions that Wells Fargo wrongfully extracted from the force placement of insurance on class members’ properties.