We are finishing up our discussion of a homeowner's lawsuit that he hopes will be certified as a class action. He asserts that his lender and a homeowners insurance company charged him an exorbitant amount of money for force-placed coverage when his homeowners policy lapsed. The difference in cost was staggering: The bank's premium added up to $18,000 per year. His private policy cost about $2,500 a year.
The homeowner believes this is unjust enrichment. The banks respond to his and others' complaints by explaining that the steep rates are necess0ary, because customers who have dropped homeowners insurance or let it lapse are a higher risk. And, bank representatives continue, the policy is different: The force-placed policy has a higher premium but a lower deductible than the average homeowners policy.
An attorney who has handled similar cases outside of Florida says that's bunk. In his jurisdiction, he believes banks have charged about $500 million more than they should have over the past eight years. And without the commissions, the insurance companies keep every penny of what they earn.
The problem with the system, this attorney explains, is that the consumer is not the customer; the bank is. Insurers bid for business by promising the banks higher earnings. The more the consumer has to pay, the better for everyone. It is, he adds, reverse competition.
That dynamic carries over in communications with homeowners about force-placed insurance. The bank has no incentive to call the homeowner, to notify him of the coverage problem and to try to work something out. It's not just reverse competition, it's counterintuitive.
No one associated with the class action request could say how long that might take. Another suit, however -- also a class action -- should be heading to court this winter.
Source: The Palm Beach Post, "Lapsed home insurance policy leads to $10,000 premium for North Palm Beach man," Adam Beasley, June 8, 2012