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Force-Placed Insurance Suit Seeks Federal Class Status

Ala. homeowner sues in Atlanta, claims HSBC 'flagrantly' back-dated policies, billed excessively, took kickbacks

, Daily Report

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New U.S. District Court Judge for the Northern District of Georgia Steve Jones. Photo by Zachary D. Porter/Daily Report 03/14/11
New U.S. District Court Judge for the Northern District of Georgia Steve Jones. Photo by Zachary D. Porter/Daily Report 03/14/11

An Alabama homeowner is suing a U.S. subsidiary of London bank HSBC in federal court in Atlanta, claiming it has engaged in a long-running illegal kickback scheme over homeowners insurance.

Alabama resident Robin Blackburn also is seeking class-action status. The proposed class includes anyone who has had a loan or line of credit with HSBC Finance Corp. or its affiliates that is secured by a home mortgage and who has been charged for a "force-placed" hazard or flood insurance policy. The suit also names as a defendant insurance company Assurant Inc. and American Security Insurance Co.

"Force-placed" insurance is purchased by a lender or mortgage servicer for mortgaged properties and then billed to the property owner to protect the lender's interest in the property against fire, flood, wind or other hazards, according to the suit.

Although the suit acknowledges that lenders "generally have the right to force-placed insurance…where the property securing the loan is not insured by the borrower," it claims that HSBC has "flagrantly" abused that right by back-dating force-placed insurance policies, billing excessive prices and accepting kickbacks from Assurant Inc.

"At issue is whether HSBC and Assurant have been unjustly enriched by manipulating the force-placed insurance process so as to systematically engage in a kickback scheme," the plaintiff claims.

Regulators scrutinizing

According to the suit, which was filed in November, force-placed insurance practices are attracting the growing scrutiny of regulators across the country.

Last year, the superintendent of New York's Department of Financial Services testified at state insurance hearings that an investigation on force-placed insurance uncovered "exponentially higher premiums" than regular homeowner's insurance; serious harm to distressed borrowers because of a lack of market competition and because the costs were embedded in the mortgages; "tight relationships between banks, their subsidiaries and insurers" and "systematic kickback scheme."

In September, Assurant and J.P Morgan Chase agreed to a $300 million settlement to resolve accusations that they forced homeowners into buying overpriced property insurance and entered into kickback arrangements that inflated policy prices.

An HSBC spokeswoman declined to comment on the case. Assurant spokesman Robert Byrd told the Daily Report, "We cannot comment on the specifics of the suit, but we intend to vigorously defend against the allegations in this case." Assurant is represented locally by Christopher Allen Riley of Alston & Bird.

So far, no attorneys have filed notices of appearance on behalf of HSBC in the case.

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