Force-placed insurance is an insurance policy placed by a lender, bank or loan servicer on a home when the property owners’ own insurance is cancelled, has lapsed or is deemed insufficient and the borrower does not or cannot obtain another policy. They are also known as “creditor-placed, lender-placed or collateral protection” insurance.
As a lawyer that protects policy holders, I was disturbed to read about a case out of the commonwealth of Massachusetts1 where the defendant insurance company faced allegations it was issuing force-placed insurance policies for homeowners that did not need them. Force-placed policies are more expensive than regular homeowners policies, and the defendant was accused of both issuing policies for homeowners that already had adequate insurance and also misclassifying residences as commercial properties, resulting in the “need” for a larger policy. The case ultimately settled with no admission of wrongdoing.
Perhaps more disturbing, this was the third settlement in Massachusetts this year regarding insurance company practices for issuing force-based policies (the companies differ in each case). Some of you may remember reading a post from August 28, 2015, by my colleague, Jason Ciere: Force-Placed Insurance Class Action Survives Motion to Dismiss, where he described very similar practices in New York.
As a policy holder, your best defense against this happening to you is to know what type of insurance you are required to have in conjunction with your mortgage, and read the entire policy with your agent or broker—not just the declaration page. If there are parts of the policy you don’t understand, ask questions, and make sure you are covered properly, so if you are later told that you lack a certain required coverage, you will know what your policy contains.
1 Commonwealth of Massachusetts v. QBE Insurance Corp. et al., Case number 1684CV02793, in the Suffolk County Superior Court.