Wells Fargo suffers setback in force-placed insurance case, federal judge has granted class action status to plaintiffs

A federal judge has granted class action status to plaintiffs in a much-watched force-placed insurance case against Wells Fargo & Co. and QBE Insurance Inc., opening the door to high-stakes litigation over alleged industry kickbacks.

The Tuesday ruling in Williams v. Wells Fargo et al by Judge Robert Scola, Jr. of U.S. District Court for the Southern District of Florida reinforces banks’ vulnerability to legal attacks over their purchase of so-called forced-placed insurance on behalf of borrowers whose homeowner policies have lapsed.

Force-placed hazard insurance is designed to protect creditors in the event that an uninsured borrower’s property is damaged. Mortgage contracts typically entitle banks to purchase such policies on behalf of homeowners who fail to maintain hazard coverage themselves and to pass on to them the cost of the coverage.

The Florida suit does not take issue with the cost of such policies directly but instead accuses Wells and QBE of inflating the cost of such coverage by secretly paying themselves unearned commissions.

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