Citigroup Inc has agreed to pay $110 million US to thousands of homeowners who were forcibly charged expensive property insurance premiums, a court filing showed, as several U.S. banks and insurers were criticized by regulators over such practices.
The class-action lawsuit filed in a New York federal court involves “force-placed insurance,” which is placed by a bank or other mortgage lenders to protect their interests in a property if the homeowner’s insurance lapses.
The class members who were charged for force-placed hazard insurance will receive back 12.5% of the premium upon submitting a claim, as per an agreement between Citigroup and the plaintiffs.
The agreement, which needs to be approved by the court, calls for Citi to stop accepting commissions for force-placed insurance for a period of six years from the effective date of the settlement.
Banks have been under increasing scrutiny from regulators over force-placed insurance. Mortgage agreements give lenders the right to force-place insurance, but regulators have accused banks and insurance companies of pushing up policy prices with improper commission and reinsurance agreements.
In September, JPMorgan Chase & Co and the nation’s largest force-placed insurer Assurant Inc agreed to a $300 million settlement..
One of Citi’s unit that deals with the insurance received a 15% commission on hazard insurance premiums during the proposed settlement class period, according to the filing.
Citi has also agreed to refund 8% each of force-placed flood insurance premiums and force-placed wind insurance premiums, even though no commissions were paid to Citi or its affiliates on flood or wind insurance.
The plaintiffs in total were charged about $758 million in hazard insurance premiums and $173 million in flood insurance premiums, according to the filing.
The case is Gordon Casey, Duane Skinner and Celeste Coonan, individually and on behalf of all others similarly situated vs Citigroup Inc, Case No. 12-00820, U.S. District Court, Northern District of New York.