JPMorgan Chase & Co. (JPM - Free Report) and Assurant Inc. (AIZ - Free Report) agreed to settle a lawsuit that accused them of overcharging homeowners for forced place insurances. The companies will be paying an aggregate of $300 million to settle a class-action lawsuit in Miami.
The class-action lawsuit was filed in Jun 2012 on behalf of homeowners who were compelled to take insurance policies as of Jun 2008. Forced place insurance is generally ordered for those homeowners who refuse to buy insurance themselves.
Though the mortgage agreement gives lenders the right to force-place insurance, the plaintiffs accused JPMorgan of providing high premium insurance coverage to homeowners to earn additional commission. Through such an unlawful practice, both JPMorgan and Assurant made profits worth approximately $1 billion since 2008.
However, while settling the lawsuit, both JPMorgan and Assurant neither accepted nor denied any of the allegations. Moreover, the settlement still requires the consent of Chief Judge Federico Moreno.
Under the settlement terms, JPMorgan and Assurant will pay 12.5% cash reimbursements to those class members who paid premiums on the forced place insurance and 12.5% credit to those who were charged with premium but did not pay. The borrowers who have already lost their homes are also eligible for compensation.
Further, JPMorgan will stop the collection of commissions related to forced-place insurance policies.
While this is the first forced place insurance lawsuit to be settled, other lawsuits with similar charges against banks including Citigroup, Inc. (C - Free Report) , Wells Fargo & Company and Bank of America Corp. (BAC - Free Report) are pending in the Miami court.
The settlement of the lawsuit removes a legal headwind for JPMorgan and Assurant, thus offering them some relief. Notably, JPMorgan has been striving to eliminate the legal hassles pertaining to the period prior to the financial crisis.
For Assurant, this is a second major lawsuit settlement this year. Earlier in March, the company had agreed to a $14 million fine to settle a probe over its business agreements with various banks and other financial institutions.
Currently, both JPMorgan and Assurant carry a Zacks Rank #3 (Hold).