Minnesota levies $1M fine in case involving force-placed insurance

Thousands of homeowners who were hit with unusually large insurance bills after being forced into coverage with American Modern Insurance Group may be able to collect restitution.

The Ohio company, which has been targeted by regulators across the country for allegedly overcharging its customers, has been fined $1 million by the Minnesota Commerce Department and ordered to pay restitution to as many as 7,000 policyholders across the state.

The deal announced Monday is the most recent in a series of enforcement actions involving lender-placed insurance, a little-known form of coverage that has generated billions of dollars in profits for insurers and banks.

Billed as a policy of last resort, lender-placed insurance — also known as force-placed insurance — is routinely imposed on homeowners by lenders when a policy lapses and a property is not covered against tornadoes, floods and other hazards. The coverage can cost 10 times as much as typical homeowners insurance, despite offering less protection.

Regulators in New York led an investigation into lender-placed insurance after abuses first came to light in 2011. In addition to price gouging, regulators have uncovered what they consider improper ties between insurance companies and the companies that service the underlying mortgages.

Mortgage lenders typically receive a commission from insurance companies when they push homeowners into force-placed coverage. JPMorgan Chase, one of the nation's largest mortgage lenders, disclosed in 2012 that it earned $663 million in five years by charging commissions of up to 20 percent on each policy and splitting profits with its insurer.

After getting hammered by regulators for allegedly overcharging customers in New York, Florida, Missouri and several other states, American Modern announced this year that it would leave the force-placed market. At the time, it said 325 of its 1,400 employees were involved in the lender-placed business. American Modern said it expects to finish winding down this business in two years.

In its agreement with Minnesota regulators, American Modern promised to reimburse any customer who suffered losses as a result of being forced into an insurance policy that cost too much.

In a statement Monday, American Modern said it "cooperated fully with the Department of Commerce, and accepted the rate suggestions and implemented corrective actions suggested by the Department. American Modern is pleased to have reached this agreement in order to put any legacy issues behind it."

State Commerce Commissioner Mike Rothman said there is no cap on the total amount of restitution American Modern will have to pay. The consent order also involves several corporate affiliates, including American Family Home Insurance Company, Midwest Enterprises Inc. and Ameritrac. "I am happy we got an agreement that is friendly to consumers," Rothman said. "This has been a top priority for us."

Rothman launched a review of the force-placed business in 2012, after the Star Tribune published an investigation on alleged abuses in Minnesota and elsewhere. Rothman said he continues to investigate several other companies.

This website has more information about the settlement and restitution rules governing the American Modern settlement.

Jeffrey Meitrodt • 612-673-4132