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  • Writer's pictureKirk Hartley

More Banks Making Money on Forced Placed Insurance -Some Use Captives Instead of Kickbacks

Unfortunately, this news is anything but shocking – banks allegedly making money off of forced placed insurance via financial engineering. Other banks are alleged to have used old fashioned kickbacks QBE and Wells Fargo were some of the first firms caught at using forced placed insurance to make money.

Hat tip to LAW 360.

Law360, New York (April 06, 2012, 6:31 PM ET) — Fifth Third Bank NA was hit with a putative class action Friday alleging it reaped millions of dollars in illegal referrals from private mortgage insurers, one day after homeowners brought similar kickback claims against fellow lending giant Bank of America NA.

The nearly identical complaints, filed in Pennsylvania federal court by the same collection of law firms, target an alleged widespread pay-to-play scheme in which top national banks referred homeowners to insurers in exchange for a cut of those customers’ reinsurance premium payments.

From 2004 through 2011, Fifth Third and BofA received a hefty cut of insurance premiums while assuming relatively little risk under the policies, the suits claim. Fifth Third raked in $54 million in purported premiums but paid out less than $5 million in claims, while BofA received $285 million and paid out $39 million, the suits allege.

The banks reduced their risk by making the so-called captive reinsurance arrangements self-capitalizing, the suits claim. That meant the banks had to initially place only small amounts of capital into the trusts backing the reinsurance contracts while leaving the insurers to take on essentially all of the risk, according to the suits.

*** The filings come as HSBC USA Inc. faces a similar proposed class action alleging it collected at least $77 million through a captive reinsurance scheme while paying only $7.5 million in claims over a six-year period. That suit, filed March 12, named the same insurers as defendants.

The plaintiffs in the Fifth Third and BofA cases are represented by Kessler Topaz Meltzer & Check LLP, Bramson Plutzik Mahler & Birkhaeuser LLP and Berke Berke & Berke. The plaintiffs in the Fifth Third case are also represented by Stephen J. O’Brien of Stephen J. O’Brien & Associates.


The cases are Manners et al. v. Fifth Third Bank et al., case number 12-cv-00442, in the U.S. District Court for the Western District of Pennsylvania, and Riddle v. Bank of America Corp. et al., case number 12-cv-01740, in the U.S. District Court for the Eastern District of Pennsylvania.

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