Article Courtesy of The Miami Herald

By Adam H. Beasley

Published June 12, 2012

A South Florida homeowner is suing, saying he and many others have been gouged by lenders working in cahoots with insurance companies to enact force-placed policies.

Think your homeowners insurance is outrageous? Mark Kunzelmann likely has you beat.
Kunzelmann, a 49-year-old network specialist, let the policy on his four-bedroom, North Palm Beach home lapse last year. It was a big mistake, he acknowledges. 

  
But he can’t believe what the oversight (later remedied) cost him: $10,000 for just a few months worth of coverage. And he has his bank, Wells Fargo, and its insurance partner, Assurant, to thank. 
As most homeowners are aware, if your property is financed, you have to have insurance to protect the lender. If a bank learns a mortgage holder is not covered, it is allowed to secure a policy and pass the charge on to the customer. In Kunzelmann’s case, Wells Fargo got him a policy that carried a startlingly high cost.

  
How high? Roughly $18,000 a year — of which, he says, the bank got an 11 percent commission. By comparison, Kunzelmann’s old policy, the one he let lapse, was costing him just $2,500.

 
“It left a very bad taste in my mouth,” Kunzelmann said Wednesday. “I told them, ‘If you do this to me, I’m going to sue you and take my business elsewhere.’”

 
Kunzelmann has followed through on both threats. He recently refinanced his mortgage with another bank. And he has filed a federal lawsuit intended to recoup not just his lost funds, but also those of the thousands of fellow Wells Fargo customers who suffered the same fate. 

 
Kunzelmann, with the help of consumer protection attorney Adam Moskowitz, has petitioned the court to broaden his complaint into a class-action suit against Wells Fargo, claiming the lender’s insurance rates have “driven many of their consumers into foreclosure, and saddled others with excessive debt from which they may never find relief.”

  
Kunzelmann’s suit says Wells Fargo received the same 11 percent commission from Assurant for every other force-placed policy the insurance company issued to the bank’s note holders. Wells Fargo has since stopped accepting those commissions, said bank spokesman Tom Goyda — but not before the bank collected $177 million in “pure profit” from Assurant on such transactions, the suit alleges.

 
Kunzelmann accused Wells Fargo of unjust enrichment, and is seeking damages — for himself and the “hundreds of thousands” who he says have been similarly fleeced. Assurant handles 80 percent of Wells Fargo’s force-placed policies, while QBE Insurance — a defendant named in another Moskowitz suit — issues the rest.

“We allege that [these policies] are unjust, that they’re not in good faith, and that they’re deceptive,” Moskowitz said. “We’ve heard some really egregious stories.”

 
Attorney David Esau, who is representing Wells Fargo in the Kunzelmann suit, did not return a phone call and an email from The Miami Herald. The bank declined to comment further on the matter.

  
The suit is one of three similar actions filed by Moskowitz’s firm — Coral Gables-based Kozyak, Tropin & Throckmorton — against banks over lender-placed (or, as the suit calls it, force-placed) insurance policies, including one set for trial later this year.

   
Bank officials have argued that the steep rates charged in force-placed insurance policies are due to the risk with which they view customers who have already let their private policies lapse. Additionally, there are some instances where a bank’s mandatory policy has a higher premium but a lower deductible.

   
But those explanations don’t make sense to Birny Birnbaum, an economist and former insurance regulator who testified on such policies before the New York Department of Financial Services last month.

  
Birnbaum, who called for “stringent regulation” of force-placed insurance rates, claims New Yorkers have been overcharged by $500 million since 2004 by these policies — and continued to be gouged by more than $275,000 per day.

  
“The lender-placed home insurance market is characterized by reverse competition, in which the cost of insurance placed on the borrower’s loan is pushed up by LPI insurers in competition for servicers’ business,” Birnbaum wrote. “It is not beneficially competitive to consumers.”

  
Kunzelmann couldn’t agree more. When it came time to pay for his Wells Fargo-issued policy, the bank simply debited $10,000 out of his escrow account, money he had set aside to pay his property taxes.

  
“Finding out that they were paid a commission on the insurance just incensed me,” he said. “I’ve been with an incarnation of this bank for many years. They had a responsibility to get me reasonably priced insurance.” 

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