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Wells Suffers Setback in Force-Placed Case

A federal judge has granted class action status to plaintiffs in a much-watched force-placed insurance case against Wells Fargo & Co. and QBE Insurance Inc., opening the door to high-stakes litigation over alleged industry kickbacks.

The Tuesday ruling in Williams v. Wells Fargo et al by Judge Robert Scola, Jr. of U.S. District Court for the Southern District of Florida reinforces banks' vulnerability to legal attacks over their purchase of so-called forced-placed insurance on behalf of borrowers whose homeowner policies have lapsed.

Force-placed hazard insurance is designed to protect creditors in the event that an uninsured borrower's property is damaged. Mortgage contracts typically entitle banks to purchase such policies on behalf of homeowners who fail to maintain hazard coverage themselves and to pass on to them the cost of the coverage.

The Florida suit does not take issue with the cost of such policies directly but instead accuses Wells and QBE of inflating the cost of such coverage by secretly paying themselves unearned commissions.

Scola cited evidence that the activities of Wells and QBE, an Australian insurer that administers Wells' force-placed insurance program, amounted to unjust enrichment and a breach of good faith. In a sometimes harshly worded opinion, Judge Scola accused the bank of threatening to retaliate against the 20,000 homeowners eligible to become class members in the Florida litigation.

"Wells Fargo has unabashedly set out its threats to retaliate against any homeowner seeking to avoid alleged excessive and inflated force-placed insurance premiums," Scola wrote. The judge added that he intends to prevent the bank from "establishing post-litigation, vindictive business practices."

For Wells and QBE the stakes are large, with more than $50 million in premiums at issue in Florida alone. Evidence introduced into the public record in the case could result in further headaches at a time when banks force-placed insurance practices face significant scrutiny. New York State's Department of Financial Services has sent out numerous subpoenas to banks and insurers as part of an ongoing investigation, and the Office of the Comptroller of the Currency has also expressed interest in force-placed market.

QBE pays out 40% of total force-placed premiums as commission to its subsidiaries and Wells Fargo, the Florida plaintiffs charge. And only 7.6 cents of every dollar of premium revenue QBE collects goes to paying claims, according to a plaintiffs' analysis based on QBE data. Such a low payout ratio would be regarded as unacceptable in most states. Guidelines laid out by the National Association of Insurance Commissioners instruct insurers to aim for a payout of 60%.

Attorneys for the plaintiffs also attacked how QBE sets its rates. Camley Delach served as QBE's lone actuary for force-place policies written on behalf of Wells Fargo in Florida, according to a deposition discussed at the class certification hearing. It was her job to gauge the financial risks the underwriter faced. But Delach said in a deposition that she works from her Pennsylvania home, performs no actuarial work to determine QBE's prices, and has "no idea" why QBE prices its policies the way it does.

"It is not necessary for someone to be an actuary to critique this procedure," Judge Scola wrote in his opinion certifying the plaintiff class.

The information about the Wells and QBE practices was presented in open court on February 9. American Banker obtained the case files when they were originally posted to PACER, an online database of federal court records.

Wells Fargo and QBE accused plaintiffs attorneys of "misconduct" for bringing the information into a public forum. "Defendants have done everything within their control to protect the confidentiality of their business information," Wells and QBE stated.

The defendants subsequently argued to the court that a "manifest injustice" would occur if the details of their business relationship were made public. The court agreed on February 22 to seal or redact related information, including much of that described above.

Emails presented in those documents suggest that Wells employees themselves were uncomfortable with the high premiums QBE was charging Wells' borrowers. Following an American Banker article alleging that force-placed insurers were charging as much as 10 times the cost of borrowers' previous hazard insurance, an unnamed Wells executive allegedly told colleagues that the bank needed to rein QBE in.

"[P]remium pricing in unregulated states [those where QBE is not subject state rate caps] is unacceptable, requires immediate address, significant quality/oversight concerns based on loan cited in AB [American Banker] article and the issue found by Escrow team," an unnamed Wells executive wrote in an email to colleagues that was read by a plaintiffs' attorney in court and cited in a now-sealed PowerPoint presentation. These issues needed to be raised with "senior QBE leadership," the Wells official wrote.

"The quotes from Wells Fargo emails were taken out of context," Wells Fargo spokesman Tom Goyda wrote to American Banker last week. In a subsequent email, Goyda called the class certification a "procedural" matter and said that Wells has no intention" of retaliating against borrowers as the judge suggested. QBE declined to comment on the case.


(13) Comments



Comments (13)
This was Judge SCOLA passing a worthless Policy scam -now-
next SCAM is the HAMP scamp, just stall HAMP by refusing to apply the funds ,foreclose anyway . but Corvell vs Wellsfargo prevailed here 011-16234 Horwitz AB will get another few millons on this in Florida .Wellsfargo will pay the fines ,I am a victim.
Posted by giger_2@hotmail.com | Wednesday, May 11 2016 at 10:53AM ET
Oh come on. I'm not going to let the banksters off the hook like Tom and Julie do. The fact that the police take half an hour to get to your house doesn't excuse the thief from busting down your door and walking off with your TV! Wells Fargo is responsible for taking advantage of the situation to the detriment of their clients and society. PERIOD
Posted by Jim S | Thursday, March 22 2012 at 6:30AM ET
Our law firm has modified thousands of loans over the past four years. These practices do exist, and often the Servicer's are placing Forced Placed Insurance on people who have actually been paying their insurance, and have documented the fact to no avail with their Servicer. There are also instances where borrowers are being charged for an insurance policy that was never actually purchased, at these 10x+ rates. Servicer behavior in the modification process has been obscene at best. The rare exceptions are the non commercial bank Servicers such as Ocwen and their subsidiaries. They have actually embraced a good faith process, including principal reductions, whereas the big 5 have not.
Posted by Bill B | Friday, February 24 2012 at 3:47PM ET
If there is an existing law against the practices of Wells/QBE, wouldn't you think it would be a good time for the plantiff to actually cite that law (or laws)? As Julie points out, they are trying to put the cart before the horse (laws have to implemented before they can be broken) this appears to be a lawsuit based solely on a personal vendetta of a judge and nothing more. The defendants should be the people who were paid to protect the state through legislation and an investigation should be launched as to why they sat by and did nothing (perhaps they were in bed with the insurance & banking industry?).

Yes Jennifer, a corporation the size of QBE would not put an actuary on the stand to simply say "I have no clue". I'm sure a major portion of that conversation was omitted, changed and clearly taken out of context in this article.
Posted by Tom S | Friday, February 24 2012 at 9:58AM ET
Jeff, I agree with that, it is your presentation that makes me question the article. In news most people are not likely to link back to sources to confirm what the author is saying is factual or accurate.

These kind of decisions in any business are well evaluated and determined by teams of qualified, experienced people with years of training.

Your presentation makes it sound like the rates rest on one person's decision who really didn't know what she was doing. Which is highly unlikely.
Posted by Jennifer M | Thursday, February 23 2012 at 2:57PM ET
Jennifer - please take a look at the judge's opinion which I linked to, which cites the deposition. There's really no doubt about what Ms. Delach's role was. -Jeff Horwitz, AB
Posted by jhorwitz24 | Thursday, February 23 2012 at 2:30PM ET
I am skeptical of the truth in your article. You state in the article that it was Ms. Delach's "... job to gauge the financial risks the underwriter faced... performs no actuarial work to determine QBE's prices..."
In your rebuttal to Tom and Julie you state that
'QBE's actuary who stated that she was not using actuarial methods...'
In the article it sounds like she is not involved in pricing at all, in the rebuttal it sounds like you are implying she is not following actuarial methods.

If you cannot quote yourself accurately, it is hard to believe that you quoted the deposition accurately.
And difficult to trust any of your writing.
Posted by Jennifer M | Thursday, February 23 2012 at 2:27PM ET
@David M - In a perfect fantasy world there would be no crime, no wars, no hunger, and big corporations would act ethically on good faith. Unfortunately that is far removed from the real world which is why its unrealistic to expect corporations to do so because it will never happen. I'm not condoning it at all, just pointing out the hard facts. Right or wrong, the question is did they break any laws? As Jeff pointed out, maybe there is an existing super secret nebulous law somewhere that is keeping this alive, but if not, then where were the state legislators and why have they let this go on for some many years? So you are proposing that their lack of action had nothing to do with this and they should not be held accountable at all?

@ Jeff H - I understand what you are saying, but to say that they placed someone on the stand who had no involvement or idea on how the rates are set leaves the reader more questions than answers (like, "ok, then who sets the rates?), and an impression of a lack of investigative work on some level. I just didn't see any relevance or point.
Posted by Julie J | Thursday, February 23 2012 at 1:10PM ET
On Tom and Julie's points -- Whether you believe that there's a problem with force-placed insurance or not, I'd argue that the plaintiffs' success in court may raise some doubt as to whether laws and regulations actually do allow the alleged practices. If the plaintiffs attorneys in the Florida case and others like it couldn't make a case that the alleged conduct is illegal under existing law, they would already have been thrown out of court.

As for the issue of the name of QBE's actuary who stated that she was not using actuarial methods, I'm having a hard time understanding why citing what she said in a deposition as defamation or a smear attempt. Generally, unless there's an issue of confidentiality involved, I name the people I write about and talk to. In this case, describing Ms. Delach's role is essential to understanding how QBE ran its force-placed business. Keep in mind that Ms. Delach is the person that QBE chose to answer questions about how it sets its rates -- I'd love to know who actually made the decision, too. -Jeff Horwitz, Risk Editor (and author in this instance.)
Posted by jhorwitz24 | Thursday, February 23 2012 at 12:28PM ET
Really? It's not their fault that they're acting unethically and exploiting borrowers.... it's the regulator's fault for not stopping them? In other words, companies are justified in hosing consumers if the law doesn't proscribe the practice? As the first commenter notes, that attitude is precisely why the public distrusts large banks. (The same institutions lobbying against more regulation of their activities.)
Posted by MrPotter | Thursday, February 23 2012 at 11:41AM ET
Agree with Tom, the legislative process is not getting to the root of the problem. The entire housing debacle was also a result of no baking regulations and this is really no different. This is like trying to press charges against thievery when no laws were every passed against stealing. and yes I also noticed that the individual(s) who actually set the pricing model is not mentioned. Defamation toward employees who had little to no involvement looks like mere tabloid journalism.
Posted by Julie J | Thursday, February 23 2012 at 11:05AM ET
I agree that these practices are not fair, but this sounds more like the fault of the regulators than it does QBE or Wells. If you fail to regulate the free market and allow companies to set their own prices, they will make as much profit as they possibly can...duh!. So why isn't the parties responsible for installing the necessary legislation to regulate these prices being sued? They expect instead to work under an "implied" agreement in which the banks will implement fair practices by default? That's absurd and nonsensical. Of course they won't, that's what laws are designed to do, and the lawmakers failed to step up to protect the people. I also don't understand why Mr. Horotitz would call the QBE actuary out by name if she had nothing to do with setting the prices. That's an extremely unprofessional and unfair practice as a journalist to launch a smear attempt against an individual who is not at fault. Should she also not have the right to press charges against such unfair practices? Perhaps she should
Posted by Tom S | Thursday, February 23 2012 at 10:05AM ET
And then banks are perplexed as to why the public distrusts them!
Posted by kimberly s | Thursday, February 23 2012 at 9:41AM ET
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