Avatel Technologies Force-Placed Insurance on Leased Equipment Class Action

Force-place insurance, also known as lender-placed insurance (LPI), is often found in connection with mortgages, when the borrower fails to maintain an adequate policy and the lender force-places one to protect against property losses. In this case, the insurance was placed on voice, data, or video equipment leased through financing, but the allegations the complaint makes are similar: that the equipment lease and finance companies got unearned kickbacks from the insurance companies, which artificially inflated the premiums charged—making them up to ten times higher than those available on the open market.

The class action proposes two nationwide classes:

  • All borrowers and/or lessees in the US who, within the statutes of limitation, were charged for a force-placed insurance policy placed on equipment leased and/or financed through Avatel Technologies, Inc. and/or CIT Group, Inc. and/or their affiliates or subsidiaries.
  • All borrowers and/or lessees of equipment leased and/or financed through Avatel Technologies, Inc., CIT Group, Inc., and/or their affiliates or subsidiaries, in the US who, within the statutes of limitation, paid for an insurance policy that exceeded the value of the equipment being leased and/or financed.

It also proposes a Missouri subclass for each.

Standard loan or lease agreements require that the borrower maintain hazard insurance on the equipment being leased, and, if the borrower does not do this, permit the lender to force-place a policy and charge the borrower for the premiums.

But the situation is not that straightforward, the complaint alleges, because lenders often buy “umbrella” policies that cover all loans or leases in their portfolios. The insurer then monitors the lender’s portfolio of loans; when a lapse of a borrower’s insurance occurs and the borrower does not remedy it, the insurance company force-places a policy and the lender adds the premium to the borrower’s bill. But the complaint claims that no individual underwriting ever takes place, because the loan is already covered by the lender’s umbrella policy. The premium payment is sent to the insurance company, which kicks back a percentage to the lender as a commission.

The complaint asserts that the commission is simply a kickback, because no work has been performed for it and because coverage is actually being provided by the umbrella policy that’s already in place.

High premiums are not the only problem with some LPI policies. Jones Real Estate, the plaintiff in this case, had an LPI policy that (a) covered not only the usual hazards of fire, theft, and so on, but also flood, wind, earthquake, and power surge; (b) covered two lease or loan payments while the equipment was damaged and not available for use; and (c) did not require a deductible. According to the complaint, these kinds of provisions result in consumers having to pay excessive premiums. 

The scheme is lucrative enough that the complaint alleges that the insurance companies sometimes service lenders’ portfolios at below cost, then add the servicing costs into the force-placed insurance premiums, passing the costs onto the borrowers. Their profits are made, the complaint claims, from the highly inflated premiums paid from the LPI.

The complaint alleges that the companies have committed breach of contract and breach of covenant of good faith and fair dealing, and committed tortuous interference with a business relationship, among other things. 

Article Type: Lawsuit
Topic: Consumer

Most Recent Case Event

Avatel Technologies Force-Placed Insurance on Leased Equipment Complaint

October 26, 2017

Force-place insurance, also known as lender-placed insurance (LPI), is often found in connection with mortgages, when the borrower fails to maintain an adequate policy and the lender force-places one to protect against property losses. In this case, the insurance was placed on voice, data, or video equipment leased through financing, but the allegations the complaint makes are similar: that the equipment lease and finance companies got unearned kickbacks from the insurance companies, which artificially inflated the premiums charged—making them up to ten times higher than those available on the open market. The complaint also alleges that the companies entered into a scheme by which no individual underwriting was done, but the individual premiums charged were very profitable. 

equipment_focred_placed_insurance_complaint.pdf

Case Event History

Avatel Technologies Force-Placed Insurance on Leased Equipment Complaint

October 26, 2017

Force-place insurance, also known as lender-placed insurance (LPI), is often found in connection with mortgages, when the borrower fails to maintain an adequate policy and the lender force-places one to protect against property losses. In this case, the insurance was placed on voice, data, or video equipment leased through financing, but the allegations the complaint makes are similar: that the equipment lease and finance companies got unearned kickbacks from the insurance companies, which artificially inflated the premiums charged—making them up to ten times higher than those available on the open market. The complaint also alleges that the companies entered into a scheme by which no individual underwriting was done, but the individual premiums charged were very profitable. 

equipment_focred_placed_insurance_complaint.pdf
Tags: Forced Placed Insurance, Telecommunications