Landmark US lawsuit against one of the most prominent auto insurance companies – Here’s why

National General (NGHC), an Allstate-owned insurance company which offers home and auto insurance is under scrutiny by the U.S. Department of Justice for allegedly forcing collateral protection insurance on hundreds of thousands of customers who already had their vehicles covered through other insurers, specifically customers who financed their vehicles through Wells Fargo.

In the lawsuit, which was filed on July 24, it is stated that “In fact, from 2008 to 2016, National General knew that it falsely force-placed insurance between 56 and 93% of the time. These improper force-placements harmed borrowers — causing borrowers to pay money they did not owe, borrowers to default on their loans, vehicle repossessions, and negative impacts to borrowers’ credit scores.”

In the allegations the company “knew or recklessly disregarded” that borrowers already had coverage and forced customers who financed vehicles through Wells Fargo to acquire additional comprehensive and collision insurance, or collateral protection insurance contracted through them. The bank was complicit in the scheme as it contracted with National General to identify whether or not a customer had the required insurance for their vehicle.

The lawsuit continues “If National General did not obtain proof of such insurance, National General automatically issued a certificate of insurance for its CPI product. This was called ‘force-placing’ insurance because the cost of the CPI was subsequently added to a borrower’s loan, even though the customer did not affirmatively purchase the insurance from National General.”

This fact was ascertained by the Justice Department as it found that National General “made no phone calls to insurance carriers, agents or borrowers to obtain outside insurance information,” despite being required to do so. The company also allegedly “failed to match insurance information in its possession to financed vehicles.”

National General insurance company allegedly made huge profit from CPI placements

The burden was passed on to Wells Fargo customers, who paid on average $1,100 per loan annually for National General’s collateral protection insurance. While this may not seem like a lot of money for comprehensive and collision coverage, data finds that it was more expensive provided less protection than other comprehensive and collision insurance offered by other companies.

In the lawsuit the allegations continue “Sometimes National General realized its error before the borrower was billed, but, between 29 and 63% of the time, National General improperly invoiced Wells Fargo who then improperly billed the borrowers—forcing borrowers to pay premiums and other fees associated with the CPI that they did not owe.”

The problem was widespread, between 2005 and 2016 National General “falsely placed” between 1.2 million and 2.1 million collateral protection insurance. Not all of these policies were paid, about 600,000 to 700,000 were canceled before the borrower was charged for it, but the rest were not and Wells Fargo customers were responsible for the invoices, garnering over $500 million in premiums and other associated fees for National General.

The documents explains how this problem went unnoticed for as long as it did “National General knew or at least recklessly disregarded that it was falsely placing CPI and charging for duplicative insurance, but it took no meaningful steps to reduce the rate of false placement. NGLS’s Wells Fargo Account Manager dismissed false placements as a ‘function of the program.’”

The company, which denies all allegations stating “These allegations are false, and we are committed to sharing the facts” is facing the maximum penalty under the Financial Institutions Reform, Recovery, and Enforcement Act “in an amount to be determined at trial.”

This will probably become a landmark case from the Justice Department, as it is happening at a point in time when consumers are facing higher rates due to inflation and other factors. In fact, the problem is so pervasive that according to a survey by Expertise.com,

Note: Thank you for visiting our website! We strive to keep you informed with the latest updates based on expected timelines, although please note that we are not affiliated with any official bodies. Our team is committed to ensuring accuracy and transparency in our reporting, verifying all information before publication. We aim to bring you reliable news, and if you have any questions or concerns about our content, feel free to reach out to us via email. We appreciate your trust and support!

49% of Americans believe that they are paying too much for car insurance, a problem compounded in cases like this, when they really are being taken advantage of.