Settlements are good business. Actually, settlements are a way of doing business in lender force placed insurance class action cases in Federal Courts. A recent example: Casey v. Citi (NDNY Case No. 12-00820).
A new report about a new settlement agreement in a lender force placed insurance case has just been published. Some of the details appear to be garbled in the transmission. For that reason, we will not mention what news information service has taken the lead on this reporting.
A new settlement agreement has been filed in the Federal case of Casey v. Citi (NDNY Case No. 12-00820). The parties have recently requested the Federal Court's approval of their proposed class action settlement in that lender force placed insurance case. They filed their motion seeking preliminary approval of their class action settlement on February 5, 2014. Download Casey v. Citi (NDNY 12.00820).Ps M Prelim Appr Class Action Settlement.Fd020516. The Federal Court has set a Hearing to approve on March 14, 2014.
This article is based strictly on the popular reporting concerning this announced settlement, and on some experience with similar settlements in lender force placed insurance class actions especially in Federal Court. When I have had some time to review the parties' documents in the specific Casey case, I will comment on them.
According to the popular press which for our purposes includes what might be called "the business press," Citigroup, Inc. and the Plaintiffs in Casey have agreed to a settlement in which Citi will pay $110,000,000.00 or $110 Million to the Plaintiffs-homeowners.
Let's take that figure at face value. Let's assume that Citi will pay up to $110 Million in cash. First off, Citi reportedly only has to pay Plaintiffs who 'present a claim'. Not all class members in any class ever known actually end up 'presenting a claim,' of course. From the beginning, it is obvious that Citi's 'payment' may not be a payout to all the people affected in this case by lender force placed insurance practices.
"Hazard" insurance and Flood insurance were both placed on the class. The homeowners in the group of lender force placed hazard insurance were reportedly charged $758,000,000.00 or $758 Million in premiums for that insurance. Citi's cut was 15% in "commissions". The popular reporting does not reflect what this figure would be. It is $113,700,000.00. (That calculation is my own, and so are all similar calculations noted in this article. These calculations are not published in the popular press reports of this settlement agreement.)
In the settlement agreement in Casey, the parties reportedly agreed to request Court approval of Citi paying 12.5%. I calculated that figure as $94,750,000.00.
I then calculated the difference between the two figures -- what Citi reportedly received as "commissions" for force placing "hazard insurance" at a commission rate of 15%, versus the amount Citi reportedly will pay 'back' on the same amount at the rate of 12.5% -- and the difference is $18,950,000.00.
Parenthetically, Citi will not have to give up ever charging "commissions" again on lender force placed insurance. They and the class action homeowners are requesting the Federal Court to approve a moratorium of 6 years and then Citi can resume the practice of charging commissions if the Federal Court in the Casey case gives its approval of this practice. If that practice is approved by the Federal Court in this settlement, the Court's approval is almost certainly far more than Citi could have hoped to obtain by litigating the practice.
Lender force placed Flood insurance was also at issue in the Casey case. Reportedly, homeowners were charged $173,000,000.00 or $173 Million in premiums for it and reportedly, Citi did not collect "commissions" on those premiums but will pay 8% of that figure in addition to its 'payout' on the lender force placed "hazard" insurance claims. Taking this reporting at face value as well, this would mean that Citi would pay cash of $13,840,000.00 to settle all the Casey class action lender force placed Flood insurance claims.
Citi would still make a profit. After all these "ifs," Citi would still be ahead of the game by $5,110,000.00, a figure not reported in the popular press. That is the difference between what Citi reportedly took in as "commissions" from the homeowners represented in this class action lender force placed insurance case -- $113,700,000.00 -- versus what Citi reportedly would pay out to them if Citi pays cash to all the affected homeowners -- $108,590,000.00.
Now, having said all that, let's return to those "ifs" I mentioned. There are a lot of them. First, even if -- really in all probability, not if but "when" -- this proposed settlement is approved, not all homeowners in the class will benefit. Citi will only have to 'pay' those homeowners in the class who make claims after the Court approves the settlement, which by experience well known to Citi and to others does not mean all the homeowners affected by the lender force placed insurance practices at issue in Casey.
Second, although defendants in past lender force placed insurance class action cases may have settled exclusively for cash, I am not aware of them. Citi's 'payout' is almost certain to be a mix of a relatively small amount of cash, coupled with "credits" to Citi for such things as mortgage principal reductions which do not involve the payment of cash but which settlement agreements in these cases involve "credits" for stated values treated as cash for purposes of the settlement, including for purposes of the ensuing press releases which inevitably follow these agreements.
Third, these figures are based only on popular reports concerning "commissions". It is unclear how much money Citi allegedly earned, let alone how much money it did take in, from other lender force placed insurance practices if any.
Finally, no-one should forget that, reportedly, Citi successfully bargained in this case for its legal ability to charge "commissions" on lender force placed insurance. That is huge for Citi.
More to come, after I have the time to review the settlement documents. In the meantime, a reminder: March 14, 2014, as noted above, is the date set by the Federal Judge for hearing the parties' arguments to approve their proposed mutual class action settlement against lender force placed insurance practices in the Casey case. The hearing will be held in Utica, New York before U.S. District Judge David N. Hurd.
Rulings in the Casey case were previously discussed in this article posted here on August 1, 2013.
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