Earlier this year, attorneys started to try to get a class action certified against the carrier. Now, the United States has initiated a civil lawsuit under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) against Allstate company National General Holdings Corp. and its subsidiaries, including National General Insurance Company, National General Lender Services Inc., and Newport Management Corporation.
Allstate bought the company for almost $4 billion just over three years ago. Over the last two years, the company has had double digit premium rate increases, and Allstate was pointing to it as a driver of future profits – that assumption now looks shaky, the penalties levied on the company could be substantial. The company’s growth was being driven through the non-standard auto insurance sector.
The Feds’ complaint alleges that National General improperly force-placed Collateral Protection Insurance (CPI) on vehicles financed through Wells Fargo for over a decade, even though the borrowers already had insurance from other providers.
“Companies must deal fairly and honestly with consumers,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “Today’s lawsuit demonstrates that the department will use all of the tools at its disposal to protect the American public against deceptive and fraudulent business practices.”
US Attorney Eric G. Olshan for the Western District of Pennsylvania commented: “Today’s complaint alleges a long-running scheme to defraud hundreds of thousands of car buyers. For years, these defendants saddled ordinary Americans, including residents of this district, with allegedly unnecessary insurance, leading to dire real-world consequences like repossessed vehicles and other unwarranted collection activities. This enforcement action reinforces an important message: our office, together with our law enforcement partners, will take decisive action to combat fraud in the insurance industry, protect consumers and hold companies accountable for their wrongdoing under federal law.”
The lawsuit, filed in the US District Court for the Western District of Pennsylvania, asserts that from at least 2008 to late 2016, National General failed to correctly monitor whether vehicles financed by Wells Fargo were already insured by other carriers. Consequently, National General allegedly force-placed its own CPI on at least 655,000 vehicles, despite these vehicles having existing insurance. The complaint details how National General’s tracking was flawed, including sending letters to addresses previously returned as undeliverable, not making necessary phone calls to verify insurance, and failing to correctly match insurance information to the vehicles financed.
The government claims that National General was aware for years that its tracking system was ineffective and continued to wrongly impose CPI, resulting in thousands of borrower complaints. The company reportedly tracked and reported high rates of false placements to both its internal teams and Wells Fargo.
Moreover, the complaint highlights that as a result of these erroneous CPI placements, borrowers were burdened with duplicate and unnecessary CPI premiums, often without proper notification. Additional adverse effects on borrowers included improper late fees, increased interest charges, negative impacts on credit scores, and in some cases, wrongful vehicle repossessions.
FIRREA allows the Attorney General to seek civil penalties for violations involving financial institutions or specific government agencies based on criminal predicate offenses proven by a preponderance of the evidence. The US complaint alleges that National General committed mail fraud, wire fraud, and bank fraud, thus violating FIRREA.
The Civil Division’s Commercial Litigation Branch (Fraud Section) and the US Attorney’s Office for the Western District of Pennsylvania are handling this case. The legal team includes Trial Attorneys Lindsay DeFrancesco and Laura Hill from the Civil Division’s Fraud Section and Assistant US Attorney Adam Fischer for the Western District of Pennsylvania.
