Bank Sued Over Stealth Practice

Christopher Peak

Isaac Kinity at his home, which he could lose.

Isaac Newton Kinity has learned firsthand what happens when big banks decide to force homeowners to buy expensive extra insurance — and dig them into deeper and deeper holes that may lead them to lose their houses.

The Dwight homeowner has filed suit against U.S. Bank in hopes of keeping his home. In the process, he has joined thousands of other Americans in going to court against lenders over a controversial practice — deemed by some a form of secretive extortion — called force-placed” or lender-placed” insurance.

In the course of a single week, U.S. Bank (USBNA) added $3,452 onto Kinity’s mortgage bill. The unexpected charge came nine months after the bank swapped out his hazard insurance for a far more expensive policy without the client’s knowledge.

The bank gave him just a month and a half to come up with the cash. Three years later and $30,000 behind on his payments, the homeowner is taking U.S. Bank to court for fraud, negligent misrepresentation and unfair business practices, while hoping to remain in his home.

Kinity, a 62-year-old Kenyan refugee who moved into his house 475 Elm St. in October 2003, filed a tort suit in April, contesting the practice of force-placed insurance.

Jane Kinity in her kitchen.

Here’s what happens with that practice: Lenders deem a homeowner’s insurance policy deficient (often for disasters like high winds or floods) or nonexistent. Then they unilaterally replace it with new coverage. While technically legal, the new force-placed insurance often comes at an extortionate price — enough for the insurer to send a kickback” to the bank, as multiple class-action lawsuits across the country have alleged.

Force-placed insurance sounds like a reasonable way for lenders to protect their investments, but in practice, the costly exchange of insurers often seems to be about bilking customers, Dana Conkrite explained in a 2016 Chicago-Kent Law Review article.

In mortgage contracts, there are generally provisions that require borrowers to maintain hazard insurance on their homes. This makes sense; lenders want to ensure that their collateral is protected in case something causes damage to the property,” she writes. However, banking practices regarding force-placed insurance are controversial and have recently come under increased scrutiny … partly because force-placed insurance policies are typically much more costly than insurance policies acquired by consumers on the open market, and … because many banks that act as lenders have been accused of receiving kickbacks or unlawful commissions from force-placed insurance companies.”

That fits the pattern in Kinity’s case.

In late 2013, U.S. Bank stopped forwarding dues to Norcom Insurance, the agency that booked Kinity’s homeowner’s insurance (from State Auto Mutual Insurance Company) for a decade, at $1,243 annually. In response, on Jan. 6, 2014, Norcom cancelled Kinity’s policy for non-payment of the premium. Three months later, on March 27, 2014, U.S. Bank purchased him a backdated policy through Voyager Indemnity Insurance, an Assurant subsidiary. The coverage cost four times more, at $4,891 yearly, but it covered far less.

That much is agreed upon by both Kinity and the bank. But from there, the accounts of the financial transaction diverge, and the story gets murkier.

Why didn’t U.S. Bank continue paying the premium to Norcom, if Kinity had money in his escrow account for that purpose? Why did it take so long for Kinity’s monthly statements to reflect the switch? And why did a letter mysteriously arrive late last year, saying Kinity could collect a $1,243 check if he would agree to indemnify and hold harmless State Automobile Insurance Company” — his old carrier — against any claims or demands”?

Among Kinity’s many documents, the bank’s internal notes on his case.

Voyager Indemnity’s spokesperson directed all inquiries to U.S. Bank, which, in turn, declined to offer its side. Because this is an ongoing legal matter, we are not able to provide comments regarding this situation,” Michael L. Walsh, a communications vice-president, wrote in an email.

In several interviews, Kinity reconstructed what he believed happened. At times, he veered into conspiracy. Fearing a plot to swindle him out his home, he questioned whether the bank’s letters had originally been written for another borrower and simply replaced with his name. Having faced several assassination attempts in Kenya as one of the country’s top labor leaders, he said, he has history with hidden agendas.

They listened to my accent and said, This is someone who must be very new in America and probably doesn’t know the laws in America. We can get the house very easily,’” Kinity speculated. Many people have become victims and losers of houses through [the bank], because of not knowing what to do. It’s complicated, the way they bought insurance, a very complicated scenario. I almost would have let the house go, but let me say: I’m a fighter. I had been fighting for rights of people, even telling the [Kenyan] president to stop routing public funds. I escaped death several times. So, in fact, [force-placed insurance is] a very good avenue to fight and to stop, with such dubious intentions as defrauding people’s money. It’s a cause on my crusade to help other people, because I don’t like corruption.”

Kinity did produce several important documents proving the bank acted furtively; he shared them with the Independent. A pack rat, Kinity kept old bills, letters and contracts related to the case in stacked boxes. His wife, Jane Kinity, 57, used to nag him about all the hoarded paper, but now, she offers gratitude.

The State of Connecticut should be very concerned about my case, because I suspect so many people are falling into some predicament and don’t know what to do,” he said. It will please the state to look at it carefully, so that if [the court] finds them guilty, they should raise an alarm so that many other people should not be defrauded and suffer.”

Jane and Isaac look through papers in their kitchen.

Kinity’s troubles began in September 2013, when he missed two mortgage payments. He said this was a regular occurrence, and his billing statements reflect that he’d often double up the following month. But this time, his account was marked delinquent after more than 30 days behind, triggering an alert at U.S. Bank.

USBNA claims that it sent an inspector to the property on Oct. 28, 2013. The following day, its Foreclosure Department mailed Kinity a letter saying that his property appeared to be vacant and/or unsecured.” It asked him to return a signed copy of the letter within five calendar days. Please understand that this is not an attempt or an action to dispossess you of your property,” the letter stated. It is merely an action to protect our security interest as provided in the [mortgage] agreement.”

Without waiting for the clock to run down, USBNA’s Insurance Department mailed another letter the same day to State Automobile Insurance Company about the property’s status. (USBNA subsequently claimed this letter went out later.)

On Oct. 30, 2013, the bank sent a follow-up letter to Kinity advising him that his insurer had been notified and instructing him to contact his agent to update his coverage, in light of the change of risk.”

In court filings, USBNA maintained it didn’t get a response to either letter. Yet in the Oct. 30 letter to Kinity, the bank implied that it did. We have contacted your insurance carrier to confirm whether the policy would cover a loss if the property was vacant and was advised your current policy does not provide vacancy coverage,” a representative from the bank’s Hazard Insurance Processing Center wrote.

Throughout, Kinity maintains he never left. They never called me. They never called my place of work or my wife’s place of work,” he said. They even could have consulted with neighbors. Is this house occupied?’ Just that, and they could confirm.” Indeed, the bank’s internal files indicate that Kinity called up the lender on Dec. 27, 2013 to say he lived upstairs and rented out downstairs.

Despite that call, on Jan. 8, 2014, USBNA received a cancellation notice from the insurance carrier because of non-payment of the premium. USBNA said it had paid the premium in September 2013, but it heard that the money was refunded to Kinity directly. Kinity said he never received a cent; a letter from State Auto Mutual Insurance Company would show up two years later claiming he never cashed the check.

Both parties say they spoke with Shira Stein, the agent at Norcom, to see if she could have the policy reinstated. In the bank’s version, Stein said she was unable to reach Kinity to set up a new policy; in Kinity’s, she was unable to reach the bank to set up payments. Stein no longer works at Norcom, and a company representative was unable to provide the Independent with files on Friday.

Because of the cancellation, USBNA launched into the process of buying their forced-placed insurance. The bank said that it sent Kinity a series of letters, warning him that he had no active hazard insurance in place and that the company intended to obtain one on his behalf. Kinity said he never received them.

On March 27, 2014, USBNA said, it disbursed the annual premium of $4,891 for the lender-placed insurance, through Voyager Indemnity, which had been backdated for three months prior.

Despite the high price tag, Voyager’s policy didn’t cover much. The policy insured only the Kinity’s two-story structure, not the owner’s belongings or persons. Even then, the policy applied only to a select set of circumstances. The policy excluded collapse; water damage from floods, backed-up sewage or faulty plumbing; mold and rot; vermin infestations; earth movements” like a quake, landslide or sinkhole; power failure; any type of war, including undeclared war, civil war, insurrection, rebellion, [or] warlike act by a military force”; nuclear hazards; neglect or any other willful loss. The insurer did agree to pony up for fires, explosions or lightning strikes.

The policy may have cost so much because force-placed insurance is a higher-risk pool than other homeowners’ insurance, explained Gerard O’ Sullivan, the consumer affairs director at the state’s insurance regulator. The excess and surplus’ providers are licensed [through the state] as well, but an individual wouldn’t be able to go to those [carriers], unless they’re rejected and couldn’t get insurance through the admitted market,” he said. We always recommend [consumers] contact us if they have these problems,” particularly to apply for help from the CT Fair Plan, guaranteed coverage for those who don’t qualify for a homeowner’s plan on the standard market.

Weirdest of all, Kinity said, he believes he was charged for two insurance policies at once. Throughout the year prior, the bank had earmarked $108 in each month’s billing statement to repay the annual premium it had supposedly disbursed to Norcom, before the policy was cancelled. Yet, it wasn’t until October 2014 that the statements were updated, and Kinity was slammed with a past due” sum of $2,243, a shortage” of $706 and next month’s payment of $408 for what he owed to Voyager Indemnity.

They billed me throughout, without telling me, You don’t have insurance,’” Kinity said. All of a sudden, they told me, We bought insurance, and we bought it one year before: a new one.’ And I had already paid for the insurance all year round.”

Jane and Isaac, on their front porch.

On Apr. 2, 2014, USBNA said it sent Kinity a letter informing him of the change in insurers. Kinity claimed he was not officially informed of the change until Nov. 24, 2014, when the policy was up for renewal.

Kinity was able to switch over to a policy at State Farm Insurance on Dec. 9, 2014. Two days later, USBNA cancelled the lender-placed insurance and obtained a partial premium refund of $377, which was applied to Kinity’s escrow. It also disbursed the premium of $2,833 to State Farm.

The payments today are far cheaper, yet with late charges and interest, the one year’s worth of charges for Voyager’s coverage snowballed into a massive debt.

Kinity said he hopes to recover some of the funds in his suit; otherwise, he’ll have to scrounge together $30,000 from his friends if he wants to stay in his home.

His lawyers, Benita Darlene Lee and Karen Elaine Haley, had previously initiated litigation against U.S. Bank in 2015 and won — until a judge found out the case named the wrong subsidiary and was improperly served. In the newly filed case, they’re about to start discovery, allowing them access to the bank’s internal files. Pointing to a regulatory crackdown on forced-placed insurance by New York State and multi-million-dollar settlements against U.S. Bank specifically in California, Minnesota and Florida, Kinity’s optimistic about his case.

Until then, Kinity said, he hopes to bring attention to the industry’s tactics, so that no one is duped like he felt he was. I want to talk publicly because I know that this company fears very much publicity. They do things in secret, without anybody knowing,” he said. Once [people] go public, they know they are exposed; their evils are known.”

Tags:

Sign up for our morning newsletter

Don't want to miss a single Independent article? Sign up for our daily email newsletter! Click here for more info.