The U.S. Department of Justice (DOJ) has filed a civil lawsuit against Allstate-owned National General, accusing the auto insurance brand of defrauding customers by force-placing unnecessary Collateral Protection Insurance (CPI) on vehicles financed by Wells Fargo. This lawsuit, filed in the U.S. District Court for the Western District of Pennsylvania, addresses fraudulent activities that allegedly occurred between October 2005 and September 2016.
Allstate’s National General and The Forced Placed Insurance Allegations
The DOJ claims that National General, which was acquired by Allstate in early 2021, imposed CPI on borrowers who financed their vehicles through Wells Fargo without their consent. These borrowers were charged for this insurance despite already having coverage. The CPI led to significant financial burdens such as additional interest, fees, and, in some cases, vehicle repossessions.
Ineffective Tracking System
One of the critical issues highlighted in the DOJ’s lawsuit is the ineffective system National General used to track insurance coverage. This inefficacy resulted in the wrongful placement of CPI on numerous loans. According to the DOJ, more than $500 million in premiums were collected during this scheme, affecting up to 2 million vehicles.
The Role of Wells Fargo
Wells Fargo had contracted with National General to verify auto insurance for its borrowers. Despite knowing about the system’s inefficacy, National General continued to impose CPI on borrowers. This ongoing practice drew the attention of the DOJ, leading to the current legal action.
Legal Basis
The DOJ utilized the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) to file the complaint. FIRREA, enacted in response to the savings and loan crisis of the 1980s, gives the DOJ broad powers to address fraud involving financial institutions.
Broader Context
This lawsuit is not the first legal challenge Allstate has faced this year. Recently, Allstate, alongside State Farm, was accused of interfering with a proposed $4 billion settlement intended to support victims of the 2023 Maui wildfires. Plaintiffs in that case argue that the insurers prioritized their interests over the comprehensive compensation of their policyholders, potentially violating Hawaii state laws.
The Implications of the Allegations
The latest lawsuit brought forth by the DOJ highlights serious allegations concerning fraudulent practices and their effects on borrowers who were unwittingly charged for unnecessary insurance costs. While National General is facing these allegations, it’s essential to consider that Allstate only acquired the company in early 2021, long after the alleged infractions took place. This raises the question: is it truly Allstate’s fault if the actions in question occurred before their ownership? The outcome of this case could have lasting ramifications, not only for National General and Wells Fargo but also for the regulatory landscape governing auto financing and insurance practices moving forward.
The History and Acquisition of National General Insurance
National General Insurance, originally the GMAC Insurance Group, is a Winston-Salem, North Carolina-based property and casualty insurance company founded in 1920. It holds the unique distinction of being the only U.S. insurance company that originated within the automotive industry. The company’s roots trace back to two entities: Integon, a life insurance company established in Winston-Salem, and Motors Insurance Company, created by General Motors in 1925 to provide damage coverage for GM vehicles.
Over the decades, National General underwent several ownership changes and expansions, including a significant acquisition by GMAC in 1997. In 2013, GMAC Insurance rebranded to National General Insurance. The most notable recent development in its history came in July 2020, when Allstate announced it would acquire National General for $4 billion. This acquisition was finalized in January 2021, bringing National General under Allstate’s umbrella.
Next Steps
Borrowers affected by this alleged scheme are encouraged to monitor developments in the case closely. The DOJ’s action aims to hold National General accountable and seek remedies for those who suffered financial harm due to the force placed CPI.