Allstate’s National General Sued by DOJ Over Alleged Force-Placed Insurance ‘Scheme’

Allstate’s National General auto insurance brand has been sued by the U.S. Department of Justice over allegation that National General and subsidiaries “engaged in a scheme to defraud customers” by putting its insurance product onto vehicles financed by Wells Fargo.

According to the complaint, National General “force-placed” its Collateral Protection insurance (CPI) product on up to 2 million or so vehicles financed by the bank between October 2005 and September 2016. The DOJ said in the civil lawsuit filed in the U.S. District Court for the Western District of Pennsylvania that the cost of the product was added to a borrower’s loan, even though the customer already had insurance coverage and did not purchase the insurance from National General. Wells Fargo had contracted with National General to determine if a borrower had the required auto insurance.

National General for years knew its system to track borrowers’ insurance was “wholly ineffective and that it was routinely imposing force-placed CPI on hundreds of thousands of borrowers in error,” the DOJ said in a statement. The product was meant for physical damage of the vehicle only.

“Today’s complaint alleges a long-running scheme to defraud hundreds of thousands of car buyers,” said U.S. Attorney Eric G. Olshan for the Western District of Pennsylvania, in a statement. “For years, these defendants saddled ordinary Americans with allegedly unnecessary insurance, leading to dire real-world consequences like repossessed vehicles and other unwarranted collection activities.”

Allstate closed on its $4 billion acquisition of National General at the start of 2021. In an emailed statement to Insurance Journal, National General said, “These allegations are false, and we are committed to sharing the facts.”

The DOJ said borrowers with the alleged forced-placed insurance paid an average of about $1,100 per year for coverage they did not need. “False placements occurred at an alarming rate—between 56% and 93% of the time,” said the DOJ in its suit. Sometimes National General would realize the error but between 640,000 and 1.4 million borrowers were charged, DOJ said, adding that borrowers also paid interest and fees on the loans.

National General collected more than $500 million in premiums during the alleged scheme, according to the lawsuit. The insurer would charge Wells Fargo and the bank would charge the borrowers. According to the information outlined in the suit, Wells Fargo at the end of September 2016 notified National General of its intention to stop force-placing the CPI product. After that, National General terminated CPI.

The DOJ filed the civil complaint under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).