United States Sues National General Holdings Corp. and Subsidiaries for Falsely Placing Insurance on Hundreds of Thousands of Borrowers’ Vehicles

The United States has filed a civil complaint under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) against National General Holdings Corp. and its subsidiaries, National General Insurance Company, National General Lender Services Inc. and Newport Management Corporation (National General), alleging that, for over a decade, National General erroneously force-placed its Collateral Protection Insurance (CPI) product on vehicles financed through Wells Fargo, despite borrowers already having insurance through other carriers.

“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 disposable to protect the American public against deceptive and fraudulent business practices.”

“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. “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 government’s complaint, filed in the U.S. District Court for the Western District of Pennsylvania, alleges that, from at least 2008 and through the latter part of 2016, National General systemically failed to accurately track whether cars financed by Wells Fargo had the requisite insurance coverage from an outside carrier, and thereby knowingly or recklessly force-placed its own, much costlier CPI on at least 655,000 vehicles that already had outside insurance. In particular, the United States alleges that National General’s tracking efforts were deficient for a variety of reasons, including that National General repeatedly mailed letters seeking insurance information to borrowers at addresses that had previously been returned as undeliverable; in many instances, National General made no phone calls to insurance carriers, agents or borrowers to obtain outside insurance information, despite internal requirements to make a certain number of phone calls; and National General often failed to match insurance information in its possession to financed vehicles.

According to the complaint, National General knew for years that its so-called tracking system was wholly ineffective and that it was routinely imposing force-placed CPI on hundreds of thousands of borrowers in error. National General allegedly received thousands of complaints from borrowers and tracked and reported, both internally and to Wells Fargo, its high “false placements” rates throughout the relevant period.

The complaint further alleges that, as a result of falsely placing CPI, borrowers were charged duplicative and unnecessary CPI premiums in connection with their loans, often without adequate notification to the borrowers. The United States also contends that National General’s conduct had a range of additional negative consequences for borrowers, including improper charges for late fees and interest, negative effects on credit scores and improper repossession of some financed vehicles.

FIRREA authorizes the Attorney General to bring a civil action for penalties for violations of certain criminal predicate offenses — as established by a preponderance of the evidence — that involve financial institutions or particular government agencies. The United States’ complaint alleges that National General violated FIRREA by committing the predicate acts of mail fraud, wire fraud and bank fraud.

The Civil Division’s Commercial Litigation Branch (Fraud Section) and the U.S. Attorney’s Office for the Western District of Pennsylvania handled the matter. The United States is represented in this matter by Trial Attorneys Lindsay DeFrancesco and Laura Hill of the Civil Division’s Fraud Section and Assistant U.S. Attorney Adam Fischer for the Western District of Pennsylvania.

The claims asserted against defendants are allegations only. There has been no determination of liability.