Bancorp Sued for Forcing Pricey, Secret Insurance on Houston Apartment Complex September 18, 2023
HOUSTON – Representing the owners of a Houston apartment complex, AZA filed a lawsuit against the Bancorp Bank, accusing the bank of intentional bad faith in forcing the complex to have a $2.3-million-a-year insurance policy when it could have obtained a less expensive policy that still fully protected the bank’s interests.
The bank has refused to give the complex, which borrowed from the bank, any details of the pricier policy, according to the lawsuit.
The lawsuit, filed in a New York court as required by the loan contract, is over what is called forced-placed insurance. The lawsuit suggests this example is so unfair and suspicious there may be kickbacks involved.
“This bank agreed to allow other customers to negotiate a lower-cost policy due to the challenges faced on the commercial property insurance market. But the bank has inexplicably refused to help the Houston Del Mar apartment complex, has refused to provide information about the expensive policy it claims to have purchased and is illegally siphoning payments from escrow,” said AZA partner Jason McManis.
The apartment complex seeks a declaratory judgment and an injunction to stop the excessive behavior by the Delaware-based bank, which is accused of breach of contract and breach of its fiduciary duty.
The plaintiff obtained a $46.7 million loan with Bancorp in 2022 to buy the Del Mar apartment complex on the Gulf Freeway in Houston. The loan agreement required the complex to have replacement value insurance.
The first year’s insurance cost $630,000. But the quotes for 2023-24, a year in which the insurance industry was upended by natural disasters and radically increased policy costs, the cost tripled to $1.8 million. The complex sought approval for insurance at less than replacement cost – something the bank had done for other business customers – but the bank refused.
Instead, Bancorp forced the complex to pay the bank itself for an even more expensive $2.3 million policy that protects the bank, even while the bank acknowledged this unreasonably expensive policy may not cover the total replacement costs it had insisted on.
The bank refused to tell the complex who their insurance carrier is, the policy number, what is covered or any details about the forced-place insurance.
The lawsuit was covered by The Real Deal here.
The case is Del Mar TIC I, LLC et al. v. The Bancorp Bank in the Supreme Court of the State of New York, County of New York, index number 654394/2023.
AZA, or Ahmad, Zavitsanos & Mensing, is a Houston-based law firm that is home to true courtroom lawyers with a formidable track record in complex commercial litigation, including energy, healthcare, intellectual property and business dispute cases. AZA is recognized by Chambers USA 2023 as among the best in Texas in commercial law and intellectual property; has been listed by U.S. News – Best Lawyers’ Best Law Firms as one of the country’s best commercial litigation firms for 11 years running; has been named Litigation Department of the Year by Texas Lawyer three times, including for 2021; and was previously dubbed a Texas Powerhouse law firm by Law360.