The proposed pact, filed Monday with the U.S. District Court in Miami, would resolve a lawsuit filed in April 2011 that contends the companies overcharged roughly 24,400 borrowers whose policies had lapsed on premiums for backup policies.
Under the terms of the settlement, Wells Fargo and QBE would refund 25% of amounts paid by borrowers or credit that amount to borrowers who have been billed but not yet paid. QBE and Wells Fargo also have taken steps to change their business practices that plaintiffs say will result in more competitively priced premiums throughout the state, according to court papers.
A lawyer for the homeowners did not respond immediately to a request for comment.
Wells Fargo spokesman Jim Hines said in an email the company is "pleased that we were able to resolve this particular matter."
"We continue to support programs like our lender-placed insurance services, which provide continuous hazard insurance protection for real property owned by our customers," he added.
Paula Symons, a spokeswoman for QBE, said in an email the company "elected to settle the matter to avoid costly litigation and the need for continuing management attention to this proceeding."
Force-placed insurance is a type of property insurance that banks purchase on uninsured properties to protect investors. Though banks purchase the insurance, they pass along the price to homeowners and investors like Fannie Mae and Freddie Mac.
Wells Fargo had an exclusive arrangement with QBE, the second-largest provider of force-placed insurance services to banks, the lawsuit charged. Under the terms of the arrangement, QBE searched Wells Fargo's records to find homeowners whose policies had lapsed.
After verifying the gap in coverage, QBE instituted polices that allegedly bore little relation to the premises and instead reflected Wells Fargo's entire portfolio of mortgages in the state.
The arrangement allegedly resulted in homeowners being charged five to six times what they would pay had the policies been priced competitively, according to the lawsuit.
Wells Fargo and QBE denied the allegations. Wells Fargo noted that mortgage agreements require borrowers to maintain insurance coverage for the property that secures their loans and that if they fail to do so, the agreement gives Wells Fargo the right to obtain coverage for them.
The lender also said the lawsuit was barred by arbitration provisions in the mortgage agreements.
In April, QBE agreed to pay $10 million and revamp its practices as part of a settlement of probe by New York State. In March, Assurant, the other insurer that dominates the market for force-placed policies, agreed to revamp its practices as part of a similar settlement with New York officials.