JPMorgan Chase (JPM) has agreed to stop accepting commissions from the nation's top provider of force-placed insurance in an agreement that could loom large for other big banks alleged to have overbilled homeowners on insurance premiums.

Under a settlement filed Friday in U.S. District Court in Miami, Chase and insurance company Assurant (AIZ) would also make payments to up to 1.3 million mortgage holders nationwide who were allegedly overcharged during the last five years. The agreement would resolve a suit filed on behalf of homeowners that hold Chase mortgages.

The payments — equal to 12.5 percent of the insurance premium each affected homeowner was charged — could total as much as $300 million, according to a document filed by the plaintiffs' lawyers. In addition, plaintiffs' lawyers could get up to $20 million.

Potentially more important, though, are the changes Chase and Assurant agreed to make to their business arrangements, which could affect future settlements involving other big banks. Under the deal, Chase agreed not to take commissions — widely characterized as kickbacks — or to engage in certain reinsurance arrangements with Assurant for six years.

Force-placed insurance is a type of property insurance — intended to protect the mortgage investors' stake — that banks purchase when homeowners' policies lapse. Though banks buy the insurance, they typically pass along the cost to homeowners or to investors, including Fannie Mae and Freddie Mac.

For years, banks have been able to pad their profits by aligning with insurers that set insurance premiums extremely high and then used various methods to funnel much of the money back to the bank.

Chase spokeswoman Amy Bonitatibus said in an email Monday that the New York bank discontinued its reinsurance agreement earlier this year. "The settlement will have no expected impact on our financials," she stated.

The proposed settlement is subject to approval from a judge. An Assurant spokesman said in an email that the company is unable to comment on the agreement while the case is still pending.

A lawyer for the plaintiffs, Adam Moskowitz of Kozyak, Tropin & Throckmorton in Coral Gables, Fla., said that a confidentiality agreement prevents him from commenting on the settlement.

His firm has also filed suits involving force-placed insurance against Citigroup, Bank of America (BAC) and HSBC. Moskowitz said that other defendants have contacted his firm about starting mediation talks similar to those involving Chase and Assurant.

"We are looking forward to working with all of the defendants to resolve all of these cases," Moskowitz said.

In May, Wells Fargo and the other giant in the force-placed insurance industry, QBE, agreed to settle a related suit. That settlement featured larger potential payouts to homeowners than the Chase-Assurant settlement does, but it did not include the same restrictions on future business arrangements.

Still, the reforms agreed to by Chase and Assurant do not go as far as an agreement that Assurant reached in May with New York authorities. For example, the settlement filed Friday does not set a permissible loss ratio as a way to reduce homeowners' premiums.

New York officials found that Assurant subsidiaries paid no more than 24.7 percent of its premiums in claims between 2006 and 2011, and its March settlement with the company established a 62 percent permissible loss ratio.

When the New York settlement was announced, Empire State officials stated that Chase had made approximately $600 million over the previous seven years by taking 75 percent of the profits from the business it sent to Assurant.

Unlike the New York settlement, the agreement filed Friday would be binding across the country, assuming the court approves it.

This story originally appeared at American Banker.

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