Loan Insurance Class Action Settles for $45 Million

posted on:
December 6, 2007



A nationwide class action over credit life and disability policies, which are insurance policies that consumers buy when they take out retail loans, has been settled for $45 million in a Georgia state court.

Muscogee County Superior Court Judge Douglas C. Pullen gave the settlement preliminary approval last month. Consumers who are owed a refund of a part of their insurance premiums by JMIC Life Insurance Co. will receive payments. This is one of several similar cases still pending.

Purchasers of products on credit, such as cars, often are required by the seller to take out credit life and credit disability insurance policies as a part of the purchase.

Consumers don’t have a choice when they take out a loan to buy for such consumer items. The policies cover payment of the loans in case the consumer dies or is disabled before he or she can pay off the loan. The premiums for such policies usually are paid once up front and rolled into the loan.

The seller is most often the agent for the insurance company. The industry has been keeping hundreds of millions of dollars for years. When a borrower pays off a loan, the company fails to return the unearned premium, and therein lies the problem.

JMIC acknowledged in court filings that if insurance coverage ceases before its scheduled expiration date, customers can get back unearned premiums. JMIC allows an insured to cancel coverage for any reason at any time.

Many states, including Georgia, require the customer to notify the insurer before a refund must be paid. Until a customer makes a claim, according to JMIC, the insurance company doesn’t have the need or right to monitor the insured’s financing information. If that’s the law, it should be changed. The company should have the burden of notifying the borrower when the policy term ends prematurely for any reason. Most folks wouldn’t even think about being owed a refund.

Credit life insurance is purchased to protect the creditor and borrower. If the borrower dies, the insurance company pays off the loan. A vast majority of credit insurance is prepaid in one premium, and many car loans are paid off early. Early termination means there’s a part of the premium that the insurance company can’t earn, because the risk insured against has ended.

The lawsuit contended that many of the borrowers with credit life or disability insurance don’t get the unearned premium refunded to them. A fairness hearing in this case is scheduled for April of next year. The judge will then determine whether the settlement agreement should be approved.

The case was certified as a class action in 2005. Last year, a panel of the Georgia Court of Appeals upheld those rulings and the Georgia Supreme Court refused to review that decision. The group of plaintiffs’ lawyers included Jim Butler and Sammy Oates of Columbus, Georgia, and a host of others. It appeared these lawyers did a good job for the class.

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