Our firm recently settled a class action lawsuit involving refunds of unearned premiums for persons who purchased credit insurance using a single premium but who paid off the insured loan early. Credit insurance is purchased by consumers when they enter into contracts to finance automobiles, tractors, all-terrain vehicles, motorcycles, boats and watercrafts.
Credit insurance comes in two forms. Credit life pays off the entire loan if the consumer dies, while credit disability makes the monthly payments if the consumer becomes disabled. The large single premium is included in the original amount of the loan. That premium is earned over time so that the entire premium will be earned only if the loan is not paid off before the expiration date of coverage. In this class action settlement the return of unearned premiums for MS Life Insurance Company policyholders allowed aggrieved class members to receive more than what they are entitled to receive under their contracts.
In this case, the Plaintiff who was the Class Representative purchased a vehicle from a dealership and financed the vehicle on June 22, 2001. In connection with that financing, the Plaintiff executed an installment loan contract which included the purchase of a credit insurance policy from MS Life. The Plaintiff paid a single, one-time premium for the credit insurance. The scheduled expiration date for the insurance coverage was December 22, 2006. The insurance policy provided credit life insurance to the Plaintiff, which was designed to pay the loan if she passed away while the loan was still unpaid.
The insurance coverage would stop if the loan was paid off, so MS Life could only earn the entire premium if the insured did not pay the loan off before the coverage was scheduled to expire. If the loan was paid off early – before coverage expired – then the Plaintiff would be entitled to a refund of unearned premium.
The premiums due to be returned to a borrower who pays off early are called “unearned premiums” because once the loan is paid off, the insurance company no longer bears any risk of loss. On or about April 12, 2004, the Plaintiff paid off the loan. She was entitled to the unearned premium from the date of early payoff, April 12, 2004, through the date the insurance was scheduled to expire, December 22, 2006.
MS Life sold credit insurance to auto borrowers and lessees to protect them against the risk of default in the event they died or became disabled and unable to keep up with their loan or lease payments. The Plaintiff alleged that Defendant breached its credit life and disability insurance contracts with some insureds because some paid off their loans or leases prior to the scheduled payoff or lease termination date, and Defendant did not refund their unearned premiums.
The settlement provided notice to potential class members and created a simple, streamlined settlement procedure for any former MS Life insured who may have paid off his insured loan early without receiving a refund of unearned premium.
If you have any questions regarding this case or similar claims, please contact Lance Gould with our firm at 800-898-2034.