Thursday, November 2, 2006

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Attorney General Abbott Seeks Over $10 Million In Refunds From Credit Insurance Firm

AUSTIN - Texas Attorney General Greg Abbott has filed a legal action against an insurance company, seeking over $10 million in refunds to Texans who purchased “credit insurance” when financing their vehicles. The policies were written to protect vehicle owners during the finance period.

Written by Service Life & Casualty Insurance Co of Austin, the policies in question ended before their full term expired, but the policyholders did not receive refunds of the unearned insurance premiums that were owed to them.

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Texas Attorney General's lawsuit against Service Life & Casualty Insurance Co.

“Unbeknownst to most policyholders, this company wrongly held back money consumers paid up-front for insuring the life of their vehicles’ finance plans,” said Attorney General Abbott. “That money belongs to those Texans and we plan to have it returned it to them.”

The Attorney General’s investigation has already identified about 48,000 Texas consumers who may be owed refunds from Service Life. The average refund for each consumer is currently estimated at $200, plus interest. The Attorney General expects to identify even more consumers who are owed refunds as this lawsuit progresses.

Service Life offers credit insurance through Texas auto dealerships to protect consumers for the period of their vehicle loans. Buyers then have the option to purchase the insurance, which would be used to pay off the vehicle loan in the event the buyer develops a long-term disability or dies during the period of the loan.

Like many credit insurers, Service Life’s policies are “single-premium policies,” in which a single payment for as much as six years of coverage is financed as part of the buyer’s total loan. However, the company failed to live up to its promise to refund premiums when their customers’ loans were paid off early or their insurance otherwise ended early.

The Attorney General’s lawsuit requests a court judgment, with interest, ordering Service Life to refund unearned credit insurance premiums owed to Texas consumers whose loans were paid earlier than the expected period of the loans. The company’s own policies state – and the Texas Insurance Code requires – that if a consumer pays off his or her debt early, Service Life will refund the unearned portion of the insurance premium.

The Attorney General’s lawsuit cites violations of the Insurance Code and Texas Deceptive Trade Practices Act (DTPA). In addition to refunds to harmed consumers, the suit seeks civil penalties of up to $20,000 per violation of the DTPA and $10,000 per violation of the Insurance Code.

The injunction sought would prohibit the company from engaging in its current refund practices and requires it to modify those practices so that consumers get full and timely refunds in the future.

The Attorney General filed a July lawsuit against American National Insurance Co. of Galveston for engaging in similar practices. That lawsuit is pending.