Credit insurance policies are regulated by the State of New Jersey, Department of Banking and Insurance. An insurer may not sell a credit insurance policy unless it is first filed with, and approved by, the Department. In this case, American failed to obtain the Department’s approval of its credit interruption of income policy.
The litigation began when one of our clients, an unemployed school bus driver, came to meet with us. She explained that she had recently filed a claim with American seeking payment of her Citibank credit card debt under her Interruption of Income policy. She asked that we assist in her efforts to learn why the benefits that she received were significantly less than the amount she had expected; in some months only slightly more than the premium she was paying. When we learned that our client’s earlier policy had been replaced by the less beneficial 1999 policy issued by American, our client decided to cancel her credit insurance coverage. However, her requests, and later ours, went unheeded.
In December 2000, we filed the first of what would be three class actions against the credit insurers. All three cases have settled. The most recent settlement, in the Hopewell matter, makes all of the credit insurance customers whole. It contains seven items of relief. First, the credit insurers must pay additional benefits to each of their customers who filed claims for benefits. The added benefits are in an amount sufficient, when added to benefits previously paid, to bring the total payments under American’s unapproved 1999 policy to the level they would have been had American not replaced the plaintiffs’ earlier policy, which had been approved by the Department of Banking and Insurance. The insurers must also refund to each insured who files a claim an amount sufficient to reduce their total premium payments to the level they would have been under their earlier approved policy. In addition, the class receives interest on each payment. The insurers are required to replace their unapproved policies with new approved policies, to afford large prospective premium discounts, to calculate benefits more favorably to their claimants, and to promptly cancel policies when requested to do so. (2007)