The suit against Black Hills Federal Credit Union and CUNA Mutual regarding an alleged unauthorized change in credit life disability insurance rates has been remanded by the South Dakota Supreme Court back to the lower court to be tried as a class action suit.
The original complaint stated that the insurer improperly raised credit disability rates on a closed-end home equity loan secured by Edward D. and Kathy L. Thurman in October 1995, and similar loans sold to other borrowers by BHFCU.
The lawsuit alleges that CUNA Mutual and the credit union wrongfully switched the credit disability insurance policies of 4,461 borrowers without adequately notifying the borrowers of the change, according to court documents.
CUNA Mutual also paid a $116,000 fine to the South Dakota Department of Revenue’s Division of Insurance as the result of a consent order in the case, in which CUNA Mutual neither admitted or denied the accusation.
The Thurmans’ original policy stated the couple would pay $4,140.79 over the 15-year life of their $30,114.47 loan, or $0.14 for every $100 of the outstanding loan balance. In July 1999, BHFCU unilaterally changed its group credit disability insurance policy, not just the rate as authorized by the contract, the documents continued.
The credit union altered its credit disability insurance from a 30-day non-retroactive policy to a 14-day retroactive policy, the court documents said.
Under the new policy, an insured’s payments begin after the insured is disabled for 14 days and are retroactive to the first date of the disability. The new policy was accompanied by a rate increase to $0.235 per $100 of outstanding loan balance.
Changes were announced in the credit union’s July 1999 quarterly newsletter, but not through specific contact with participating borrowers, the documents said. The newsletter notice constituted an illegal action because it did not comply with state requirements, the South Dakota Division of Insurance said.
The Thurmans’ motion for class certification was originally denied by the state’s Seventh Judicial Circuit Court. The couple petitioned the state Supreme Court for a discretionary appeal of the class certification order and was granted an intermediate appeal. The Supreme Court’s move reflects its opinion on the class certification standing, but not the merits of the case.
“We reverse and remand the trial court’s denial of class certification because the trial court erred in its application of class certification statutes to the facts in this case,” wrote Supreme Court Judge Robert A. Mandel is his opinion filed Aug. 14.
The Supreme Court ruling changes the means but not the merits of case, something CUNA Mutual continues to oppose, according to Phil Tschudy. the insurer’s media relations manager.
“We believe the suit is still without merit,” Tschudy said Monday. “The group policy allows us to change the rates as long as we provide proper notice, and we did provide that notice more than a month before the change.
“It’s a difference of opinion,” Tschudy added, “and the change in classification won’t stop us from proceeding against the allegations.”