When someone in Grand Prairie, Fort Worth, Dallas, Benbrook, Crowley, Cedar Hill, Newark, Cedar Hill, Weatherford, Aledo, Azle, Lake Worth, or anywhere else in Texas buys a car or truck on credit, the dealership will always offer the purchaser the option of getting a credit life and disability insurance policy. The purpose of this type of insurance policy is to pay off the loan if the purchaser dies before paying off the loan or makes the loan payments if the borrower becomes disabled while the debt is still owing.
A case from the Court of Appeals of Georgia issued an opinion on June 30, 2010, where this type of policy was the subject of a lawsuit. The style of the case is Resource Life Insurance Company v. Buckner et al. This was a class action lawsuit.
Here is some background. In early 2001, Dorothy Buckner purchased a car and financed it with a loan. As part of that transaction, Buckner bought both a credit life and a credit disability insurance policy from Resource Life Insurance Company (Resource). In November 2001, Buckner’s automobile was totaled and her debt on the car was extinguished, thereby triggering the automatic cancellation of the Resource policies. At that time, Resource owed Buckner a refund of her unearned premium in the amount of $1,213.60. Based upon an alleged mathematical error by the automobile dealer who issued the refund on Resource’s behalf, Buckner did not receive the entire amount she was owed.
The underlying issue in this case was whether Resource’s failure to refund unearned premiums constituted a breach of the insurance contract and / or constituted a negligent or wilful breach of a legal duty owed its insureds.
To be clear; a credit life insurance policy pays the insured’s car loan in the event of the insured’s death; a credit disability policy makes an insured’s payments on such a loan during the time the insured is totally disabled.
The record for the court to review showed that Resource credit insurance policies were sold by automobile dealers, who acted as Resource agents. The term of any given policy was synonymous with the term of the loan it covered – i.e., the insurance is in effect only so long as money remains due on the loan. Premiums are calculated based on the length of the loan. Rather than being paid on a quarterly, semi-annual or annual basis, however, these premiums were paid in their entirety, at the time the insured obtained his or her car loan.
In the event a loan terminated “early”, the insured was, as a matter of law, entitled to a refund of the unearned premiums. Specifically, the “Resource Life Credit Insurance Guide,” which was apparently provided to the automobile dealers that acted as Resource agents stated:
In the event an account is prepaid, a timely refund must be made. Under this circumstance, refunds are to be made without the Insured’s written request. Notification of such pre-payment can be made directly by the lender or by reference to a debit on the reserve account statement.
With respect to “Cancellation Procedures,” this Guide provided:
TERMINATION: Credit insurance is considered terminated when either the customer requests cancellation of the coverage or the loan is paid in full or refinanced for any reason before maturity. When Credit Insurance is terminated, a refund of unearned premium becomes due. It is the responsibility of the Group Policyholder / Agent to promptly compute and refund the unearned premium and prepare the necessary paperwork to notify the Insurance Company. FAILURE TO REFUND PREMIUM WHEN REQUIRED IS A VIOLATION OF INSURANCE LAW.
NOTICE OF CANCELLATION AND DISTRIBUTION OF REFUNDS:
Written notice by the Insured is not required to effect the cancellation when the indebtedness is paid in full or refinanced prior to the scheduled expiry date.
Dispite its legal obligation to refund unearned premiums, however, the Resource policies made such refunds contingent upon its receipt of written notice, either by or on behalf of the insured, that the insured was owed such a refund. Specifically, the policies provided, in relevant part:
Refunds: If the insurance stops before the end of the Term of Insurance, We will on written notice refund any unearned premium. We will pay it to the Creditor to reduce or pay off the Debt. Any remainder will be paid to You … Refunds will be computed as of the date the insurance stops.
This case is based on Georgia law but Texas has law almost exactly the same. The Texas statute is found in the Texas Insurance Code, Section 1153.202.
These credit life and credit disability policies are often times the subject of litigation because many times the policy applications are filled out by salesmen whose only real goal is selling the policy so as to get a commission, rather than filling them out properly. If you have problems with one of these types of policies it is important that you seek the advice of an experienced Insurance Law Attorney as soon as possible.
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