My wife and I just received word today that Zurich Direct Life Insurance Company has recently settled a class action lawsuit, and we’re eligible for a piece of the settlement. Hurray! It’s our ticket to early retirement and life on easy street. Or is it?
The packet of information that we received leads off with this passage, explaining why we received the notice…
You received this notice because Zurich Life Insurance Company of America, now known as Chase Insurance Life Company (“Zurich Life”) records show that you are a member of a class of policyholders who will be affected by the nationwide settlement of a class-action lawsuit. The Court has given its preliminary approval to the Settlement, and has ordered that this Notice be sent to you and all other Class Members so that you may consider your options.”
Our options include remaining a member of the Class and receiving benefits of the settlement, removing ourselves from the Class, and staying in the Class, but objecting to the Settlement.
So what did Zurich Life do, and what are they offering in terms of reparations? In short, the Class Members alleged that policy holders who paid their premiums monthly, quarterly, or semi-annually paid more per year than those that paid annually even though such disparities were not allowed in the language of the policy, and further that Zurich did not disclose the magnitude of this “Dollar Difference.” The Class Members also alleged that Zurich should have presented this rate differential in terms of an APR.
This actually isn’t all that unorthodox — many companies (insurance or otherwise) charge different rates depending on the frequency of your payment… Pay for a longer term, get a better price. So where’s the problem? In fact, Zurich argued that all policyholders paid only those premiums that they agreed to, and that the rates are clearly set forth in the policy. They further stated that the Dollar Difference should have been apparent to its policyholders (I have to agree with them here…
I’m not terribly sympathetic toward people who get “ripped off” because they can’t figure out the different between two smallish numbers. Here’s an example: Pay monthly and your rate is $10/month, or pay yearly at $100/year — do you really need someone to spell out the difference for you?
Zurich further claimed that it would be inappropriate to characterize the premium differences as having an APR since insurance premiums are not a debt. I’m less convinced on this point, as you’re essentially financing your policy when you opt to pay monthly instead of paying the full year in advance. But here again, I’m not terribly sympathetic to the Class Members (even though I’m apparently one of them).
Regardless of their claims of innocence, however, Zurich Life has agreed to pay $7, 145, 007.25 to resolve the claim. Once the lawyers get their cut (they’re asking for 30%), the remainder will be divided up amongst Class Members in proportion to the Dollar Difference that they incurred during the period March 1, 1997 through August 31, 2005.
To be honest, I can’t recall ever having paid our premiums any way other than via annual payments, but who am I to argue with them? We had our Zurich Life policies for a few years before we switched to John Hancock Life Insurance, which we ultimately cancelled last fall after jumping into our most recent round of shopping for term life insurance (we’re currently insured through Lincoln Financial). I have no idea what we’ll ultimately receive in terms of the settlement, but I’m willing to bet that it’s not very much.
Okay, back to the settlement. On the surface, it seems a bit odd that Zurich Life would settle given the circumstances. That being said, I’m obviously not privy to the details of the case. On top of this, they were almost certainly looking at their risk when they made this decision (they’re an insurance company, after all!). As it turns out, the total Dollar Difference summed across all policyholders during the time period in question (and hence the amount they could’ve gotten nailed for) comes to a cool $27.2 million. Ouch. Suddenly $7.1 million doesn’t look so bad.