Federal judge sides with Florida over auto insurance cancellation fees

Federal judge sides with Florida over auto insurance cancellation fees

By Dave LaChance
Insurance | Legal

A federal judge has ruled in favor of Florida drivers who accused an American Family subsidiary of miscalculating cancellation fees under their policies.

United States District Court Judge William Dimitrouleas said the Permanent General Assurance Corporation (PGAC) should have refunded 90% of the unearned premium already paid at the time of the cancellation, rather than using the fee to also charge its customers 10% of the premium it would have. collected throughout the life of the policy.

Dimitrouleas did not grant the plaintiffs’ motion for damages, saying the amount owed by PGAC will have to be decided at trial.

The plaintiffs alleged that the carrier deducted a “low-rate cancellation premium” from unearned premiums to be refunded when a customer canceled a policy. This cancellation premium was not mentioned in the policy documentation, the plaintiffs said.

Under the policy, the PGAC said it would withhold 10% of an insured’s “unearned premium” when the insured cancels coverage. The plaintiffs said the carrier wrongly applied the holdback to the premium not yet paid, and Dimitrouleas agreed.

In his April 28 order granting the plaintiffs’ motion for summary judgment, the judge ruled that “PGAC breached the policy by assessing a ‘short cancellation premium’ based on 10% of the amounts ever paid by the insured. . »

“A ‘refund’ can reasonably be understood to apply only to amounts paid,” he said.

Dimitrouleas quoted the relevant section of the policy, adding italics for emphasis:

G. Premium Refund.

1. In the event of cancellation, “you” may be entitled to a refund of the unearned premium. The refund of the premium is not a condition of cancellation.

2. If the cancellation is at “your” request, “we” will refund 90% of the unearned premium on a pro rata basis.

3. If the policy is terminated at “our” request, “we” will refund any unearned premium on a pro rata basis.

The judge said the “unearned premium”, although not defined in the PGAC policy, is “generally understood in the insurance industry as the” amount of premium for which payment was made by the policyholder but coverage has not yet been provided”.

Dimitrouleas summarized the cases of the two Florida plaintiffs:

  • Dorine L. Connor renewed her non-standard auto insurance policy on September 24, 2019 for one year, making all of her monthly premium payments of $259 on time. On May 26, 2020, she elected to cancel the policy. According to Connor, the PGAC still held $240 of unearned premium at the time. Expecting a 90% refund, or $216, she received only $153 instead. The PGAC had assessed 10% of future unearned premiums ever paid by Connor and never held by the insurer.
  • Myrtle Pugh renewed her non-standard policy with the CPGA for one year, effective July 22, 2020, paying premiums of $579.89 per month. She canceled the policy the following month when the unearned premium held by the CPGA was $24.26. Rather than receiving a check for $21.83, or 90% of the unearned bonus, Pugh was given a penalty of $620, which is 10% of 11 months of future bonus. The PGAC then sent him a collection letter for the balance of $596.

Connor and Pugh represent a class that includes all Florida residents who purchased non-standard auto coverage from the PGAC from 2015 through 2020, when the original complaint was filed. Dimitrouleas approved the class on April 11.

Dimitrouleas noted that non-standard auto insurance sold by PGAC and others is “typically purchased by customers who, due to financial or other constraints, are unable to afford coverage through standard carriers”. It is common for this type of policy to be voided, he said.

“As such, the plaintiffs assert that it is important that consumers are informed clearly and in advance of the possibility or existence of any charges or penalties that the consumer may incur in the event of cancellation”, wrote the judge, endorsing the group.

In its summary judgment, Dimitrouleas concluded that “there is no provision in the policy or in the fee disclosure notice dealing with the effect of payment in installments other than a one-time ‘sales charge’ of $10 if an insured elects to pay a policy premium in installments. Moreover, nothing in the policy explains how the CPMA calculates its “short-term cancellation premium”. »

He rejected the CPGA’s argument that “premium” is defined as “the term premium amount shown on each insured’s renewal statement pages” and that “unearned premium” is “the portion of the written premium applicable to the unexpired or unused portion of the period for which the premium was calculated’” – in this case, the total number of days remaining in the period of insurance.

Dimitrouleas granted the plaintiffs’ motion for summary judgment under Rule 56(a) of the Federal Rules of Civil Procedure, finding that there was “no real dispute as to a material fact.”

In dismissing the claim for damages, he found that none of the plaintiffs explained precisely how they calculated what they believed to be owed to them. “Therefore, while plaintiffs’ counterclaim for partial summary judgment is granted as to plaintiffs’ theory of liability, it must fail on the determination of damages. This issue remains to be determined at trial.

Therefore, while Plaintiffs’ counterclaim for partial summary judgment is granted on the Plaintiffs’ theory of liability, it must fail on the determination of damages. This issue remains to be resolved by a trial.

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