RAPID CITY, S.D.–Black Hills FCU and CUNA Mutual Life Insurance Co. have agreed to pay $3 million to settle allegations that they improperly raised insurance premiums associated with 4,461 loans.
The proposed settlement, according to the Rapid City Journal, is scheduled to be considered by a judge later this month and would resolve an eight-year-old class action lawsuit filed by Kathy Thurman, who died in 2016, and her husband, Edward Thurman, of Rapid City.
The lawsuit has its roots in a 1995 home equity loan of approximately $30,000 that the Thurmans obtained from Black Hills Federal, according to the Rapid City Journal. At the same time, the Thurmans bought a credit disability insurance plan to cover loan payments in the event Edward Thurman was hurt and couldn’t make the payments, which was offered by the credit union via CMFG Life Insurance Company (at the time of the sale known as CUNA Mutual Insurance Society).
In July 1999, the credit union, after receiving advice from the life insurance company, placed a notice in the monthly credit union newsletter stating that the premium for the credit disability insurance would increase as of July 1 that year, The Journal reported. The notice also said the insurance would take effect after 14 days of disability rather than the previous 30 days.
Unaware of Increase
“The credit union did not send a notification of the changes directly to the Thurmans, who later said in lawsuit proceedings that they did not recall receiving or reading the notice in the newsletter,” according to the Rapid City Journal. “The Thurmans maintained that they were therefore unaware of the premium increase, which amounted to a 68% rate hike. Despite the premium increase, the Thurmans’ monthly payment never changed. The credit union simply applied more of the Thurmans’ payments to the disability insurance and less to the loan principal and interest.”
The Journal said when Kathy Thurman inquired in 2009 about the payoff balance of the loan she was surprised to learn the balance was approximately $10,000, which was about $6,000 more than she thought. She pushed for an explanation and finally learned of the higher insurance premium, the publication stated
“They refused to sign the confidentiality agreement because they wanted to make other people aware of what happened to everyone who had credit disability insurance from BHFCU on July 1, 1999, so everyone could receive justice,” the Thurmans’ attorney, Jim Leach, told the Rapid City Journal.
Class Action Status
The publication added the Thurmans sought to have their lawsuit certified as a class action, but a local judge initially denied that certification. The Thurmans appealed the denial to the South Dakota Supreme Court and won a reversal of the denial in 2013.
“The case then proceeded as a class action, and it grew complex as the plaintiffs obtained from the defendants more than 500,000 copies of financial documents, which the plaintiffs hired a computer programmer to analyze,” according to the Journal.
According to the Journal, Kathy Thurman originally had difficulty finding attorneys willing to take the case, before finding Leach, who has won several verdicts against CMG Life Insurance Society. CMFG Life Insurance was represented by Frank Bettmann, of Bettmann Hogue Law Firm in Rapid City.
How Funds are Divided
With a court ruling in favor of the Thurmans, of the $3 million settlement, $1.73 million will be split among the members of Black Hills FCU associated with the 4,461 affected loans; $1 million will be split as fees among the plaintiffs’ lawyers, who have thus far received no pay; $170,764.29 will be used to cover the plaintiffs’ costs; $65,585 will cover sales taxes on the attorneys’ services; and $30,000 will be paid as a plaintiff’s incentive award to Edward Thurman, according to the Rapid City Journal.
Black Hills FCU issued a statement to the Journal that read, "Black Hills Federal Credit Union denies any wrongdoing; however, the parties agreed to settle because of the uncertainty, expense, and inconvenience associated with continued litigation. We believe the settlement is in the best interest of BHFCU and our members. We’re moving on and focusing our attention on the future and our mission to improve lives."