Black Hills Federal Credit Union and a Wisconsin-based insurance company have agreed to pay a total of $3 million to settle allegations that they improperly raised insurance premiums associated with 4,461 loans.
The proposed settlement, which is scheduled to be considered by a judge later this month, 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 the credit union. At the same time, the Thurmans bought a credit disability insurance plan, which was offered by the credit union via CMFG Life Insurance Company (formerly known as CUNA Mutual Insurance Society).
The insurance was intended to cover the loan payments if Edward Thurman got hurt at his construction job and had to miss an extended period of work. The insurance premium was rolled into the monthly loan payments.
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 notice also said the insurance would take effect after 14 days of disability rather than the previous 30 days.
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. The Thurmans maintained that they were therefore unaware of the premium increase, which amounted to a 68 percent 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.
Thus, when Kathy Thurman inquired in 2009 about the payoff balance of the loan, she was surprised to learn that 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.
In 2011, the Thurmans filed a lawsuit in local circuit court against the credit union and the insurance company, who jointly offered the Thurmans about $6,000 to drop the lawsuit and pledge confidentiality.
The Thurmans declined the offer, and their reasoning was later explained in a court document filed by their attorney, Jim Leach, of Rapid City: "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 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.
CMFG Life Insurance - which has gross premiums of about $500 million per year - employed a legal team from Dentons, which describes itself as the world's largest law firm. The credit union was represented by Frank Bettmann, of Bettmann Hogue Law Firm in Rapid City.
Leach, the attorney for the Thurmans and the broader class of borrowers, was assisted by fellow local attorneys Mike Wilson and Ken Barker.
CMFG Life Insurance's parent entity, CUNA Mutual Financial Group Inc., is well acquainted with Leach. He helped win a $6.2 million jury verdict against CUNA Mutual Insurance Society in 2009, on behalf of the estate of a deceased woman whose credit disability insurance claim had been denied. A federal judge later reduced the award to $1.8 million. Leach also represented clients in two additional lawsuits against CUNA Mutual Insurance Society that were both settled confidentially in 2010 (the Thurman settlement is public because of its class-action status, which includes a requirement for a public hearing).
Kathy Thurman did not live to see the resolution of her case. She died of chronic health problems in 2016, but the lawsuit continued with her widowed husband, Edward, as lead plaintiff.
Several recent court filings have noted Kathy's contribution to the case.
"Mrs. Thurman had to work hard to find a lawyer. She contacted a number of lawyers who turned her down," said one document filed by Leach. "She displayed great determination, without which there would have been no case."
The parties in the lawsuit participated in a mediation session in August 2017, and then a second session this past December, while a scheduled jury trial loomed in January. The trial was averted when the December mediation session, which lasted 12 hours, produced a settlement agreement. The agreement was preliminarily approved by Circuit Judge Robert Mandel on Dec. 21, and a hearing on the potential final approval of the settlement is scheduled for later this month.
Of the $3 million settlement, $1.73 million will be split among the customers 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 plaintiffs' motion for final approval of the settlement, the $1.73 million to be split among the class members will cover all of their actual losses, plus 10 percent interest per year since the date of the loss, plus another additional 25 percent. The payout check will be mailed to the class members without them having to do anything, the plaintiffs' motion says.
The settlement terms prohibit the parties from disparaging each other. The terms do not include any admission by the credit union or the insurance company that the plaintiffs' claims were valid, or that the credit union or life insurance company violated any laws.
In response to an inquiry from the Journal, Black Hills Federal Credit Union sent a written statement about the settlement from Vice President of Marketing Carol Brown.
"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," the statement said. "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."
A spokeswoman for CMFG Life Insurance Company sent the Journal the following written statement.
"CMFG Life Insurance Company maintains it acted properly, but we believe this settlement is a satisfactory conclusion to this matter and in the best interests of all parties."
Leach and Edward Thurman declined to speak publicly about the case prior to the upcoming hearing on the settlement.
The plaintiffs' motion for approval of the settlement says that as a result of the Thurman lawsuit, "CMFG would be foolhardy ever to tell a credit union again that it can switch its customers' credit disability policy in this same manner." If the insurance company ever repeats the action, the motion says, other lawyers could bring copycat litigation, and the company would be vulnerable to large punitive damages because of its recidivism.
"The deterrence of potential future misconduct that this case will result in is a substantial benefit to the public interest," the plaintiffs' motion says.
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