NU Online News Service, July 10, 3:45 p.m. – Zale Corp., Irving, Texas, has agreed to a settlement related to the sale of credit life and disability insurance to its Minnesota customers, according to Minnesota insurance regulators.

The department has accused the discount store chain of selling credit insurance policies to customers who were unaware they had purchased a policy and misleading the purchasers by not telling them about coverage limitations and exclusions.

Although Zale has denied the Minnesota regulators’ allegations, the company has paid Minnesota $115,000 in civil fines and administrative costs and agreed to offer refunds to 5,000 Minnesota consumers who bought credit insurance in its Minnesota stores in 2000 and 2001, officials say.

Zale voluntarily stopped selling credit insurance as of Dec. 1, 2001, and it has agreed to permanently stop offering any type of credit insurance to new customers, officials say.

The settlement also requires Zale to cooperate with enforcement actions that the Minnesota Department of Commerce has started against the insurer that wrote the policies, American Bankers Insurance Group of Florida, Miami. Minnesota officials say.

But American Bankers, which has been a unit of Fortis since 1999, says Judge Judith Tilsen, a state district court judge in Ramsey County, Minnesota, issued a temporary injunction in May that limits the ability of the Minnesota Commerce Department to execute the enforcement action.

The judge ruled that she has jurisdiction to determine whether certain alleged violations cited in the enforcement action were resolved by 1998 and 2001 consent orders.

The Minnesota Commerce Department participated in the consent orders, then followed up in November 2001 by issuing a 195-count statement of charges against Zale’s Minnesota credit insurance operations.

In February, the department accused American Bankers of failing to provide information and violating Minnesota insurance law by issuing illegal insurance policies to more than 200,000 Minnesota residents.

American Bankers sought court review in February, shortly after Minnesota officials announced the new charges. American Bankers said it believed the consent orders had already resolved the dispute.

Tilsen did not rule on the merits of the case in the May injunction, but “she said that the court was concerned that Commissioner Bernstein was proceeding without regard to the consent orders,” American Bankers spokesman Jim Sykes says.

American Bankers says the May injunction limits the new enforcement action to violations that occurred after Dec. 31, 1999.

More than 90% of the 200,000 accidental death policies cited in regulators’ original complaint were issued before Dec. 31, 1999, and most of the newer policies were free for the insureds, according to American Bankers.

The judge also agreed with American Bankers that allowing the administrative proceedings to go forward without regard to the consent orders could cause irreparable harm to American Bankers.

Jerome Atkinson, executive vice president, general counsel and chief compliance officer for American Bankers, says the court’s decision is an important first step in resolving the dispute.

“We have made a good faith effort to comply with the consent orders and are committed to upholding the laws and regulations of all of the states in which we operate,” Atkinson says.

Minnesota regulators say they are continuing to investigate the state’s credit insurance market.

Companies sell credit life insurance, credit disability insurance and other types of credit insurance to consumers by adding the premiums to the payments due under a loan or credit agreement. When insureds file claims, the insurers pay the lenders, rather than the insureds.

Bernstein has been waging an aggressive campaign against what he says are abuses in the credit insurance market.

Credit insurers used about 34% of the $99 million in credit insurance premiums they received from Minnesota consumers in 2001 to pay 2001 Minnesota credit insurance claims, Bernstein says.

Bernstein argues that the minimum credit-insurance loss ratio should be 60%.