Add the state of Maryland to the roster of those waiting for compensation on behalf of defrauded consumers who bought extended-vehicle warranties from U.S. Fidelis Inc.
The Maryland attorney general's consumer protection unit has ordered the company to pay more than $23.5 million in restitution to nearly 17,000 Marylanders who bought such contracts between 2005 and 2010.
The state also imposed a $1.7 million civil penalty on the service contract provider and owners Cory and Darain Atkinson, both of whom were indicted in Missouri in June for alleged insurance fraud, theft and illegal merchandising practices.
The order stated that although Fidelis and the Atkinson brothers did not appear in the civil proceedings to defend themselves, "the obvious falsity of the numerous misrepresentations they made demonstrate that they acted in bad faith."
The company, formerly known as National Auto Warranty Services and doing business as Dealer Services, is incorporated in Missouri, where it filed for Chapter 11 bankruptcy protection in March 2010. It stopped marketing and selling extended warranties in December 2009.
"We are expecting and likely to get some money from the bankruptcy proceeding," said Alan Brody, a spokesman for Maryland Attorney General Douglas Gansler. "Beyond that, we will try to collect more for the consumers. The question of how much is up in the air."
The Maryland civil action accused Fidelis and its principals of exaggerating the warranty coverage and misleading purchasers about the company's relationship with manufacturers and dealers. The deception included failure to tell consumers that they were actually buying a repair contract from "undisclosed third-party insurers rather than a manufacturer's warranty," according to Gansler's office, which received complaints from about 45 Maryland customers.
In the criminal case, a St. Charles County, Mo., grand jury indictment charged the Atkinsons with retaining refunds owed to customers, collecting excessive fees, using so-called additive warranties as a device to bypass insurance regulations, and misleading consumers into believing Fidelis was affiliated with manufacturers and dealers, among other illegal conduct.
Elsewhere in the country, Fidelis and its owners face individual and class-action lawsuits, including litigation by the attorneys general of Pennsylvania, Iowa, Oregon and Idaho, among others. None of the other state legal actions have gone as far as those of Missouri and Maryland, Brody said.