A Minneapolis judge has ruled that General Motors Acceptance Corp. violated state law and breached its contracts with at least 10,000 Minnesota borrowers by charging excess insurance premiums.
The contracts allowed GMAC to pass on the cost of property-damage insurance that was placed forcibly for them because customers failed to maintain their own. But the contracts didn't authorize GMAC to charge these customers for additional expenses, predominantly the company's loan-tracking costs, Hennepin County District Judge Bruce Peterson held.
Those added costs accounted for 10.8 percent to 24.3 percent of the so-called collateral protection premiums annually between 1990 and 1999, according to Peterson's decision.
He ordered lawyers for the class-action plaintiffs and GMAC to outline their proposals for compensation.
GMAC spokeswoman Anne Marie Sylvester said GMAC will appeal. She also said Peterson previously rejected claims for monetary damages 'because there was no proof they had been harmed in any way.'
The case was filed by Barbara Porch, who obtained GMAC financing on a used 1987 Cadillac Seville she bought from a dealership in 1992. Her contract required her to maintain physical-damage insurance and empowered GMAC to purchase this insurance at her expense if she failed to keep up coverage.
But the monthly premiums GMAC charged Porch and other borrowers who had defaulted on their insurance obligations 'was for more than just loss or damage to the vehicle as permitted under the terms of the contract,' Peterson ruled.
Instead, those premiums included tracking expenses that MIC Property & Casualty Insurance Corp. charged GMAC to monitor accounts to determine which vehicles are uninsured and to send warning letters to borrowers. MIC is the GMAC subsidiary that provided the insurance.
One effect: Borrowers who defaulted on their insurance obligations ended up paying the entire cost of GMAC's tracking program, Peterson said.
Peterson held that GMAC's practice violates the Minnesota Consumer Fraud Act. He called it misleading for GMAC to write letters telling borrowers that they were being charged 'under the terms of' their contracts when they actually were charged 'a higher premium that was really a prorated share of the comprehensive coverage that GMAC had purchased from MIC to protect its entire portfolio.'
In his ruling, Peterson said GMAC's Automated Insurance Follow-up Program is reasonable and consistent with actuarial principles, but the contracts allowed GMAC to charge only for replacement coverage and not additional expenses. 'The problem is not with what GMAC did but with what it said it would do if borrowers failed to maintain physical-damage insurance on their cars,' he said.
Peterson dismissed all claims against MIC.
GMAC's Sylvester said Peterson 'correctly observed that there is no evidence that GMAC deliberately sought to mislead its customers or that the company did anything other than engage in an effort to warn its customers of their breach and then charge them for what it had purchased from MIC.'
The plaintiffs' lawyer, J. Gordon Rudd of Minneapolis, estimated that several million dollars is involved.