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SD court says loan lawsuit can be class action

By Chet Brokaw

PIERRE (AP) — A Rapid City couple's lawsuit alleging a credit union and an insurance company improperly raised the rates for insurance that covers loan payments if borrowers become disabled can be handled as a class action, the South Dakota Supreme Court ruled Thursday.

A trial judge had ruled the lawsuit against the Black Hills Federal Credit Union of Rapid City and CUNA Mutual Insurance Society could not be handled as a class action, but the state's high court said there's no evidence that handling the dispute as a class action would harm the interests of the other borrowers. Issues related to whether borrowers waited too long to sue also can be handled in a class action, the justices said.

A lawyer for the couple bringing the lawsuit has argued that the case should be handled as a class action because it would be impractical for 4,461 borrowers to file individual lawsuits. Attorneys for the credit union and insurance company have contended that the dispute cannot be tried as a class action because each borrower would have to testify about whether each had waited too long to sue.

The lawsuit alleges that the credit union and insurance company improperly changed the terms and rates for disability insurance without giving borrowers sufficient notice.

Rapid City lawyer James Leach, who's representing Ed and Kathy Thurman, the couple who filed the lawsuit, said Thursday he believes more than 4,000 borrowers were cheated by the credit union and insurance company.

"It's appropriate that this can proceed as a class action so they can recover their losses," Leach said.

Lawyers for the credit union and insurance company did not immediately return phone calls seeking comment.

Court documents indicate that people who borrowed money and bought the disability insurance before July 1, 1999, had been told they would be notified before any premium rate was increased. The lawsuit alleges a quarterly advertising newsletter sent to credit union members contained a notice that said the insurance terms would change and premium rates would increase on July 1, 1999, but the suit says few people would be able to understand that the change would double the amount they would pay for the insurance.

The Thurmans discovered the change in 2009 when they decided to pay off their home equity loan early, but learned they owed more than $10,000 instead of $4,260, according to court documents. Their monthly payment had not changed, but the loan was being paid off more slowly because more of the payment was going to insurance rather than the loan principal.

The state Division of Insurance told CUNA it had acted illegally because the newsletter notice did not comply with requirements. The division then asked the insurance company to waive the extra amount owed by the Thurmans, but the Thurmans instead filed a class action lawsuit on behalf of other borrowers.

Court documents indicate credit union officials were surprised when they discovered the insurance change had substantially increased the amount borrowers had to pay over the life of their loans.

The credit union and the insurance company argue that the borrowers waited too long to sue because state law requires such claims to be made within six years of an alleged wrong. The borrowers contend they can still sue because they have six years to file after they discovered the wrong.

Circuit Judge Robert Mandel ruled the case could not be handled as a class action because potential differences in the facts of each borrower's case could create conflicts of interest. But the state Supreme Court said Mandel failed to identify those potential conflicts or explain why such conflicts exist.

The justices said the case can proceed as a class action because there is no evidence that possible differences in the borrowers' cases would result in the Thurmans' failing to protect the interests of other borrowers.

The alleged notice of the insurance change was given to each borrower through common methods, so the question of when borrowers got actual notice of the change can be handled in one trial, the high court said.