Insurance Companies

Cell phone insurance companies settle
Class-action agreement gives consumers more information on policies

About 25 million people will need a new cell phone this year because theirs has been lost or stolen. That’s why so many customers buy “equipment protection plans” for their wireless phones. These insurance policies, which normally sell for $4.99 a month, promise to replace your phone if it is lost, damaged or stolen — conditions that are not covered by the manufacturer’s warranty.

But do people who spend the extra money to protect their phone understand how these insurance policies work? Under terms of a settlement given preliminary approval by a federal judge in Florida last week, two of the biggest cell phone insurers agreed to clearly disclose the terms of their policies — and to pay more potentially as much as $60 million in compensation to millions of past customers.

Carlos Perez of Miami lost his cell phone in July 2004. He reported the loss to Asurion Insurance Services, the company that covered his Verizon phone. Asurion told Perez he would be required to pay a $50 deductible to get his replacement phone, which he did.

According to court documents, the replacement phone Perez received “was refurbished and/or of lesser value” than the one he had purchased from Verizon. The suit also alleges the phone “had many problems and simply did not work well.” For example, the battery was not tightly connected and would continuously detach from the phone.

In his lawsuit, which eventually became a class action, Mr. Perez claims he did not know he would have to pay a deductible or that the replacement phone would be refurbished and not new.

Consumers need to understand
Adam Moskowitz, counsel for the plaintiffs in this class-action suit, says other consumers had similar complaints. “They just didn’t understand how the process works.”

The purpose of the class action, Moskowitz told me, was to require the companies selling cell phone protection plans “to give customers more information, so they can decide whether this insurance is a good product for them.”

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The suit names the three major cell phone insurance companies: Asurion Corp. of Nashville, Tenn.; Lock\line LLC of Kansas City, Mo.; and Signal Holdings of Wayne, Pa. Since the lawsuit was filed in April of 2005, Asurion has purchased Lock\line and revised all its brochures to better explain how their protection programs work.

The brochure for Signal’s “Direct Protect” service continues to say it will “replace your equipment with the same model you had.” Attorney Moskowitz says that is “not adequate” because it does not clearly state that this replacement phone could be refurbished.

What’s the big deal about a refurbished phone?
Wireless companies have always said that their refurbished phones are as good as new. But I bet if you asked most people, they’d tell you a phone that’s been used by someone — and possibly turned in for repairs — is not as good as or worth as much as a new one.

CONTINUED: 'A pretty strict quality check'