Lawsuit Demands Refunds on Cell Phone Insurance

A federal lawsuit accuses three companies that provide cell phone insurance of deceptive and unfair trade practices. The suit seeks refunds of millions of dollars in monthly premiums.

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And if you're paying to insure your cell phone, consumer advocates say you may have made a mistake. A federal lawsuit in Florida accuses three companies that provide cell phone insurance of deceptive and unfair trade practices. Attorneys are seeking refunds of millions of dollars in monthly payments. NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

Consumer advocates have long argued that cell phone insurance is a bad deal. Michael Shames of the San Diego-based Utility Consumers' Action Network says the premiums of 4 to $5 a month are typically money wasted.

Mr. MICHAEL SHAMES (Utility Consumers' Action Network): The two big problems with cell phone insurance is there's a deductible--usually it's $50, sometimes $100--that you have to pay up front before you get any coverage. The second problem is the phone that's given as a replacement is usually a used phone and often not of the same quality as the phone that you originally had.

HORSLEY: Now a federal lawsuit in Florida goes further, arguing that cell phone insurance is not just a bad bargain, but an illegal one that violates laws against deceptive and unfair trade practices. The suit was filed on behalf of two Miami residents who purchased cell phone insurance. It's seeking refunds for them and possibly millions of other customers in Florida and throughout the country. The lawsuit claims the insurance is deceptive because it promises a benefit that it doesn't deliver. It argues the so-called deductible is often higher than the value of the replacement phone. Shames says it's hard for consumers to evaluate such policies because they usually don't know how much their handsets are worth.

Mr. SHAMES: Most consumers would be shocked to learn that the phone that they're buying that allegedly is worth $300 or $400 can be purchased on the resale market for a fraction of that cost. There's a glut of used cell phones out there on the market and consumers don't know about that.

HORSLEY: The lawsuit names three big providers of cell phone insurance, Asurion, Signal and lock/line. Lock/line declined to comment on the suit. Signal issued a written statement saying it provides a valuable service and meets the highest business standards. Asurion promised a vigorous defense against the lawsuit. Vice President Michael Powers acknowledges that Asurion sometimes offers refurbished phones as replacements, but he says the company receives relatively few complaints from its 20 million customers and, he argues, the claims made in the lawsuit are baseless.

Mr. MICHAEL POWERS (Vice President, Asurion): One of the claims is that Asurion's customers are not able to understand the meaning of the term deductible. And that's obviously a widely used term in the insurance industry.

HORSLEY: Is it true that sometimes the refurbished phone is worth less than the deductible?

Mr. POWERS: Not able to really comment on that.

HORSLEY: The three companies provide insurance to customers of most major cell phone carriers. The carriers themselves are not named in the lawsuit, although consumer advocate Shames says their sales agents do receive lucrative commissions for helping to push the policies.

Scott Horsley, NPR News, San Diego.

MONTAGNE: This is MORNING EDITION from NPR News. I'm Renee Montagne.

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