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.”
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.
After looking at tens of thousands of phone company documents, attorney Moskowitz found that many refurbished phones do get “a pretty strict quality check.” He also says he was surprised to learn that these refurbished phones usually have a higher value than the deductible, but not always.
Since 2004, as many as 15,000 people across the country were sent refurbished phones worth less than the their deductible, according to court papers. They paid $50 and received phones worth $44 to $47.
Preliminary settlement reached
Last Friday, the federal judge handling this case approved a preliminary settlement between the plaintiffs, Asurion and Lock\line that will affect as many as 13 million cell phone customers. Signal Holdings did not settle and is still in the lawsuit.
Under the terms of this agreement, all Asurion brochures, advertisements and marketing materials will state that claims may be fulfilled with “new and/or refurbished equipment” and that each replacement is subject to a non-refundable deductible per loss. Asurion has also agreed that if the value of the replacement phone is less than the deductible, customers will be told so they can decide whether to pay the deductible and proceed with the claim.
Who gets what?
The nationwide class consists of all former and current Asurion or Lock\line customers who made premium payments, filed a claim, and received a refurbished phone between January 20, 2004 and January 26, 2007. They will get a phone card worth at least $5. This will cost Asurion at least $1.5 million and potentially as much as $60 million.
The 15,000 or so customers who submitted a claim during this time period and got a refurbished phone — generally worth $3 to $6 less than the deductible — will get a voucher for a new phone worth $75 to $100. No other purchase is required to use this voucher — as is often the case with class action settlements — and the voucher is fully transferable, so it can be given or sold to someone else.
Letters will soon go out to all 13 million members of the class, giving them details of the settlement and explaining their rights to remain in the class or opt out. The judge in this case has scheduled a final hearing in May to approve the settlement.
The lawsuit against Signal Corp. No trial date has been set. I spoke to the company’s attorney and asked him why Signal decided not to settle. He told me the company would have to answer that. No one at the company ever responded to my calls.
© 2013 msnbc.com. Reprints