First Acceptance Corp., a Nashville automobile insurance company, has reached settlement agreements with more than 230,000 defendants in Alabama and Georgia who said the company signed them up for auto club memberships without telling them.
"It's been some of the hardest fought litigation I've been involved in in my 20-plus years of experience,'' said Chip McCallum, one of the plaintiffs' attorneys with McCallum, Hoaglund, Cook & Irby in Vestavia Hills, Ala., noting that the first of the lawsuits were filed in 2004 and the case ultimately involved seven law firms.
First Acceptance, which sells automobile insurance to people who have trouble getting insured, either because of their driving or payment histories, denied wrongdoing as part of the settlement. Instead, the company said it was settling in order to avoid the cost of more litigation.
"We strongly disagree with Mr. McCallum's characterization of our sales practices,'' said First Acceptance in-house attorney Mark Reineke.
The cost of settling the lawsuits isn't known, both parties said. First Acceptance recorded $7.5 million in settlement costs for the fiscal year that ended June 30. But plaintiffs in the lawsuits still have to decide if and how they want to be reimbursed.
The company's stock price fell 23 percent on the New York Stock Exchange Thursday to $2.30 per share after the company filed the Alabama settlement documents with the Securities and Exchange Commission. The Georgia settlement already has been approved a judge.
Plaintiffs in the Alabama case, which is in Circuit Court in Bullock County, Ala., are current insurance clients. They will get full reimbursement for their auto club memberships or $50 credits. McCallum said the average plaintiff paid about $50 extra every six months on auto insurance for auto club memberships that weren't properly disclosed. He said some Alabama customers also were paying for accidental death and dismemberment insurance they didn't know they had.
First Acceptance has 429 retail locations in 29 states and has seen revenues and premiums falling as it tries to improve profitability. Revenues for the year were $332.4 million, with a net loss of $17.8 million, or 37 cents per share.
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