Updated: Class action accuses Direct Auto Insurance Co. of predatory practices

By Andrew Thomason | Jul 24, 2014

Editor's note: This story was updated on July 28 to include a statement from Direct General Insurance Agency of Tennessee, saying it was improperly named as a defendant in this suit and that is not affiliated with Direct Auto Insurance Company. One of the plaintiff's attorneys said based on public records, it appears the two are the same.

An insurance company used illegal, predatory practices by basing its business plan on selling policies to low-income individuals, denying valid claims and filing declaratory judgment against policyholders, according to a lawsuit filed earlier this month.

On behalf of himself and similarly situated individuals, Norbert May filed suit July 11 in the Cook County Circuit Court against Direct General Insurance Agency of Tennessee, which the suit lists as a corporation doing business in Chicago as Direct Auto Insurance Co.

Direct General, however, said in a statement sent to The Record on July 28 that "the plaintiff named the wrong party."

"The actual defendant should have been Direct Auto Insurance Company, 330 S. Wells Street, Suite 910, Chicago, Illinois 60606," according to the statement that notes "Direct Auto Insurance Company is not and has never been affiliated with Direct General Insurance Agency of Tennessee, Inc. d/b/a Direct Auto Insurance or any other member of the Direct General Group of Companies.

Direct General said in its statement that it "has requested that plaintiff’s counsel dismiss Direct General from the lawsuit and believe that they will do so. In the event that does not occur, Direct General will be submitting a filing with the court for the company to be dismissed from the suit."

One of the plaintiff's attorneys, Edwards McCauley, said today he is aware of Direct General's request and is looking into the matter, but that it seems apparent from public records that Direct General and Direct Auto are one and the same.

A search on the Illinois Secretary of State's website for Direct General Insurance Agency of Tennessee lists Direct General Insurance Agency and Direct Auto Insurance as assumed names of the corporation. The website search list both of the assumed names as inactive and does not include addresses for either.

Beginning in 2007, according to plaintiff May's suit, Direct Auto Insurance offered "automobile insurance at premiums that were lower than other auto insurance competitors."

The company "intentionally targeted consumers with low to moderate incomes, including a large percentage of African American and Hispanic individuals, who did not have the financial ability to hire legal representation to defendant them against [its] predatory practices," the proposed class action complaint asserts.

He alleges that sometime after 2007, Direct Auto Insurance began denying claims that should have been approved, apparently claiming the policies were no longer in effect, despite a provision in the policies stating that "this policy or policy renewal shall not be rescinded after the policy has been in effect for one year or one policy term, whichever is less.”

The insurance company then began seeking declaratory judgments against those policyholders regarding their claims, according to the suit that reiterates “Direct Auto Insurance Company knew that many of its policyholders could not afford legal representation and would not challenge declaratory judgment actions in court."

Direct Auto Insurance's alleged intention to not pay out most of the claims made by clients such as May, violated the Illinois Consumer Fraud and Deceptive Practices Act, according to the recently-filed complaint.

May further asserts that the company's refusal to not pay out claims based on its contention that the policies were not in effect, despite the clause in the policy that seems to indicate otherwise, constitutes a breach of contract.

Additionally, May alleges that Direct Auto Insurance violated the Illinois Insurance Code because its selling of policies and subsequent denial of claims made under those policies was “based on misrepresentation.

May seeks to represent a proposed class that would include "all policyholders of Direct Auto Insurance Company whose right to coverage was denied more than one policy period or one year after issuance of said policies based on alleged misrepresentations in policy applications."

The suit includes three counts on behalf of the class that allege they sustained damages including a loss of premiums paid to Direct Auto Insurance, liability to third parties and loss of coverage they were allegedly entitled to under their policies.

Each of the three counts seeks damages of more than $50,000, plus costs, attorney's fees and any other damages allowed under the state's insurance and consumer fraud laws.

May also filed an individual claim beyond the trio of class claims, although it echoes many of the class action allegations.

In that count of his complaint, May alleges that "Direct Auto Insurance Company, through its employees and/or agents, caused a vexatious and/or unreasonable delay of payments, in violation of Section 155 of the Illinois Insurance Code."

He is seeking at least $50,000 in damages, as well as attorney's fees and costs, on his individual count.

The suit was submitted by Edward P. McCauley of Kelleher & Buckley LLC in North Barrington, as well as Daniel F. Konicek and Brian W. Irvin of Konicek & Dillion PC in Geneva.

Bethany Krajelis contributed to this article.

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