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05/19/95 LINDA GREENE PELESCHAK v. VEREX ASSURANCE

May 19, 1995

LINDA GREENE PELESCHAK, ON BEHALF OF HERSELF AND ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFF-APPELLEE,
v.
VEREX ASSURANCE, INC., A WISCONSIN CORPORATION, DEFENDANT-APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE ALBERT GREEN, JUDGE PRESIDING.

Rehearing Denied June 23, 1995.

Presiding Justice McNAMARA delivered the opinion of the court: Egan and Zwick, JJ., concur.

The opinion of the court was delivered by: Mcnamara

PRESIDING JUSTICE McNAMARA delivered the opinion of the court:

Plaintiff, Linda Greene Peleschak, filed this class action lawsuit against defendant, Verex Assurance, Inc., a home mortgage guaranty insurer, seeking recovery of unearned premiums paid to Verex by its customers, home mortgage lenders, for the cost of mortgage guaranty insurance, but not returned to the lenders in cases where the amount of the unearned premium was less than $25 at the time the insurance certificate on the particular mortgage loan was cancelled. The trial court allowed plaintiff's motion for class certification and later granted her motion for summary judgment on all seven counts of her amended complaint.

On appeal, Verex contends that the trial court erred in: (1) granting plaintiff's motion for class certification; (2) granting her motion for summary judgment on all seven counts of her amended complaint and ordering Verex to refund unearned premiums to every member of the class; (3) requiring Verex to bear the cost of notifying members of the class of the pendency of the lawsuit; and (4) ordering Verex to devise a method of identifying members of the class and to incur the cost of doing so.

The relevant facts are as follows. Verex is a Wisconsin-based insurance corporation that contracts exclusively with home mortgage lenders to issue mortgage guaranty insurance. This insurance protects lenders against losses due to default on home mortgage loans that the lenders have made to their borrowers; it confers no benefit at all to the borrower. The lenders pay premiums directly to Verex in exchange for the insurance.

Once Verex has decided that a mortgage lender is qualified to receive coverage, it issues a master policy to the lender defining the contractual terms of their relationship. Thereafter, Verex reviews requests from the lender to insure particular loans made by the lender. If Verex agrees to insure a loan for the lender, it issues a certificate of insurance on that loan, which becomes effective when the lender pays Verex the initial premium. Verex accepts premiums only from master policyholders.

The premium which Verex charges the lender is paid by the lender on an annual installment basis in advance. The initial premium is paid shortly after the loan closing, and an annual renewal premium is paid by the lender to Verex each year after that until coverage is cancelled. The lender does not inform Verex whether it is reimbursed by a particular borrower for the cost of the mortgage insurance. The record reveals that not all lenders pass on the cost of mortgage insurance to their borrowers. Verex does not undertake to inform the borrower of the terms of its relationship with the lender.

When a borrower defaults on a mortgage loan insured by Verex, the lender submits a claim to Verex on a form authorized by Verex after it has foreclosed on the property and obtained title to it. Verex then either pays the full amount of the lender's loss on the defaulted mortgage and takes title to the property or pays the lender a percentage of the loss and waives any further claim to the property. Payments by Verex are made solely to discharge an obligation to its lender-insured and are not intended for the benefit of any other person or entity, including the borrower.

When a lender-insured cancels coverage on a loan during a period for which it has already paid for the coverage, Verex refunds to the lender the portion of the paid premium covering the months for which insurance will no longer be needed. This amount is known as the unearned premium. The typical situation in which a lender cancels the insurance is where the borrower has sold the property and repaid the mortgage loan.

In 1983, Verex began a practice of not refunding unearnedpremiums to lenders where the amount of the refund due was less than $25. Verex also did not collect underpayments of premiums from lenders where the amount of the underpayment due Verex was below $25. Verex instituted this policy at the request of several of its lender-insureds, which had determined that the cost of processing such a small refund exceeded the amount of the refund itself. Verex filed with various State insurance departments, including the Illinois Department of Insurance, its plan to refrain from billing or crediting the lender-insureds whenever the amount involved was less than $25. Verex engages in this practice in 36 States pursuant to either explicit approval from a State's department of insurance or informational filings, as in Illinois. Notwithstanding this practice, the record reveals that Verex regularly honored requests by its lender-insureds to issue refund checks despite the fact that the amount was less than $25.

In 1984, plaintiff and her then-husband, Kevin C. Greene, purchased a home and secured a mortgage loan for the property from Arlington Heights Federal Savings and Loan Association (Arlington Federal) located in Arlington Heights, Illinois. The Greenes were informed that Arlington Federal would purchase mortgage guaranty insurance to protect its interests and would pass on the costs of that insurance to them. The Greenes signed Arlington Federal's statement of estimated settlement charges, which included approximately $17 per month for the mortgage guaranty insurance premium.

Sometime in 1985, Verex received an application from Arlington Federal to insure it on the Greenes' mortgage loan. Verex agreed to insure the bank on the loan and issued a certificate of insurance in July of that year. Arlington Federal paid Verex the initial premium of $583 in exchange for coverage. At the closing, the Greenes learned for the first time that Arlington Federal had selected Verex to be the mortgage guaranty insurer on their loan. Plaintiff had never heard of Verex prior to that time and had no contact with the company until after she initiated this action. The Greenes signed the mortgage ...


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