Spherion had switched life insurance providers without informing Thomas. Under the new policy, employees had to work for one full day to activate their coverage. Spherion never mentioned this to Thomas, and repeatedly assured him that he didn't need to do anything to retain his coverage.

His widow said he easily could have worked a day if that was what it took to activate the new policy. Spherion could have waived the one-day-of-work provision, as it did for other employees but not for Amschwand.

When Thomas died, because the policy had never been formally activated, Spherion refunded his insurance premiums and told his widow she would receive nothing else.

The story has played out often under the federal Employee Retirement Income Security Act. Designed to protect employee benefits, the law has been used by employers as a shield against suits.

Federal appeals courts, interpreting Supreme Court decisions dating to 1993, consistently have said companies that offer health, life and retirement benefits under ERISA cannot be sued for large amounts of money, or damages. Instead, they can be sued only for typically smaller sums such as Amschwand's insurance premiums.

Several federal judges have bemoaned the unfairness even as they have felt constrained to rule in favor of employers.

"The facts ... scream out for a remedy beyond the simple return of premiums," Judge Fortunato Benavides of the New Orleans-based 5th U.S. Circuit Court of Appeals said in the Amschwand case. "Regrettably, under existing law it is not available."

The Supreme Court recently refused to hear Melissa's case. Congress has refused to act. Insurers continue scrape up lucre, and consumers are left to suffer.

Employers use federal law to deny benefits [AP]
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Here's what happened the second time around (emphasis ours):

In March 2008, I received my car insurance premium for six months and again paid the bill in full prior to the date it was due. Subsequently, I received another bill for $11.20 a month later. This time I thought “what is going on here? There is no way I made an error in my check writing again”. I called my agent and discovered the following:

Their system is supposed to charge an additional 2% when people pay only the minimum due for the six month billing cycle which I believe is half. Unfortunately, their system has a glitch which automatically is charging all customers this additional fee even when paying in full by the date due. Although I am sure that many people catch this problem, I am also sure there are a ton of people who simply pay the extra amount with the assumption that they made an error (as I did the first time). Even worse is that this extra payment was somehow slipped into the financial abyss of the Farmers Insurance agency pocket and not applied to any future premiums. The agent wasn’t even sure if they would be able to refund the erroneously paid $10.30. The agent admitted that this problem has existed for more than a year and a half and that they haven’t been “able” to fix it yet. Sounds like a very lucrative mistake to me, and that lots of unsuspecting people are probably paying a “late fee” that they are not required to.

At what point does an error evolve into a tidy little scam on your customers? How about after you let it go on for a year and a half?

Another article uses a side-by-side comparison that really shows the disparity: "Using credit scores is likely to mean that 64 percent of African Americans, 53 percent of Hispanics, 38 percent of non-Hispanic whites and 34 percent of Asians would pay higher premiums the FTC said."

The practice was questioned at a House hearing on Tuesday, although it's not clear whether anything useful was accomplished—the news reports have the usual routine of partisan soundbites that fall predictably on either side of the issue. California, Hawaii, Massachusetts and New Jersey have banned credit-based pricing, while many other states have passed laws that limit the extent to which insurers can rely on it.

"Credit-Insurance Link Debated" [Associated Press]

RELATED
"Congress looks into credit based auto insurance rates" [McClatchy]
"Caution! The secret score behind your auto insurance" [Consumer Reports]
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