Zale Corp. Sued for Insurance Fraud

Zale Corp. is being sued for credit insurance fraud in a class action brought by three law firms under the federal anti-racketeering act. The complaint was filed in federal court in Texarkana, Texas, on July 21, 2000.

The suit alleges that since 1993, Zale has knowingly sold credit insurance to customers who were ineligible for it and later refused to pay their insurance claims, citing that ineligibility.

Zale Corp. has a policy of not commenting on litigation, but Alan Shor, executive vice president and chief operating officer, says, “We certainly deny the allegation” that Zale “fraudulently induced” customers to buy credit insurance for which they were ineligible. “We feel we run a very good business and will defend ourselves against this [complaint],” he adds. Zale was still studying the allegations at press time.

The complaint charges Zale Corp., several retail and insurance subsidiaries, and “yet-to-be-named” individuals and officers with violating the federal Racketeer Influenced and Corrupt Organizations Act (RICO), Texas and Arizona laws governing fraud and breach of contract, and Arizona’s Consumer Protection Act. According to those involved with the case, it is not unusual for RICO to be used in cases against corporations allegedly involved in credit fraud.

The complaint claims that Zale “fraudulently induced” customers into buying credit insurance when they bought Zale merchandise with a Zale credit card. The insurance is supposed to pay the balance due on credit purchases if the credit card holder becomes unable to do so because of disability, unemployment, or leave of absence from work. The complaint alleges that Zale knowingly sold the insurance to customers who already were disabled, unemployed, and/or on leaves of absence and thus ineligible.

The seed of the action is a suit by Tresia Lancaster, a disabled Alabama resident. According to the complaint, she obtained a Zale credit card in August 1998 and bought Zale’s credit insurance for merchandise she purchased. She paid the insurance premiums and the credit payments until she no longer could do so, says the complaint, then filed an insurance claim. It was denied because of her ineligibility when she bought the insurance. Lancaster then contacted her attorney.

The complaint was filed by three law firms on behalf of Lancaster and others covered by the class action. The firms are Milberg Weiss Bershad Hynes & Lerach, with offices in New York City, San Diego, San Francisco, Los Angeles, Boca Raton, and Seattle; McAlister, Baccus & Hall, Tuscumbia, Ala., the home attorney of Ms. Lancaster; and Young & Pickett, Texarkana, Texas.