US credit card giant American Express has found itself faced with a multi-million dollar class action lawsuit in relation to its travel insurance policies for cardholders, after the California First District Court of Appeal rejected the company's right to arbitration, and concluded that the card issuer made false statements to the court and consumers.
The case, which alleged that American Express (Amex) cheated cardholders by charging them for travel insurance regardless of whether a trip was taken, commenced in September 2001, when William Hoffman filed a suit. Amex claimed that it would only charge cardholders an insurance premium when they traveled.
In 2003, a proposed nationwide class action settlement was reached, which the company said would have required it to make extensive changes to its computer system for processing insurance charges. Amex promised in sworn statements and other filings to begin using a new computer system code that would fix the problem in exchange for a release of claims. Amex additionally sent a notice to all members of the class that repeated these assertions.
Following objections, the settlement was terminated after it was revealed that Amex had implemented the computer changes in 2002 before settlement negotiations even commenced. Amex then asserted that, even though it had proposed a class settlement, once the settlement was terminated, it had a right under its contract to make each customer arbitrate individually. However, the Superior Court and Court of Appeal held that Amex had waived arbitration due to its misrepresentations concerning the settlement.
As a result of the ruling, Amex will be forced to go forward and defend a nationwide class action concerning some of its travel insurance programs.