Maryland the latest to sue U.S. Fidelis over auto warranty claims

Maryland the latest to sue U.S. Fidelis over auto warranty claimsU.S. Fidelis, a now-bankrupt auto warranty company allegedly sold what it called "bumper-to-bumper" coverage to Maryland consumers, but customer claims were often denied because the repairs were excluded from the service contracts, state Attorney General Douglas F. Gansler.said in announcing a lawsuit against the company.

Maryland is the latest state to sue U.S. Fidelis Inc. of Missouri, which used to be known as National Auto Warranty Services Inc., and did business as Dealer Services. U.S. Fidelis stopped selling warranties in December but continues customer service on existing contracts. The company did not immediately return a phone call requesting comment on Maryland's allegations.

Maryland's Consumer Protection Division alleges U.S. Fidelis and its owners Darain Atkinson and Cory Atkinson used unfair and deceptive trade practices and broke a state law that bars businesses from charging consumers for goods or services sold over the phone before the consumers sign the paperwork detailing the terms of their purchases. The state also alleges that the warranties -- ranging in cost from $500 to $2,000 and sold as comprehensive plans that extended the manufacturers' warranties -- in reality provided limited coverage from a third-party insurer. The state says 12,352 service contracts were sold to Maryland consumers.

"Before purchasing an extended warranty, consumers need to be armed with all the facts," Gansler says in a statement. "Auto repair warranties can be costly and may provide very little coverage in return for their expense."

U.S. Fidelis has also been sued by nine other states over its service contracts -- Pennsylvania, Washington, Iowa, Idaho, Kansas, North Carolina, Ohio, Texas and Wisconsin. Other auto service contract companies have also been the subjects of lawsuits.

U.S. Fidelis filed for bankruptcy in March and a hearing is set this week in the case. Court papers filed in that case point out the company has been investigated by federal and state authorities since 2008 -- creating a "fair amount of mostly negative media reports." The bad publicity, economy and competition led to a "dramatic increase" in the amount of service contract cancellations, the case affidavit says.
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