UPS May Have to Offer Free Shipping Vouchers

A judge is expected to order United Parcel Service Inc. next week to offer free shipping vouchers to customers as part of the settlement of a class-action lawsuit that alleged the company overcharged for package insurance.

Under the settlement, UPS would offer vouchers to anyone who can prove they bought “excess value” package insurance between August 1994 and October 2003. The attorneys for the plaintiff argued that the Atlanta-based company charged consumers too much for the insurance.

The two sides agreed on a tentative settlement in February. The U.S. District Court judge in New York's Southern District scheduled a final hearing on the settlement for May 21, after which class participants are expected to begin applying for vouchers. The vouchers expire 180 days after they are issued.

Several million businesses and consumers from 49 states will be eligible for vouchers.

While some expect the ruling to cost UPS tens of millions of dollars in free shipping, UPS spokesman Norman Black said he could not put a number on it.

“We don't have customers getting upset about what they are paying for excess value insurance, so it's almost impossible to predict how many will participate,” he said.

In the settlement, UPS said that its conduct was “at all times entirely proper, lawful and fair” and that it consistently charged 50 percent to 70 percent less than competitors for excess value package insurance. Black said UPS settled the case strictly for “practical business purposes.”

The dispute arose in the late 1990s when the IRS sued UPS in U.S. Tax Court. The IRS wanted UPS to pay taxes on billions of dollars in insurance income that the company had routed through an offshore entity dating to 1984.

UPS has since been licensed in all 50 states to be an insurance broker, and the company submits to state regulation and oversight. National Union Fire Protection Co., Pittsburgh, handles UPS' package-insurance program.

UPS settled a similar lawsuit in Illinois in 2001 after the company agreed to give a maximum of $38.5 million worth of vouchers to as many as 90,000 consumers who had bought package insurance.

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