Approximately 20 customers who bought insurance for packages shipped by the United Parcel Service, Atlanta, prior to 1984 filed a lawsuit Nov. 18 accusing the package delivery company of insurance fraud.
The lawsuit was filed in Montgomery County Common Pleas Court, Dayton, OH, on behalf of UPS customers in Indiana, Texas, Kentucky and Ohio.
UPS sold and provided its own insurance for customers until 1984. The suit stems from documents obtained in the federal government's case against UPS in U.S. Tax Court on Aug. 9. The court judge ruled that while it sold its own insurance, UPS set up a corporation — Overseas Partners Ltd. — in Bermuda to avoid paying U.S. taxes. It also said UPS illegally inflated its tax deductions by charging its customers three times the competitive market price for insuring packages.
The judge found that UPS must pay taxes on the money sent to the Bermuda company. UPS took a $1.44 billion charge as a result of the ruling and made a $1.3 billion payment to the government to stop interest penalties while it considers an appeal.
Based on that ruling, the former customers charge that UPS fraudulently collected insurance fees by falsely representing itself as an insurance company and that it overcharged customers.
The lawsuit seeks $14 billion in compensatory damages. If the judge approves it as a class-action lawsuit, however, insiders said that amount would triple to $42 billion
Because of the tax dispute with the government, UPS on Oct. 1 got back into providing its own package insurance through a subsidiary, Glenlake Financial, that is licensed to write insurance in all 50 states.
In a statement, UPS said it will fight the allegations.
UPS recently sold stock to the public, raising nearly $5.5 billion in the biggest initial public offering to date.