The value of the settlement is currently undisclosed, but is estimated to be in the tens of millions. The vouchers will be for UPS service -- worth up to $8,000 apiece. Several million customers from 49 states are eligible for vouchers under the nationwide settlement. UPS settled a similar lawsuit in Illinois three years ago after the company agreed to give a maximum of $38.5 million worth of UPS vouchers to as many as 90,000 consumers who had bought the package insurance. Given the significantly larger potential class size in the New York suit, it is estimated that UPS could end up giving away much more in voucher value than it did in Illinois. Because of the Illinois settlement, residents of that state will not be able to participate in the New York settlement. The vouchers will expire 180 days after they are issued, meaning most of them will likely be redeemed by year end.

The dispute over UPS' package-insurance business arose in the late 1990s when the Internal Revenue Service 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 back to 1984. Demand for package insurance grew dramatically during the 1970s and 1980s as customers shipped more valuable goods through UPS' system.

UPS automatically insures all packages worth up to $100, with optional excess value insurance available for 35 cents per $100 in value. For example, insurance for a package worth $300 would cost 70 cents for the excess-value coverage through UPS. That same package would cost $4 to insure through the U.S. Postal Office, $2.50 through FedEx Corporation and $2.10 through DHL/Airborne Express. UPS collected at least $2 billion in insurance premiums from 1984 to 1999, according to U.S. Tax Court documents. During those years, UPS consistently kept 60 - 70% of the insurance money as profit, according to documents UPS produced for the Tax Court suit.

After certain insurance rules were deregulated in the 1980s, UPS spun off its entire package-insurance business to a Bermuda-based company called Overseas Partners, Ltd., which allowed UPS to avoid costly and cumbersome insurance licensing procedures in the United States. In the summer of 1999, the Tax Court found in favor of the IRS and determined that UPS owed back taxes and penalties on its insurance business in the amount of $1.8 billion. The Tax Court called UPS' offshore restructuring a "sham transaction lacking in economic substance."

Twenty-four consumer lawsuits were filed within months of the court's decision, most of them alleging breach of contract, antitrust, racketeering and failure to submit to state insurance oversight. Less than two years after the Tax Court ruling against UPS, the 11th Circuit Court of Appeals in Atlanta reversed that decision in favor of UPS. The appeals court dismissed the Tax Court's claim that the offshore entity was a "sham" and further determined that UPS did not owe any back taxes or penalties. UPS has since been licensed in all 50 states to be an insurance broker, and the company submits to state regulation and oversight. Pittsburgh-based National Union Fire Protection Company handles UPS' package-insurance program.

Despite the appeals court decision, 23 consumer lawsuits remained and were consolidated into the U.S. District Court case in New York's Southern District. The Illinois case was settled separately in 2001, with Chicago-based retailer Crate & Barrel claiming the largest voucher.

The settlement will not be effective until the court grants it final approval. The court has scheduled a hearing on the matter for May 21, 2003.