Insurers Victorious (So Far) On Pair Of COI Lawsuits

A federal appeals court will hear arguments on a pair of cases challenging insurers on cost-of-insurance increases.

In both lawsuits, appealed to the 11th Circuit Court of Appeals, the insurer prevailed in a lower-court ruling. The cases are important because they are among the few that insurers have won a favorable verdict, said Livia E. Babcock, assistant vice president and associate general counsel, litigation and regulatory, Allianz Life Insurance Co. of North America.

Babcock reviewed cost-of-insurance litigation as part of a panel last month at the virtual annual conference hosted by the American Council of Life Insurers.

"The most recent wave of COI lawsuits began in about 2015, with new creative theories being asserted," Babcock said. "We've got cases that challenge the methodology used to set initial rates. Often these were set decades ago. We've got cases that challenge charges that result from simply durational increase cases and cases asserting claims for failing to lower COI rates in the face of improving mortality experience."

Class-action suits against raising insurance rates are nothing new and can be traced back to the early 1990s at least, if not earlier. For generations, insurance companies considered COI increases unthinkable. Once some carriers crossed the line, others followed suit.

Anderson vs Wilco

In this lawsuit, filed January 2019 in a Georgia federal court, plaintiff Vanessa H. Anderson claimed breach of contract and the implied duty of good faith and fair dealing. The class-action lawsuit alleged that the defendant Wilco Life Insurance Company overcharged her and class members for life insurance premiums.

Anderson had a universal life insurance policy and the premiums were deposited into a savings account, from which Wilco deducted certain monthly expenses to pay for the life insurance portion of the plan. These expenses included cost-of-insurance expenses.

Wilco argued that increases in current monthly COI rates "are up to its discretion so long as the rate is not higher than the guaranteed monthly COI rate," court documents say. The plaintiff contended that the insurer "can only consider sex, attained age and premium class, all of which
relate to 'mortality risk,' when increasing the monthly COI rate," court documents say.

In addition to personal damages, the lawsuit asked the court to reverse Wilco's past premium rate increases and reinstate all life insurance policies that were surrendered or had lapsed due to the increases.

Judge James Randal Hall sided with Wilco in an Aug. 13, 2020, decision.

"There is only one reasonable reading of the policy in this case: The current monthly COI rate is, as stated in the policy, 'determined by the Company,' so long as it is not greater than the guaranteed monthly COI rate," he wrote.

Anderson has appealed to the 11th Circuit.

No Slam Dunk

The second case to be appealed to the 11th Circuit is Slam Dunk I vs Connecticut General Life Insurance. Filed in Florida, Judge Marcia G. Cooke reached a similar verdict to dismiss the case in an Oct. 1, 2020, ruling.

"The policy at issue here states that the Monthly Cost of Insurance Rates are determined by the insurance company based on its expectations as to future mortality experience," she wrote. "The policy also states ... that the Monthly Cost of Insurance Rates 'are based on the Insured’s Attained Age, the type of benefit, the Class of Insured and whether premiums for that Insured are paid directly to [Defendant] or through payroll deductions.' "

Slam Dunk is described in court papers as "a limited liability company organized and existing under the laws of Florida, with a principal place of business in Oklahoma City, Oklahoma. There is a single member of the Slam Dunk and that member is an Oklahoma resident. Plaintiff is the owner of twenty-two (22) Defendant GUL insurance policies, insuring the lives of various individuals, with various face values, all of which were issued at various times by Defendant (collectively, the “Group Life Policies”) and all of which contain the exact same policy language regarding COI and future mortality experience."

The judge wrote that the policy language is clear on the cost of insurance responsibility.

"The plain language of the policy does not support the allegations in the Amended Complaint, that this provision requires the insurance company to determine its Monthly Cost of Insurance Rates 'solely' or 'principally' on future mortality experience to the exclusion of the other enumerated factors."

Slam Dunk also appealed the decision to the 11th Circuit Court of Appeals.

Through these two cases, "it appears likely that the 11th Circuit is going to weigh in on the meaning of 'based on' in these policies," Babcock said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.