Judge Rules That Consolidated Lawsuit Against Transamerica for COI Increase Can Be Heard

On November 8th, a United States District Court judge in California’s Central District ruled that a consolidated class-action lawsuit against Transamerica could move forward. The lawsuit’s main allegation concerned Transamerica’s “breach of faith” for the cost of insurance (COI) increase in their Universal Life policies.
We reported back in September of 2015 that Transamerica increased costs in several of its Universal Life insurance policies (see: Transamerica Cost Increase Causes Premium to Maturity to More Than Double: A Case Study for Trustees). Earlier this year we discovered another Transamerica cost increase while working on a policy review, which we subsequently covered in Transamerica Cost of Insurance Increases: Is the Other Shoe Now Dropping? That increase was dramatically higher than the first one. Transamerica acknowledged this new increase shortly after we discovered it.
The Transamerica cost increase dramatically raised the carrying costs of life insurance policies and several class-action lawsuits were filed against the carrier. Three of those lawsuits were combined: one filed in California by Consumer Watchdog (see: Consumer Group Files Suit Against Transamerica for Cost of Insurance Increases); a second California lawsuit, Thompson v. Transamerica Life Insurance Company (see: Another Class Action Lawsuit Filed Against Transamerica for Cost Increases); and one originally filed in the Southern District of Florida (see: Preliminary Injunction Motion Filed in South Florida Against Transamerica to Stop Cost of Insurance Increases). In a June 10, 2016, Consolidated Class Action Complaint filed in the Central District of California, the plaintiffs asserted “seven claims against Transamerica on behalf of themselves and all others similarly situated”. On August 1, 2016, Transamerica filed a motion to dismiss the complaint.
In the complaint filed, the plaintiffs argued that Transamerica was not allowed to set monthly deductions (which included the COI) “in whatever amount or by whatever method it determines.” The plaintiffs also argued that the standardized policy language requires that Transamerica can only change deductions based on underlying mortality rates and that Transamerica was not allowed to “set or increase [monthly deduction rates] to recoup past losses” because of low interest rates or other factors. They further argued that the deduction increase of “as much as 100%” caused “an astronomical increase in the premiums necessary to maintain coverage under the policies” which was designed to induce “shock lapses.”
On October 31, 2016, the court heard oral arguments. On November 8th, the Honorable Cristina A. Snyder ruled against Transamerica; their motion to dismiss the plaintiffs' claims was denied.
For a copy of the Civil Minutes in the case, please email [email protected]