A class action lawsuit was filed last week in the Eastern District of Pennsylvania against Lincoln National Life Insurance Company on behalf of the owners of Jefferson Pilot-issued, JP Legend 100, 200, 300 and 400 series life insurance policies. Lincoln National purchased Jefferson Pilot in March of 2006.
We wrote about this COI increase in August of 2016. The announcement from the carrier at that time noted COI changes, stating that while most of the changes were increases, there were some decreases, “reflecting Lincoln’s commitment to acting fairly and responsibly.”
The class action lawsuit alleges the COI increase breached the contracts underlying the policies in several ways. First, the “increases were based on non-enumerated factors” since “the 3 factors that Lincoln relies upon to justify the increase could not possibly justify an increase of the size” of the policies in question. Those three factors included “its estimates for future cost factors of investment returns, mortality assumptions, and reinsurance costs.” According to the suit, the carrier’s “expectations of future investment returns could not reasonably be materially lower than what Lincoln originally expected—and certainly not nearly so much lower as would be need to justify” the stated increases of “50-90%,” which are in line with the ITM TwentyFirst analysis of these policies in portfolios we manage. The suit points out that, in filings from 2010 to 2014, Lincoln stated, “It expects mortality experience to improve.” The lawsuit also notes that “Mortality (normally the most important element in COI charge rates) has continuously improved nationwide since the policies were issued.” Reinsurance costs “cannot provide material support for the increase, and reinsurance costs are not an enumerated factor for an increase,” according to the filing.
Second, the suit alleges that cost increases were not designed to respond to expectations but to recoup losses. The policy contract states, "[R]ates will be based on our expectation of future monthly interest, expenses, and lapses," which “forbids COI increases that are based on a carrier's desire to increase profits or to make up for past losses,” according to the lawsuit. The lawsuit also indicates that Lincoln admitted they were focused on the past, not the future, since they pointed to a "decade of persistently low interest rates" and the "recent historic lows" to provide a rationale for an increase when the costs were announced.
In addition, the suit points out that the cost increases were not uniform “across insureds of the same rating class” and notes “COI rates being higher when the insured is 98 years old than when she is 99.” According to the suit, the “strange and illogic shape” of the cost increase “could not possibly have been replicated for every one of the same rating class,” which violates the contract provision. This provision states, "any change in the monthly cost of insurance rates used will be on a uniform basis for Insureds of the same rate class."
The lawsuit also points out that, by refusing to provide an illustration while the policy was in the grace period, Lincoln breached the contract. During the grace period, the policy is still considered to be in force, and the contract language states that the carrier would, if asked, “provide, without charge, an illustration showing projected policy values based on guaranteed as well as current mortality and interest factors.”
The suit seeks damages and court costs, along with reasonable and necessary attorneys' fees, an injunction against the increase, treble damages, and “such other relief as this Court may deem just and proper under the circumstances.”
For a copy of the lawsuit, contact [email protected]