Jury Awards $5.6M In Fight Over Increased Insurance Rates
Law360, New York (September 14, 2017, 7:14 PM EDT) — A California federal jury found Wednesday that TransAmerica Life Insurance Co. breached the terms governing 2,400 life insurance policies for Los Angeles residents by changing key cost rates, and awarded $5.6 million in damages.
The two insurance pools totaling 2,400 policies, and co-owned by DCD Partners LLC, insure church congregants in Los Angeles. The plaintiffs said that TransAmerica had made repeated promises not to change the deduction and expense rates above certain maximums, but then did, causing a $2.5 million total premium hike in 2015 and a projected $100 million premium hike over the life of the policies.
A jury agreed that TransAmerica’s rate changes were wrongful, saying TransAmerica breached the policy contract, breached the implied covenant of good faith and fair dealing, and caused damages from those two breaches in the amount of $5.61 million.
“We were surprised and disappointed by the verdict in the DCD lawsuit,” Gregory W. Tucker, head of public affairs for Transamerica, said. “We maintain that the company’s decision to increase monthly deduction rates was permissible under the terms of the policies. Because the case is ongoing, we will not comment further at this time.”
The flexible-premium life insurance policies were issued in two pools, one in March 2004 and the other in November 2004, for congregants of Praises of Zion Baptist Church in Los Angeles. DCD bought an interest in the policies in 2009.
Each pays out $275,000 on death, part of that to the pool and part to the beneficiary for funeral costs, but most — $225,000 — to the premium payer.
At issue were the monthly deduction rate and monthly expense charges of each policy. In 2014, TransAmerica delivered two renewal notices that upped the remittances by 62.5 and 64.8 percent, respectively.
Annual projected premiums due for 2015 jumped from $1.83 million to $4.31 million, according to a second amended complaint filed in September 2015, and the plaintiffs said that over the life of the policies the hikes would “result in approximately $100 million in increased premium payments that would not have been necessary if Transamerica had continued to charge” the same deduction rates it charged at policy issuance.
The financial structuring was not straightforward. Premiums were paid into an interest-bearing “accumulation value account.” TransAmerica would deduct fees and other necessary amounts, including the deduction rate and expense charge.
The churchgoers were low-income and 99 percent African-American, and the church embarked on the project to create the policy pools with the intention of getting the congregants access to financial products they would not otherwise have had access to.
The plaintiffs said that at least one monthly deduction jumped from $50.89 in policy year 2012–2013 to $569.08 later on, but they had little further information, saying TransAmerica had also never provided the detailed yearly financial statements it had promised in the policy language.
“The verdict reaffirms what our clients believed all along — Transamerica improperly raised the rates on these policies,” said William A. Brewer III, partner at Brewer Attorneys & Counselors and counsel for the plaintiffs.
The plaintiffs are represented by Timothy Birnbaum, Brad Ehrlichman, Dale Fresch, LaCrecia Perkins, Maxwell Herman, and Michael Collins of Brewer Attorneys & Counselors.
The defendants are represented by Ashleigh Landis, Dan Marmalefsky, David Cross, Ellen Adler, Kevin Kwon, Kimberly Gosling, Mark Zebrowski, and Sylvia Rivera of Morrison & Foerster.
The case is DCD Partners LLC et al. v. TransAmerica Life Insurance Co. et al., case number 2:15-cv-03238, in the U.S. District Court for the Central District of California.
–Editing by Kelly Duncan.
Update: This story has been updated with comment from the parties.