Wednesday, January 29, 2020

No. 352: Pennsylvania Moves To Place Senior Health Insurance Company of Pennsylvania in Rehabilitation

Background
Senior Health Insurance Company of Pennsylvania (SHIP) has been running off the long-term care (LTC) insurance business of Conseco Senior Health Insurance Company (CSHI) since 2008. CSHI had been running off the business since 2003.

For many years, SHIP's financial condition has been worsening. In March 2019, SHIP filed with the Pennsylvania Insurance Department (Department), SHIP's primary regulator, the company's statutory financial statement for the year ended December 31, 2018. (The statement was signed on February 26, postmarked on March 1, and received by the Department on March 5.) The statement showed that SHIP's liabilities of $2.653 billion exceeded its assets of $2.206 billion by $447 million. The Department at that time took no action to place the company in rehabilitation. I wrote about the insolvency in No. 308 (April 11, 2019).

The insolvency grew to $462 million at the end of the first quarter of 2019, to $477 million at the end of the second quarter, and to $524 million at the end of the third quarter. I wrote about the expanding insolvency in No. 342 (November 25, 2019).

In the quarterly statements, SHIP said it is "actively working with the Pennsylvania Insurance Department to develop a corrective plan." During 2019, because of SHIP's failure to maintain sufficient capital, at least three states suspended the company's certificate of authority: Idaho on May 15, Iowa on July 8, and Alaska on November 6.

The Application
On January 23, 2020, Jessica E. Altman, the Pennsylvania Insurance Commissioner (Commissioner), filed with the Commonwealth Court of Pennsylvania an "Application for Order Placing Senior Health Insurance Company of Pennsylvania in Rehabilitation." The application contains numerous exhibits, one of which is a "Proposed Order of Rehabilitation." Here, without citations, is part of the introduction to the application:
SHIP has committed one or more acts which constitute grounds for rehabilitation. Specifically, SHIP's most recent annual statement demonstrates that the company is statutorily insolvent. Additionally, SHIP's most recent risk-based capital ("RBC") report indicates that the company's total adjusted capital is substantially below its mandatory control level RBC, therefore triggering a "mandatory control level event." Finally, the Trustees of the Senior Health Care Oversight Trust and SHIP's directors have consented in a signed writing to the company being placed in rehabilitation and have waived a hearing.
A section of the application discusses rehabilitation. That section includes comments such as these:
SHIP's financial condition is dire. The Commissioner's staff and consultants have spent some time working with the Trustees and SHIP management to obtain as accurate as possible a financial picture of SHIP's affairs. They have advised the Commissioner that it may be possible to devise and implement a plan for the rehabilitation of SHIP that would produce for policyholders a result no less beneficial than would be produced by a liquidation, and perhaps materially better than that.
Because of the gravity of SHIP's financial difficulties, there can be no assurance that the rehabilitation efforts will be successful....
It is probable that the plan, when implemented, will require modification of existing contracts, premium rate increases, and other measures that in combination will reduce or eliminate SHIP's deficit.
Attached to the application as an exhibit is SHIP's statutory financial statement for 2018. The application and the proposed rehabilitation order, but without the other exhibits, are in the complimentary package offered at the end of this post. (See Altman v. SHIP, Commonwealth Court of Pennsylvania, Docket No. 1 SHIP 2020.)

The Milliman Role
Milliman Inc., an actuarial consulting firm, played a pivotal role in the 2008 transfer from CSHI to the Senior Health Care Oversight Trust in Pennsylvania. In public documents filed at the time, Conseco said Milliman had concluded in a financial report that SHIP would have enough assets to run off the LTC insurance business. I did not believe it. I asked Conseco and the Department for the report, so that I could see what assumptions Milliman had made. Both denied my request. I hope the report becomes public some day so we can find out whether Milliman used assumptions that were inappropriate or Conseco characterized the report inaccurately.

General Observations
For all practical purposes, SHIP has been in rehabilitation under the supervision of the Department since the filing in early 2019 of its statutory financial statement for 2018, and probably for several years before that filing. The problem is that the rehabilitation, as far as SHIP's premium-paying policyholders and claimants are concerned, was in essence a secret. Thus they did not have the opportunity to take actions that might have provided them with some protection against the consequences of SHIP's "dire" financial condition. What form of disclosure will now be made to them, and when the disclosure will be made, remain to be seen.

I am indebted to Elizabeth "Liz" Festa. She is a long-time business and financial services reporter with a specialty in insurance regulatory and legislative coverage at the federal and state level. She is based in Washington, D.C. Her January 24 article in The Washington Rider was my first knowledge of the Commissioner's court application regarding SHIP.

Available Material
I am offering a complimentary 27-page PDF consisting of the Commissioner's application (without exhibits) for the rehabilitation of SHIP (14 pages) and the proposed rehabilitation order (13 pages). Email jmbelth@gmail.com and ask for the January 2020 package about the application for the rehabilitation of SHIP.

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Monday, January 27, 2020

No. 351: Prudential is a Defendant in a Securities Class Action Lawsuit Related to Reserves for Individual Life Insurance

On November 27, 2019, the City of Warren (Michigan) Police and Fire Retirement System filed a class action lawsuit in federal court against Prudential Financial, Inc. (Prudential) and two of its top officers. The plaintiff alleges that the defendants understated the reserves for the company's individual life insurance segment, and thereby caused losses to shareholders. (See City of Warren v. Prudential, U.S.District Court, District of New Jersey, Case No. 2:19-cv-20839.)

The Judges
The case has been assigned to Senior U.S. District Judge Stanley R. Chesler. President George W. Bush nominated him in January 2002. The Senate confirmed him in November 2002. He assumed senior status in June 2015. U.S. Magistrate Judge Cathy L. Waldor has also been assigned to the case.

Nature of the Lawsuit
The opening paragraph of the complaint and the one-paragraph "Summary of the Action" section of the complaint describe the nature of the lawsuit. Here are those two paragraphs (the full complaint is in the complimentary package offered at the end of this post):
Plaintiff City of Warren Police and Fire Retirement System ("plaintiff"), maintaining its principal place of business at Warren, Michigan, individually and on behalf of all others similarly situated, by plaintiff's undersigned attorneys, for plaintiff's complaint against defendants, alleges the following based upon personal knowledge as to plaintiff and plaintiffs' own acts and upon information and belief as to all other matters based on the investigation conducted by and through plaintiff's attorneys, which included, among other things, a review of U.S. Securities and Exchange Commission ("SEC") filings by Prudential Financial, Inc. ("Prudential" or the "Company"), as well as media and analyst reports about the Company and Company press releases, and conference call transcripts. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
This is a securities class action on behalf of all persons or entities who purchased the common stock of Prudential between February 15, 2019 and August 2, 2019, inclusive (the "Class Period"). The defendants are Prudential, the Company's President and Chief Executive Officer ("CEO"), Charles F. Lowrey, and its Chief Financial Officer ("CFO"), Kenneth Y. Tanji. Plaintiff seeks remedies for violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act").
Structure of the Complaint
The nine-page "Introduction and Background" section of the complaint cites numerous comments that appeared in Prudential's SEC filings, press releases, guidance calls for analysts, investor conferences, and analyst reports. The end of that section (on page 11 of the complaint) shows an interesting chart illustrating the performance of Prudential's common stock as compared to the S&P 500 index during the class period from February 15, 2019 to August 2, 2019.

Other major sections of the complaint are "Defendants' False and Misleading Statements Issued During the Class Period" (6 pages) and "The True Facts Begin To Be Revealed" (9 pages). There are two class action allegations: (1) violation of §10(b) of the Exchange Act and Rule 10b-5 against all defendants, and (2) violation of §20(a) of the Exchange Act against all defendants. The plaintiff seeks class certification, damages and interest, and attorneys' fees and costs.

General Observations
This case is in its early stages. I think it is an important case, and plan to report on significant developments.

Available Material
I am offering a complimentary 39-page PDF consisting of the complaint in the City of Warren case. Email jmbelth@gmail.com and ask for the January 2020 package about City of Warren v. Prudential.

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Monday, January 20, 2020

No. 350: Bob Woodward's Aptly Named Book About Decision Making in the Trump White House

In 1972, Bob Woodward and Carl Bernstein, then young reporters at The Washington Post, began investigating a minor burglary at an office in the Watergate complex. Their investigation grew into a major story that led to the resignation of President Richard Nixon in 1974. In the process, "Woodstein" became arguably two of the most famous reporters in the history of journalism.

Woodward is now a top editor at the Post. Over the years he has written 19 books—all best sellers—and he has received a long list of awards, including Pulitzers. He has written several books about Nixon, and books about other presidents, including Reagan, Clinton, both Bushes, and Obama. He has also written about the Supreme Court, the Central Intelligence Agency, and the Federal Reserve Board.

Woodward's most recent book, published in September 2018, is entitled Fear: Trump in the White House. I read it when it was published. I concluded it was aptly titled, because I came away from it fearful about the future of our country. Because of everything that happened during the impeachment inquiry (following publication of Fear), I decided to reread the book.

I came away from the second reading even more fearful for our country. Just as I was finishing my second reading, Trump decided to assassinate Iran's top general. Iran retaliated with a missile attack against two military bases in Iraq. Also, apparently by mistake, Iran shot down a passenger jetliner that was taking off from the Tehran airport bound for the capital of Ukraine, tragically killing all those aboard.

Pages 300-302 of the book describe the relationship between Trump and Kim Jong Un, the dictator of North Korea, in early 2018. That was prior to their meetings, which occurred after the book was published. Here are three paragraphs of the description (italics are in the original):
Lingering after receiving his President's Daily Brief on January 2 [2018], President Trump said, "In this job I'm playing five hands of poker simultaneously, and right now we're winning most of the hands. Iran is busting up and the regime is under intense pressure. Pakistan is terrified of losing all of our security aid and reimbursements. And South Korea is going to capitulate to us on trade and talks with North Korea." He seemed on top of the world but he didn't mention the fifth poker hand.
Real power is fear.
The answer on North Korea was to scare Kim Jung Un. "He's a bully," Trump told [then staff secretary Rob] Porter. "He's a tough guy. The way to deal with those people is by being tough. And I'm going to intimidate him and I'm going to outfox him."
Page 302 of the book also describes some dangerous advice Trump received from U.S. Senator Lindsay Graham of South Carolina. Graham had suggested publicly that it was time to start withdrawing U.S. military dependents from South Korea, an action that "could provoke Kim." Fortunately, a month later "Graham seemed to have a change of heart."

At this writing (January 17), the Senators have been sworn in, and the impeachment trial is set to begin on January 21. I recommend that anyone who has not read Woodward's book do so.

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Tuesday, January 14, 2020

No. 349: Executive Life of New York and Its Structured Settlement Annuities Are Back in the News

A three-judge panel of a federal appellate court recently issued an important and unanimous ruling about two structured settlement annuities that Executive Life Insurance Company of New York (ELNY) had issued in 1984. The plaintiff is Trevor Langkamp, the recipient of the benefits provided in the structured settlement annuities.

The Lawsuit
In 1980, when Trevor was 17 months old, he suffered severe burns at a U.S. Army facility. In 1982, his parents filed a lawsuit under the Federal Tort Claims Act against the U.S. alleging that Trevor's injuries were caused by negligent management of the facility. In 1984, the Langkamps and the U.S. settled the case for a cash payment of about $240,000 and a structured settlement.

The settlement required the U.S. to pay, for Trevor's benefit, a structured settlement of $350 per month from January 1985 through October 1996, and then, to Trevor, $3,100 per month (at 3 percent interest compounded annually) for life, beginning in November 1996. The settlement also required several lump sum payments to Trevor: $15,000 in December 1996, $50,000 in December 2000, $100,000 in December 2008, $250,000 in December 2018, and $1,000,000 in December 2028.

In November 1984, the U.S. purchased two structured settlement annuities from ELNY to fund the monthly and lump sum payments. ELNY made the payments from January 1985 through July 2013. After ELNY's court-approved liquidation in April 2012, Trevor was informed that the structured settlement annuity payments were being reduced by more than 40 percent, beginning in August 2013.

The issue was whether the U.S. remained responsible after the failure of ELNY to meet its obligations under the structured settlement annuities. The case was assigned to Judge Lydia Kay Griggsby. The complaint is in the complimentary package offered at the end of this post. (See Langkamp v. U.S.A., U.S. Court of Federal Claims, Case No. 1:15-cv-764.)

The Dismissal Order
On December 4, 2017, Judge Griggsby issued an order dismissing the lawsuit. The order reads in part:
On March 20, 2017, the Court issued a Memorandum Opinion and Order denying plaintiff's motion for partial summary judgment on liability and granting the government's cross-motion for summary judgment on liability in the above-captioned matter, upon the grounds that the plain language of the Settlement Agreement at issue in this case demonstrates that the government has not unequivocally agreed to guarantee the monthly and periodic lump-sum payments required under the agreement. Pursuant to the March 20, 2017 Memorandum Opinion and Order, the Court ordered the parties to file a joint status report stating each party's respective view on whether this matter should be dismissed in light of the Court's ruling.
On November 29, 2017, the parties filed a joint status report, in which plaintiff requested that the Court not enter final judgment in this matter, because plaintiff intends to file a motion for reconsideration pursuant to Rule 59 of the Rules of the United States Court of Federal Claims ("RCFC") on or before December 18, 2017. The government requested that the Court enter final judgment in its favor pursuant to RCFC 58.
In light of the foregoing, the Court dismisses the complaint and DIRECTS the Clerk's Office to ENTER final judgment in the government's favor and to DISMISS the complaint.
The Appeal and Reversal
Trevor appealed the dismissal order to the U.S. Court of Appeals for the Federal Circuit. There the case was assigned to a panel consisting of Circuit Judges Haldane Robert Mayer (who wrote the opinion), Alan D. Lourie, and Richard G. Taranto. (See Langkamp v. U.S.A., U.S. Court of Appeals for the Federal Circuit, Case No. 2018-2052.)

On November 27, 2019, the panel issued a unanimous opinion reversing the dismissal order, remanding the case to the lower court for further proceedings consistent with the reversal, and granting Trevor his costs. The full opinion, which includes much of the text of the settlement, is in the complimentary package offered at the end of this post. Here are the first paragraph of the reversal and the first paragraph of the background:
Trevor Langkamp appeals the judgment of the United States Court of Federal Claims granting the government's motion for summary judgment and rejecting his claim seeking damages for breach of a tort settlement agreement. Because we conclude that the court erred in holding that the United States had no continuing liability for the future monthly and periodic lump-sum payments specified in the agreement, we reverse and remand.
In 1980, Langkamp, who was then a toddler, suffered severe burns at a property owned and operated by the United States Army. Langkamp's parents, Joseph and Christina Langkamp, subsequently brought an action against the United States under the Federal Tort Claims Act, in the U.S. District Court for the Western District of Michigan. On November 15, 1984, the parties entered into a settlement agreement.
General Observations
I agree with the appellate court that the language of the settlement does not relieve the U.S. from its obligations under the settlement. Stated another way, I think the settlement does not impose on Trevor the risk of the failure of ELNY to meet its obligations under the structured settlement annuities the U.S. purchased from ELNY.

Available Material
I am offering a complimentary 21-page PDF consisting of the complaint (5 pages), the dismissal order (2 pages), and the appellate reversal (14 pages). Email jmbelth@gmail.com and ask for the January 2020 package about Langkamp v. U.S.A.

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Thursday, January 9, 2020

No. 348: Long-Term Care Insurance—Updates on the Lawsuit Against the California Public Employees' Retirement System

In No. 227 (July 27, 2017) and No. 325 (August 5, 2019), I discussed a class action lawsuit filed more than six years ago against the California Public Employees' Retirement System (CalPERS), a unit of the California state government. The case relates to large premium increases CalPERS imposed on owners of long-term care (LTC) insurance policies. Here I show two updates on the case. (See Wedding v. CalPERS, Superior Court of California, County of Los Angeles, Case No. BC51744.)

Background
In August 2013, several plaintiffs filed their original complaint after CalPERS notified them of an 85 percent increase in the premiums for their LTC insurance policies. In March 2017, CalPERS filed a motion for summary judgment or, in the alternative, summary adjudication. In June 2017, the judge then handling the case denied the motion for summary judgment but granted the motion for summary adjudication. She allowed the case to proceed with three of the original causes of action. The trial was set to begin early in 2018, but it did not. The next judge in the case set the trial to begin in October 2019, but it did not. The trial is now set to begin in April 2020.

The October 2019 Update
The website www.calpersclassactionlawsuit.com provides interested parties with information about the case. The two-paragraph October 2019 update reads:
Plaintiffs and Plaintiffs' counsel attended the first scheduled mediation session on September 4, 2019 with Judge Layn Phillips, retired U.S. Attorney and a former federal judge from Oklahoma. He is one of the most sought after mediators in the nation and is known for his success in resolving highly complex cases. The mediation was attended by Plaintiffs' counsel Gretchen Nelson, Stu Talley, Greg Bentley and Steve Schuetze and the Plaintiffs, Holly Wedding, Eileen and Richard Lodyga. CalPERS was represented by its General Counsel, Matt Jacobs along with outside counsel, Daralyn Durie, Ragesh Tangri, Michael Proctor and Allyson Bennett of the Durie/Tangri law firm. In addition, Plaintiffs and CalPERS each had their respective actuary experts either present in person or telephonically to assist in answering questions that arose during the mediation. The negotiations were complicated since a potential resolution will likely require assessments as to the potential effect on the Long Term Care Fund, if, for example, there is a roll back of premiums or restoration of benefits to policyholders.
On October 7, 2019, we attended a second mediation session with Judge Phillips where further discussions were held as to various methods for achieving a resolution and ultimately it was agreed to have another mediation session in November, either on November 12 or November 14. The trial has been continued to April 13, 2020 to provide the parties with sufficient time to continue their discussions.
The December 2019 Update
The case website also provides a three-paragraph December 2019 update. It reads:
In the CalPERS Long Term Care Class Action matter, the parties have now attended three mediation sessions before the Hon. Layn Phillips (Ret.) and his associate Michelle Yoshida, Esq. The third mediation session occurred on Thursday, November 14, 2019, and attorneys Michael J. Bidart, Greg Bentley, and Stuart Talley appeared for the class, and Daralyn Durie, Ragesh Tangri, Michael Proctor, and Allyson Bennett appeared for CalPERS along with CalPERS's actuaries. Both sides have been working diligently on attempting to reach a resolution, and the parties' actuaries have been conferring to reach a consensus as to the potential cost to the Fund of various measures in connection with the parties' settlement efforts.
The class is comprised of persons who either paid the 85% premium increase, or reduced their benefits and dropped inflation protection and/or lifetime coverage in lieu of paying the 85% increase. A third group is comprised of policyholders who dropped their long-term coverage altogether. On behalf of the portion of the class who paid the 85% increase we are seeking to reach a settlement where those persons would have a portion of that increase rolled back both in the past and the future. For those who reduced their coverage in lieu of paying 85% we are seeking to obtain a partial restoration of benefits at no additional premium increase. Those who dropped coverage have different considerations and any settlement would likely involve some monetary compensation. The additional cost to the LTC Fund is significant, and any settlement requires additional funding from the State.
The parties have agreed that Judge Phillips can be appointed as Special Master who, in coordination with the Court, can directly contact the necessary State officials in an attempt to work toward a resolution.
General Observations
In No. 346 (December 20, 2019), I wrote about an LTC insurance premium increase class action lawsuit in which the settlement involved attorneys' fees and expenses that dwarfed the benefits provided for the victimized policyholders. I fear that the CalPERS case may be headed for a similar result. I plan to write further about developments in this case.

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Monday, January 6, 2020

No. 347: 403(b) Retirement Plans for Teachers: An Investigation by the New York Department of Financial Services

The Journal Articles
On October 2, 2019, The Wall Street Journal (Journal) carried online an 816-word article entitled "New York State Officials Open Probe on 403(b) Sales to Teachers; Officials concerned about annuity fees and disclosures to teachers." The reporters were Leslie Scism and Anne Tergesen. Here are the first two sentences:
New York Department of Financial Services Superintendent Linda Lacewell wants to ensure teachers are properly informed about the costs of so-called 403(b) retirement-savings programs. New York's top financial-services watchdog on Tuesday dispatched letters to a dozen major insurers seeking details on how they market retirement-income products to teachers, opening a probe of industry practices, according to people familiar with the matter.
On November 16, the Journal carried a 454-word article entitled "SEC Chairman Warns on Teacher Retirement Plans." The reporter was Dave Michaels. Here are the first two sentences:
A sweeping federal enforcement initiative aimed at sales practices related to retirement savings for teachers began after town halls across the country where the nation's top securities regulator heard things that worried him. Securities and Exchange Commission (SEC) Chairman Jay Clayton said Thursday that interactions with everyday investors convinced him teachers and other government workers were especially vulnerable to biased financial advice.
On December 11, the Journal carried a 1,318-word article entitled "Costly Plans Dent Teachers' Nest Eggs." The reporters were Gretchen Morgenson and Tergensen. Here are the first two sentences:
Hidden financial ties exist between some administrators hired by school districts for their teacher retirement plans and the companies whose investment products those administrators promote, The Wall Street Journal found. The ties can encourage administrators to promote higher-fee investments that leave teachers with smaller nest eggs than they might otherwise have had.
On December 19, the Journal carried a 1,912-word front-page article entitled "Unions' Tactics Hurt Teachers' Nest Eggs—They get paid to endorse providers of investments, including ones with high fees." The reporters were Tergensen and Morgenson. Here are the first three sentences:
The pitch from the president of the Indian River County teachers union couldn't have been clearer. Liz Cannon, who heads the Indian River chapter of the Florida Education Association, urged union members to buy retirement investments from Valic Financial Advisors Inc. through a firm owned by the union. That way "we also make money," she said in a November 2017 newsletter, through regular dividends. What Ms. Cannon didn't mention was that investments from Valic, a unit of giant insurance company American International Group Inc., can carry high costs that may translate to a smaller nest egg when teachers retire.
My FOIL Request
On November 5, I submitted to the New York State Department of Financial Services (NYDFS) a request pursuant to the New York State Freedom of Information Law (FOIL). I asked for a sample copy of the request letter that NYDFS had sent to the insurance companies.  On December 12, the agency said that it
requires additional time to respond to your request because the potentially responsive records contain highly sensitive information and require specialized review. DFS will endeavor to make its determination of your FOIL request by February 7, 2020. We appreciate your continued patience. Thank you.
The NYDFS Requests
Instead of waiting until February, I made other efforts to learn about the NYDFS requests. I learned the letters went to several major insurers by email in early October on the subject of "Request for a Special Report Pursuant to New York Insurance Law §308." NYDFS asked the companies for the production of information and supporting documentation in connection with its inquiry into annuity contracts offered through 403(b) retirement plans in New York State or to New York residents. NYDFS directed the companies to provide the information and the documents within three weeks.

The NYDFS request letters consisted of 15 numbered points. They are in the complimentary package offered at the end of this post.

My Second FOIL Request
On December 20, because the companies' responses apparently had already been received, I submitted to NYDFS a second FOIL request asking for the responses. On December 23, NYDFS denied my second FOIL request. The denial letter is in the complimentary package offered at the end of this post. I do not plan to appeal the denial of my second FOIL request. I still await a response to my first FOIL request.

General Observations
The NYDFS requests for information from the companies were so extensive that I think the companies must have been under severe pressure to respond in only three weeks. Also, it is my understanding that buyers and owners of 403(b) retirement plans do not enjoy the protections afforded by the Employee Retirement Income Security Act of 1974. If that is the case, the NYDFS and SEC investigations would assume special importance. I hope those agencies will make the results of their investigations available to the public as soon as possible.

Available Material
I am offering a complimentary 5-page PDF consisting of the 15 numbered points in the NYDFS requests to the companies (4 pages) and the NYDFS letter denying my second FOIL request (1 page). Email jmbelth@gmail.com and ask for the January 2020 package about the NYDFS investigation of 403(b) retirement plans for teachers.

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Friday, December 20, 2019

No. 346: Long-Term Care Insurance—The Pending Settlement of the Newman Lawsuit Against Metropolitan Life

In No. 253 (February 15, 2018) and No. 336 (October 10, 2019), I wrote about a class action lawsuit filed by Margery Newman, an Illinois resident, against Metropolitan Life Insurance Company relating to long-term care (LTC) insurance. Recently the judge granted preliminary approval to a settlement of the case. Here I discuss the settlement. (See Newman v. Metropolitan, U.S. District Court, Northern District of Illinois, Case No. 1:16-cv-3530.)

Background
Newman was 56 when she bought an "LTC Premier" policy in September 2004. It included a "reduced-pay at 65 option," which Metropolitan had described as follows in a marketing brochure:
By paying more than the regular annual premium amount you would pay each year up to the Policy Anniversary on or after your 65th birthday, you pay half the amount of your pre-age 65 premiums thereafter.
In her March 2016 complaint and June 2016 amended complaint, Newman alleged breach of contract, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraud, and fraudulent concealment. In July 2016 Metropolitan filed a motion to dismiss the complaint for failure to state a claim.

In March 2017 the judge dismissed the complaint without prejudice. In April 2017, in accordance with the judge's ruling, Newman filed a motion for leave to file a second amended complaint and attached a proposed second amended complaint. Five days later, at a hearing, the judge denied the motion and dismissed the case with prejudice.

Newman appealed to the Seventh Circuit. In February 2018 a three-judge panel unanimously reversed the district court's ruling and sent the case back to the district court for further proceedings. (See Newman v. Metropolitan, U.S. Court of Appeals for the Seventh Circuit, Case No. 17-1844.)

Metropolitan petitioned for a rehearing by the full appellate court. Newman opposed the petition. The panel denied the petition and filed a slightly amended ruling. Here is the final paragraph of the panel's amended ruling:
Newman asserts that Metropolitan lured her into a policy by promising a trade of short-term expense for long-term stability. She took the deal and spent nine years investing in a plan, only to have Metropolitan pull the rug out from under her. Neither Metropolitan's brochure nor the terms of the policy forecast this possibility. These allegations were enough to state a claim under the theories Newman presented. We therefore REVERSE the district court's grant of Metropolitan's motion to dismiss and REMAND for further proceedings.
Back in the district court, the case dragged on for more than a year. The deliberations included mediation discussions and actions by several plaintiff-intervenors. Finally, on November 7, 2019, the judge granted preliminary approval to a settlement of the case.

The Settlement
The judge named Newman and three plaintiff-intervenors as class representatives. For the purposes of the settlement only, the judge conditionally certified the following class:
All individuals who purchased from Metropolitan Life Insurance Company a Long-Term Care Insurance Policy with the Reduced-Pay at 65 Option, which is either still in-force as of October 24, 2019, or which lapsed within ninety (90) days of their receipt of notice of a premium increase after they had attained the age of 65. Notwithstanding the foregoing, the Settlement Class does not include persons whose policies lapsed before receiving notice of a premium rate increase.
The judge set the fairness hearing for February 20, 2020. Class members who wish to be excluded from the settlement must file their requests for exclusion not later than 30 days before the fairness hearing. Objections to the settlement must be postmarked not later than 30 days before the fairness hearing.

Under the heading "What Does the Settlement Provide?," the class notice includes one paragraph. It reads:
The Settlement will result in cash refunds totaling approximately $1,300,000 to: (i) Class Members who have already been subjected to a premium rate increase after they turned 65; (ii) Class Members who reduced the amount of their coverage in order to avoid a premium rate increase after they had turned 65; and (iii) Class Members who had LTC policies that lapsed within 90 days of a post-age 65 premium increase. In addition, Metropolitan has agreed not to increase premiums on any Class Member in the future who is or becomes 65 or older after such person reaches age 65. For those Class Members who were already subject to one or more post-age 65 premium increases, Metropolitan has agreed not to collect any premium amounts above 50% of each such Class Member's last pre-age 65 premium amount. The Settlement also includes Metropolitan's payment of attorneys' fees as approved by the Court up to $5,000,000, the reimbursement of certain expenses not to exceed $80,000 incurred by Class Counsel, incentive awards not to exceed $20,000 in total to Plaintiff and other parties, and the costs of the administration of the Settlement.
Under the heading "How Will the Lawyers Be Paid?," the class notice includes three paragraphs. They read:
  • Class Counsel will ask the Court for attorneys' fees not to exceed $5,000,000. Metropolitan shall pay such sums for attorneys' fees and expenses as may be approved by the Court. Class Members are not personally liable for any such fees or expenses.
  • The attorneys' fees and expenses requested will be the only payment to Class Counsel for their efforts in achieving this Settlement and for their risk in undertaking this representation on a wholly contingent basis. Since the case began in 2016, Counsel has conducted all of the investigation, briefing and motions practice necessary to prepare the case for trial. To date, Counsel has not been paid for their services, nor reimbursed their expenses. Class Counsel has expended significant hours of attorney time in prosecuting the Class's claims and will ask the Court for certain expenses incurred in prosecuting the Litigation to be paid by Metropolitan in an amount not to exceed $80,000.
  • Class Counsel shall file a formal motion with the Court for approval of the Settlement and their request for attorneys' fees and reimbursement of expenses not later than 30 days prior to the Fairness Hearing.
General Observations
Attorneys' fees and expenses in this case far exceed amounts to be paid to class members. I believe there are three primary reasons for that result. First, the policies involved—those containing the "reduced-pay at 65 option"—probably represent a small portion of Metropolitan's LTC insurance offerings. Second, the granting of Metropolitan's motion to dismiss, requiring the class's attorneys to appeal the ruling, probably enlarged the efforts needed by them. Third, the long delays in the district court after the appellate ruling probably enlarged the efforts needed by them. In my opinion the large ratio of attorneys' fees and expenses to class members' benefits is justified.

Available Material
I am offering a complimentary 20-page PDF consisting of the judge's November 2019 preliminary approval of the settlement, which includes the notice to be sent to class members. Send an email to jmbelth@gmail.com and ask for the December 2019 package about Newman v. Metropolitan.

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