Background on the Terry Lawsuit
Angela Terry, a California resident, is trustee for and beneficiary of the Frank Irrevocable Trust (Trust) created in January 2000. In May 2000 the Trust purchased from a Transamerica predecessor a $1 million second-to-die universal life policy on the lives of Jeanine and Ronald Frank. In February 2019, after instituting a COI rate increase beginning in May 2018, Transamerica informed the Trust that a 39 percent COI rate increase had been imposed as of May 2018, and that further COI rate increases of 39 percent each would be imposed in May 2019 and May 2020. The compound amount of the three increases was 169 percent. The Trust thereupon surrendered the policy.
The Terry Complaint
On October 23, 2019, the Trust filed an individual lawsuit against Transamerica. Here are three of the first four paragraphs in the "Nature of the Action" section of the complaint:
1. This case arises from substantial cost of insurance increases on Transamerica's TransSurvivor 115 universal life insurance policies that started in 2017 and continue to the present. Transamerica breached the express and implied terms of the policies, violated other relevant law, and falsely and misleadingly stated that the cost increases were permitted due to a change in Transamerica's future cost expectations.
3. From the 1980s to the 2000s, Transamerica sold hundreds of millions of dollars in universal life insurance policies requiring it to credit interest on policyholders' accumulation accounts at guaranteed rates ranging between 4.0% and 5.5%, including the TransSurvivor 115 universal life insurance policies purchased by Ms. Terry and thousands of others. Ms. Terry purchased a TransSurvivor 115 policy so that her family would be protected as Jeanine and Ronald H. Frank (the joint insureds) entered their senior years and in the event of their death. However, beginning in 2017, Transamerica substantially increased the cost of insurance withdrawn from the policies' accumulation accounts, deceptively stating the increases were permitted by the terms of the policies "based on ... current expectations about ... future costs for providing coverage."
4. Despite its representations, Transamerica's expectations about the future costs for providing coverage under the policies could not have materially changed for the worse in 2017, particularly changes that would justify Transamerica's exorbitant cost increases (in some instances exceeding 168 percent). Since the TransSurvivor 115 policies were issued in the late 1990s to the 2000s, the factors that form the basis of Transamerica's cost of insurance rate have only improved, contractually precluding a cost of insurance increase entirely, but especially in 2017 when Transamerica knew that it was lowering the costs of administering its business between $70-100 million and that it was receiving hundreds of millions of dollars in prospective tax benefits under the Tax Cut and Jobs Act of 2017.
The complaint contains five counts: (1) breach of contract, including breach of the implied covenant of good faith and fair dealing; (2) tortious breach of the implied covenant of good faith and fair dealing; (3) violation of the California Business and Professions Code, Sections 17200 et seq.; (4) intentional, or in the alternative, negligent misrepresentation; and (5) declaratory relief. The full complaint is in the complimentary package offered at the end of this post. (See Terry v. Transamerica, U.S. District Court, Northern District of Iowa, Case No. 1:19-cv-118.)
Transamerica's Answer to the Complaint
On November 25, 2019, Transamerica filed an answer to the Terry complaint, including the standard "admits," "denies," and "lacks knowledge" language. It also includes ten affirmative defenses: (1) no duty to disclose, (2) failure to mitigate, (3) no punitive damages, (4) ratification, (5) illegality, (6) release, (7) genuine dispute doctrine, (8) reasonableness and good faith, (9) waiver, and (10) estoppel. The full answer is in the complimentary package offered at the end of this post.
The NYDFS Consent Order
Paragraphs 104 and 105 in the Terry complaint were my first knowledge that Transamerica Financial Life Insurance Company (TFLIC), a New York-domiciled subsidiary of Transamerica, entered into a consent order with the New York Department of Financial Services (NYDFS) on July 2, 2018. The consent order grew out of NYDFS financial and market conduct examinations of TFLIC for the periods 2006-2009 and 2010-2014. The examinations identified four violations during the 2006-2009 period and eleven violations during the 2010-2014 period. NYDFS ordered TFLIC to pay a civil monetary penalty of $762,700 in addition to restitution to policyholders and beneficiaries. The consent order is in the complimentary package offered at the end of this post.
The NYDFS consent order directed at TFLIC prompted me to visit the website of the Iowa Insurance Division, Transamerica's domiciliary regulator. I found no consent orders there directed at Transamerica.
The Terry case is in its early stages, and I do not know what will happen as the case progresses. I plan to follow the case and report on significant developments.
I am offering a complimentary 76-page PDF consisting of the Terry complaint (49 pages), the Transamerica answer (19 pages), and the NYDFS/TFLIC consent order (8 pages). Email firstname.lastname@example.org and ask for the December 2019 package about Terry v. Transamerica.