No. 241: The Age 100 Problem—An Update

In No. 141 (posted February 1, 2016), I wrote about what I call the "age 100 problem in cash-value life insurance," a topic on which I had written two articles in The Insurance Forum in 2001. In No. 226 (July 20, 2017), I discussed an elderly insured's lawsuit against Transamerica Life Insurance Company relating to the problem. In this update I discuss two recent developments.

The Lebbin Case
Gary Lebbin was born in September 1917 in Germany, came to the United States in 1938 to escape Nazi persecution, and married in 1944. His wife died in 2015 at age 97. He has two children, four grandchildren, and seven great-grandchildren. In 1990 he created a trust that purchased two universal life policies from Transamerica with a total face amount of $3.2 million. His two children are the trustees of the trust.

In July 2017 Lebbin and the trust filed a lawsuit against Transamerica. They alleged that Transamerica had falsely represented the policies as "permanent insurance" for his "whole life," that the company had refused his request to extend the policies beyond their terminal age of 100, and that he was facing a potentially serious income tax problem. In September 2017 Lebbin reached the policies' terminal age of 100.

On October 2, 2017, Transamerica filed a motion to transfer the case from the federal court in Maryland (where the trust and one of the trustees are located) to the federal court in the southern district of Florida (where the policies were originally sold, where one of the trustees is located, and where other potential witnesses are located). On October 16 Lebbin and the trust filed an opposition to the motion. On October 30 Transamerica filed a reply to the opposition. On November 3 Transamerica filed a record of the exhibits supporting the motion. The judge has not yet acted on the motion.

Lincoln's Extension Offer
On October 30, 2017, Lincoln National Life Insurance Company sent a newsletter to its field force. The first two pages contain an article entitled "Extension of Maturity Offer—Beginning October 30, 2017." The first paragraph of the article reads:

In response to agent and policyowner requests and to better align with industry practices, beginning October 30, 2017 Lincoln is offering to extend the maturity date on certain permanent life insurance policies in order to preserve the death benefit within the contract and help avoid a taxable event. These older products typically have maturity dates ranging from age 95-100, and due to the age of this business, policies are beginning to approach these dates. Newer products often contain a maturity extension feature as part of the base product.

Lincoln said it will write to each policyholder eight to twelve months before the original maturity date, and the first mailing will occur on November 13, 2017. Each mailing will include an offer letter, the policy amendment, and an acceptance form the policyholder must sign and return to the company at least 30 days prior to the policy's original maturity date.

The policy amendment has been approved in all jurisdictions except Florida, Louisiana, Massachusetts, Missouri, New Hampshire, New York, Pennsylvania, Puerto Rico, Virgin Islands, and Virginia. Pursuant to the Indiana Public Records Act (Lincoln is domiciled in Indiana), I obtained the approval file from the Indiana Department of Insurance. The policy amendment was submitted for approval on December 29, 2016, and the Department approved it on January 24, 2017.

Included in the approval file is a sample of the offer letter, which will be over the signature of Lincoln's president, Dennis R. Glass. The final paragraph of the offer letter reads:

There may be tax consequences to either surrendering the Policy on or after the maturity age or continuing the Policy past the maturity age of the applicable Insured(s). A tax advisor should be consulted to determine which choice best meets Your needs.

I believe that Transamerica's motion to transfer the Lebbin case from Maryland to Florida is a delaying tactic. I hold that belief because, even if the case survives the inevitable motion to dismiss, I think the case will never go to trial. I believe that the case will be settled quietly, and that we will never learn the terms of the settlement because it is an individual case rather than a class action. Moreover, even if it were a class action and the settlement terms were made public, I think the age 100 problem would remain unresolved.

As I discussed in No. 141, there appears to be no guidance on how an insured who reaches the terminal age of 96 (in whole life policies based on the American Experience mortality table) or the terminal age of 100 (in whole life policies based on the 1941 CSO, 1958 CSO, or 1980 CSO mortality tables) can avoid a potentially serious income tax situation. The problem is that the insured who accepts an offer to postpone receipt of the death benefit beyond the terminal age could be viewed as having constructive receipt of the death benefit at the terminal age.

All types of firms invariably refuse to provide tax advice to customers. In the case of life insurance, in the absence of guidance, I do not see how a tax advisor can provide sound advice to a client.

Available Material
I am offering a complimentary 16-page PDF consisting of the article in Lincoln's newsletter (2 pages) and Indiana's approval file for Lincoln's new rider (14 pages). Email jmbelth@gmail.com and ask for the November 2017 package about the age 100 problem.

In my two previous posts on the subject, I offered complimentary packages that are still available. In No. 141, I offered a 37-page package consisting of the two 2001 Forum articles, an excerpt from a variable universal life prospectus, a 2009 request for comments from the Internal Revenue Service (IRS), a 2009 comment letter from the American Council of Life Insurers, and a 2010 revenue procedure promulgated by the IRS; ask for the February 2016 package about the age 100 problem. In No. 226, I offered a 54-page package consisting of Lebbin's complaint and an exhibit showing one of Lebbin's policies; ask for the July 2017 package about the age 100 problem.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 240: TIAA-CREF Under the Microscope

On October 22, 2017, The New York Times carried a long article about Teachers Insurance and Annuity Association of America (TIAA) and its affiliates, including College Retirement Equities Fund (CREF). Gretchen Morgenson, who received a Pulitzer Prize in 2002 for "trenchant and incisive coverage of Wall Street," wrote the article. It is entitled "Finger-Pointing at TIAA," and examines TIAA's reputation as a "selfless steward of its clients' assets for almost a century." Here I discuss some matters Morgenson mentioned in her excellent article, and some matters she did not mention.

Disclaimer

TIAA long specialized in serving faculty members and senior administrators of colleges and universities, as well as officials of other nonprofit organizations. Indiana University, where I was an active faculty member for 31 years, was and remains a TIAA client. I have a CREF retirement account with the organization.

The Hiring of Allison

Morgenson pointed out in her article that in 1997 Congress revoked TIAA's nonprofit status because that status supposedly gave TIAA an unfair advantage over other companies. What she did not mention in her article was that TIAA had a long tradition of promoting from within its ranks. Thus new chief executive officers always had been deeply immersed in the organization's nonprofit and client-oriented culture.

The tradition ended in 2002, when the board of directors hired Herbert M. Allison, a former Merrill Lynch executive, as chief executive officer. Allison served until 2008, when he retired. Roger W. Ferguson, Jr., who also had not been associated with TIAA, succeeded Allison.

The Accounting Fiasco

Allison decided to revamp the accounting system, which inside staff had developed and maintained over many years. He fired all the TIAA employees connected with the existing system and hired an outside consulting firm to set up the new system. The result was a disaster. Among other problems were widespread reports of clients having to endure long delays in completing transactions.

I was affected, although I never engaged in anything other than simple and routine transactions. I have been taking systematic monthly withdrawals to meet the minimum distribution requirements imposed by the Internal Revenue Service. One month I received two payments instead of one. In another instance, every dollar figure in my quarterly financial statement had all the decimal points off by one place.

The accounting problems prompted a long front-page article in The Wall Street Journal on April 24, 2006. Tom Lauricella wrote the article, which was entitled "College Try: A Wall Streeter Aims to Revive Handler of University Pensions." Participants filed at least two lawsuits after publication of Lauricella's article.

The Rink Case

In October 2007 Richard Donald Rink filed in state court a class action lawsuit against CREF. A CREF account's value derives from the CREF-managed common stock of prominent public companies. Rink alleged that, when a CREF client requested a withdrawal or transfer of funds, CREF would assign an effective date but often would delay completing the transaction. To the extent the account value increased during the delay, CREF rather than the client received the benefit of the increased value.

In December 2010 the judge certified a class and scheduled trial for December 2012. The class consisted of:

All persons who at any time during the class period (October 1, 2005 to March 1, 2008) had one or more contracts with CREF and experienced a delay of more than seven days in the processing of a distribution or transfer request related to a fund governed by a CREF contract.

In May 2012, after extensive negotiations, the parties agreed to settle the case. The judge preliminarily approved the settlement and later granted final approval.

Under the settlement, 26,188 class members were entitled to about $18 million plus $4.4 million of interest at 4 percent per annum. The judge awarded the plaintiffs' attorneys $7.5 million of fees and up to $150,000 for expenses, both of which were on top of the amounts paid to class members, as well as up to $20,000 for Rink as class representative. (See Rink v. CREF, Circuit Court, Jefferson County, Kentucky, Division Six, Case No. 07-CI-10761.)

The Bauer-Ramazani Case

In August 2009 Norman Walker, Christine Bauer-Ramazani, and Carolyn Duffy filed in federal court a class action lawsuit against TIAA-CREF. They were faculty members with TIAA-CREF accounts subject to the Employee Retirement Income Security Act (ERISA). They endured long delays in completing transaction requests. Walker later dropped out and the case was continued by the other two plaintiffs, who filed a fourth amended complaint in October 2012. They alleged three counts: (1) ERISA breach of fiduciary duty of loyalty, (2) ERISA breach of fiduciary duty of impartiality, and (3) ERISA prohibited transactions. In May 2013 the judge certified the following class:

All persons who, between August 17, 2003 and May 9, 2013, requested a transfer or distribution of funds invested in a CREF or TIAA variable annuity account covered by ERISA whose funds were not transferred or distributed within seven days of the date the account was valued and who were not paid the investment gains, if any, during the delay period.

In October 2013 the judge set the trial for January 2014. In November 2013 he dismissed the second and third counts of the complaint. In December 2013 the parties reached a settlement. In February 2014 the judge preliminarily approved the settlement, and in September 2014 he granted final approval.

Under the settlement, TIAA-CREF created an interest-bearing $19.5 million fund for the benefit of class members. Out of the fund, TIAA-CREF agreed to pay $7,500 to each of the two class representatives. In addition to the fund, TIAA-CREF agreed to pay $3.3 million of plaintiff attorney fees and expenses. (See Bauer-Ramazani v. TIAA-CREF, U.S. District Court, District of Vermont, Case No. 1:09-cv-190.)

The Long-Term Care Fiasco

In 2003 TIAA abandoned the long-term care (LTC) insurance line of business it had been offering for more than a decade. It sent a letter to its 46,000 LTC insurance policyholders saying it was transferring them to Metropolitan Life Insurance Company. The letter prompted a furious response from educators who had selected TIAA for LTC insurance because of the firm's stellar reputation for fair treatment of its policyholders. I wrote about the incident in the March/April 2004, December 2005, and June 2007 issues of The Insurance Forum.

The Life Annuity Fiasco

One of the first anti-TIAA lawsuits with which I had become familiar involved a college professor who retired at a time when she was suffering from advanced emphysema. She had a $1 million retirement account (virtually all of her estate) with TIAA. She exchanged the entire account for an immediate life annuity with no death benefit. TIAA allowed her to make that horrible choice. She died six months later. In 2003 her estate filed a lawsuit against TIAA, which fought the case bitterly. After ten years of legal wrangling in a federal district court and a federal appellate court, the lawsuit finally ended in a confidential settlement. I wrote about the case in the January 2010 issue of the Forum.

The Surplus Notes

A surplus note is a bizarre debt instrument. When an insurance company borrows by issuing a surplus note, the money the company receives increases its surplus. That happens because state surplus note laws say the company issuing the note does not have to establish a liability. A surplus note is subordinate to all the company's other obligations. A surplus note can be issued only with the prior approval of the insurance commissioner in the issuing company's state of domicile. Interest and principal payments on a surplus note can be made only with the commissioner's prior approval.

State surplus note laws date back more than a century. Their purpose was to provide a mechanism allowing mutual insurance companies in financial trouble to increase surplus. When a surplus note appeared in a company's financial statement, it was a sure sign the company was in financial trouble. All that changed in "the revolution of 1993," when Prudential Insurance Company of America, a financially strong company, issued $300 million of surplus notes to investors through a private offering. The offering was made for tax reasons because courts had ruled that interest payments on surplus notes are deductible for income tax purposes. Within a few years, most major insurance companies had issued large amounts of surplus notes.

TIAA was one of the few holdouts, but in 2009 it issued $2 billion of surplus notes to help finance the acquisition of Nuveen, a for-profit investment firm. I wrote about that event in the August 2010 issue of the Forum. Later TIAA issued more surplus notes to help finance the acquisition of EverBank, yet another for-profit investment firm. TIAA now has $5.05 billion of surplus notes outstanding, according to its latest (June 30, 2017) financial statement. I have not been tracking surplus note data in recent years, but TIAA's surplus notes may now exceed those of any other insurance company. TIAA's surplus notes are described in detail on two pages in the above mentioned financial statement.

General Observations

The Carnegie Foundation for the Advancement of Teaching created TIAA through a grant in 1918. The purpose was to make it possible for college and university professors to retire in dignity with adequate financial resources. TIAA created CREF in 1952 so that the organization could offer variable annuities supplementing TIAA's fixed annuities.

Morgenson questions the objectivity of the investment advice being given by TIAA's advisers, with compensation that includes bonuses for steering clients into more expensive TIAA products and services. I am saddened that, during the past 15 years, TIAA seems to have been moving in the direction of for-profit investment firms, and that there seems to be little or no chance of reversing the trend.

Available Material

I am offering an 86-page complimentary PDF consisting of the Rink settlement agreement (30 pages), the Bauer-Ramazani settlement agreement (27 pages), selected articles from the March/April 2004, December 2005, June 2007, January 2010, and August 2010 issues of The Insurance Forum (27 pages), and an excerpt from the latest TIAA financial statement (2 pages). Email jmbelth@gmail.com and ask for the November 2017 package about TIAA-CREF.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 239: Transamerica's Cost-of-Insurance Increases and an Important Class Action Lawsuit

In 1989 Gordon Feller, a California resident, purchased a $500,000 universal life policy from a California-based predecessor of Transamerica Life Insurance Company that later redomesticated to Iowa. In February 2016 Feller and several others filed a class action lawsuit against Transamerica in a federal court in California. The case relates to large cost-of-insurance (COI) increases Transamerica imposed recently on owners of universal life policies. The plaintiffs filed an amended complaint in June 2016 and a second amended complaint in August 2017. Here I report on the progress of the case. (See Feller v. Transamerica, U.S. District Court, Central District of California, Case No. 2:16-cv-1378.)

Senior U.S. District Judge Christina A. Snyder is handling the case. President Clinton nominated her in January 1997, the Senate confirmed her in November 1997, and she took senior status in November 2016.

The Plaintiffs' Views

The plaintiffs include several individuals, some of whom are named in their capacities as trustees of trusts. The opening four-paragraph "Nature of the Action" section of the second amended complaint describes the plaintiffs' views. Here is that section, with my light editing:

1. In the late 1980s and early 1990s, Transamerica sold hundreds of millions of dollars in universal life insurance policies under which it agreed to credit interest on policyholders' accounts at guaranteed annual rates generally ranging between 4.0 and 5.5 percent. Plaintiffs and the class members bought these policies so that they and their families would be protected as they entered their senior years. Beginning in August 2015 Transamerica suddenly, unilaterally, and massively began increasing the monthly deductions withdrawn from the policies' account values by as much as 100 percent, falsely stating that the increase was permitted by the terms of the policies. Transamerica's true reasons for imposing the drastic increase, however, were to (a) subsidize its cost of meeting its interest rate guarantees under the policies, (b) recoup past losses in violation of the terms of the policies, and (c) induce policy terminations by elderly policyholders.
2. To maximize the number of elderly policyholders who would surrender their policies and lose their insurance coverage, Transamerica sent letters to policyholders directing them to contact a designated Transamerica hotline with any questions about the increase, rather than the agents they had dealt with for many years. Transamerica has also begun refusing to provide policyholders with illustrations showing how their policies will perform as a result of the increase. Instead, Transamerica will now only provide policy illustrations depicting how the policies would perform if the monthly COIs were raised to a level even higher than the rates imposed by the increase. Transamerica hopes that by showing elderly policyholders the most pessimistic policy performance possible, they will surrender their policies. As a result of Transamerica's actions, thousands of class members are faced with the imminent harm of either paying the exorbitant and unjustified new charges, or forever losing the benefits for which they have dutifully paid premiums for many years.
3. Plaintiffs in this action seek injunctive and equitable relief, and ancillary damages, to halt and reverse Transamerica's massive increase in the monthly deduction withdrawn from their accounts each month. This increase has already injured plaintiffs and, if allowed to proceed, will continue to cause irreparable injury to plaintiffs and other class members.
4. As further described below, Transamerica's sudden and unilateral increase in the monthly charges constitutes a breach of its express and implied obligations under each and every policy, a violation of the unlawful and unfair prongs of California's Unfair Competition Law, and a violation of California's Elder Abuse Law.

Transamerica's Views

Later I discuss Judge Snyder's denial of Transamerica's motion to dismiss the case. Here are a few of Transamerica's views as mentioned there, with my editing:

1. Transamerica says a prior class action settlement bars all of plaintiffs' claims based on policies issued before June 30, 1996. The prior case is Natal v. Transamerica, where a California state court approved a settlement in 1997. The company says the Natal settlement bars all future claims based on COI rate changes, whether the changes occurred before or after the Natal settlement.
2. Transamerica says the policies give it discretion to set COI rates anywhere below the maximum rates guaranteed in the policies.
3. Transamerica says the policies permit the company to set COI rates based upon any factors it chooses so long as it does not do so to recoup past losses.
4. Transamerica says the plaintiffs' claim that the company breached their policies by raising COI rates to recoup past losses is insufficiently plausible.
5. Transamerica says its COI rate changes were to mitigate future losses from persistently low interest rates rather than to recoup past losses.
6. The plaintiffs claim that Transamerica violated the implied covenant of good faith and fair dealing through the COI rate increases. The company says the claim is duplicative of the breach of contract claim, and that the implied covenant does not prohibit a party from doing what a contract expressly permits.
7. Transamerica says plaintiffs' claim for declaratory relief should be dismissed as duplicative of plaintiffs' other claims.
8. Transamerica says the plaintiffs have failed to state a claim for relief under any prong of California's Unfair Competition Law.
9. Regarding plaintiffs' elder abuse claim, Transamerica says plaintiffs must allege specific targeting of elders rather than unfair practices directed at elders and non-elders.

The Motion to Transfer the Case to Iowa
In July 2016 Transamerica filed a motion to transfer the case to Iowa, where the company is now based. In August 2016 Judge Snyder denied the motion to transfer the case to Iowa.

The Motion to Dismiss the Case
In August 2016 Transamerica filed a motion to dismiss the case. In November 2016, after a conference, Judge Snyder denied Transamerica's motion to dismiss. Here in brief is what she said about some of the plaintiffs' claims for relief, according to the minutes of the conference:

1. Plaintiffs allege Transamerica attempted to use COI increases to offset its guaranteed interest obligations. Transamerica's motion to dismiss plaintiffs' breach of contract claim is denied.
2. Plaintiffs allege Transamerica increased COIs to recoup past losses. Transamerica's motion to dismiss plaintiffs' breach of contract claim is denied.
3. Plaintiffs allege Transamerica violated California's Unfair Competition Law (UCL) by systematically and excessively increasing COIs to induce forfeiture of elderly policyholders' benefits or compel payment of higher premiums. Transamerica's motion to dismiss the plaintiffs' UCL claim is denied.
4. Plaintiffs allege Transamerica violated California's Elder Abuse Law by increasing COIs on policies held by the elderly, thus appropriating property from elderly plaintiffs in bad faith and with intent to defraud them. Transamerica's motion to dismiss the plaintiffs' elder abuse claim is denied.

The Motion for a Preliminary Injunction
In May 2016 the plaintiffs filed a motion for a preliminary injunction. They consider an injunction essential to prevent Transamerica from sharply increasing COI rates during the litigation and thereby forcing policyholders to lapse their policies. The motion is on the agenda of a hearing currently scheduled for November 13, 2017.

The Motion for Class Certification
In May 2016 the plaintiffs filed a motion for class certification, appointment of a class representative, appointment of class counsel, and issuance of a class notice. In February 2017 they filed a corrected motion. The motion is on the agenda of the November 13 hearing. The class would consist of:

All persons who own an in-force Policy for which the Monthly Deduction Rate increases imposed by Transamerica beginning August 1, 2015, have resulted or will result in higher Monthly Deduction charges than those applicable under the rate schedule in effect before that date.

The Redactions
In June 2016 Transamerica filed the first of many documents that relate to protective orders. Many documents are sealed, and some of them are designated "Highly Confidential—Attorneys' Eyes Only." Some documents are so heavily redacted that they are meaningless to the reader.

General Observations
This is an important case. It survived Transamerica's motion to dismiss, but it still has a long way to go. Judge Snyder's rulings at or soon after the hearing scheduled for November 13, 2017 may indicate the future timetable for the case.

Meanwhile, Feller and other COI cases with which I am familiar have led me to believe that universal life policies are fundamentally defective unless they are managed with extreme care. In other words, the planned premium should be reviewed at least once a year for adequacy. Moreover, the annual reports that companies send to policyholders are so complex that the average policyholder—or even a sophisticated policyholder—will have difficulty performing the management function. A skilled and highly professional agent may be able to perform that function, but many policyholders do not have access to the services of such agents. I plan to write further on this subject in the near future.

Available Material
I am offering a complimentary 70-page PDF consisting of the minutes of the conference in which Judge Snyder denied Transamerica's motion to dismiss the case (27 pages) and the text (without exhibits) of the second amended complaint (43 pages). Email jmbelth@gmail.com and ask for the October 2017 package relating to the case of Feller v. Transamerica.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 238: Lincoln National Life's Cost-of-Insurance Increases—An Important Recent Development in an Ongoing Lawsuit

In No. 212 (posted April 7, 2017), I discussed four class action lawsuits filed in the federal court in Philadelphia against Lincoln National Life Insurance Company (Fort Wayne, IN) relating to cost-of-insurance (COI) increases imposed on owners of certain universal life insurance policies. In No. 215 (April 28, 2017), I discussed the consolidation of the four cases. Here I report on developments relating to a similar case that has been transferred to the same court and the same judge.

Background

In September 2016 Lincoln notified the owners of certain universal life insurance policies that the company was implementing COI increases effective in October 2016. In the next several weeks, affected policyholders filed four class action lawsuits against Lincoln in the federal court in Philadelphia, where Lincoln's parent is based. In March 2017 U.S. District Judge Gerald J. Pappert issued an order consolidating the four cases.

The EFG Bank Lawsuit

In February 2017 EFG Bank AG (Cayman Branch) and six other entities filed a lawsuit against Lincoln in the federal court in Los Angeles relating to the same COI increases. The other six entities are DLP Master Trust, DLP Master Trust II, DLP Master Trust III, GWG DLP Master Trust, Greenwich Settlements Master Trust, and Palm Beach Settlement Company. In March 2017 the plaintiffs filed a first amended complaint. (See EFG Bank v. Lincoln, U.S. District Court, Central District of California, Case No. 2:17-cv-817.)

In May 2017 Lincoln filed a motion to dismiss the case and a motion to transfer the case to the federal court in Philadelphia. In June 2017 the federal judge in California denied the motion to dismiss and granted the motion to transfer the case, which was then assigned to Judge Pappert. In July 2017 the plaintiffs filed a second amended complaint that included four counts:

1. Breach of Contract, relating to all policies.
2. Implied Covenant of Good Faith and Fair Dealing (Contractual Breach), relating to policies issued in Arizona, California, Florida, Georgia, Massachusetts, New Jersey, North Carolina, and Wisconsin.
3. Implied Covenant of Good Faith and Fair Dealing (Tortious Breach), relating to policies issued in California.
4. Declaratory Relief, relating to all policies.

The plaintiffs sought compensatory damages, punitive damages, pre- and post-judgment interest, attorney fees, and costs. On August 9, 2017, Lincoln filed a motion to dismiss the case.

The September 2017 Order
On September 22, 2017, Judge Pappert issued a memorandum and an order. He denied Lincoln's motion to dismiss the first three counts of the second amended complaint and granted Lincoln's motion to dismiss the fourth count. Here are excerpts (citations omitted) from the memorandum relating to each of the four counts:

1. Plaintiffs claim that Lincoln breached the Policies' terms "[b]y imposing excessive costs of insurance rates." Lincoln argues that the allegation is deficient because Plaintiffs do not cite a "metric by which the new COI rates can be adjudged "excessive." Lincoln also claims the Policies establish a maximum rate that Lincoln may charge and Plaintiffs did not allege that the new COI rate exceeded that maximum rate. Lincoln has the better of this argument but that does not preclude Plaintiffs from having stated, overall, a breach of contract claim. 
2. Plaintiffs have adequately alleged that Lincoln breached the implied covenant by exercising its limited discretion under the Policies in an unreasonable and unfair manner with the bad faith intent of inducing lapses, frustrating policyholders' expectations and depriving them of the benefit of the agreement. 
3. Here, Plaintiffs allege that Lincoln is forcing Plaintiffs to "pay exorbitant premiums that Lincoln knows would no longer justify the ultimate death benefits" or "lapse or surrender their Policies and forfeit the premiums they have paid to date, thereby depriving policyholders of the benefits of their Policies." They further contend that Lincoln's "breaches were conscious and deliberate acts, which were designed to...frustrate the agreed common purposes of the Plaintiffs' Policies" and that Lincoln was trying to circumvent the guaranteed minimum interest rate. The court will not dismiss the punitive damages claim at this stage; Lincoln will have the opportunity to renew its argument at summary judgment. 
4. In response to Lincoln's contention that the declaratory relief sought requires adjudication of precisely the same issues as Plaintiffs' breach of contract claim, Plaintiffs state that "[a] declaratory relief claim that seeks alternative relief is not duplicative of other claims even if it involves allegations that support Plaintiffs' other claims." The Court nevertheless fails to see how the Plaintiffs' claim is not duplicative of the resolution of the breach of contract claim. The Court therefore declines to exercise its discretionary jurisdiction and grants Defendant's Motion with respect to this claim.

General Observations

Judge Pappert's denial of Lincoln's motion to dismiss three of the four counts in the second amended complaint is important. However, even more important will be his rulings on the parties' motions for summary judgment. I plan to report further developments in this case and in the related consolidated class action lawsuit.

Available Material
I am offering a complimentary 48-page PDF consisting of EFG Bank's second amended complaint (26 pages), Judge Pappert's September 22, 2017 memorandum (21 pages), and his accompanying order (1 page). Email jmbelth@gmail.com and ask for the October 2017 package relating to the case of EFG Bank v. Lincoln.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com