Friday, July 14, 2017

No. 225: Genworth Financial—Voluntary Dismissal of a Class Action Lawsuit Filed by Long-Term Care Insurance Policyholders

On December 28, 2016, Erika Leifer and two other long-term care (LTC) insurance policyholders filed a class action lawsuit against Genworth Financial, two subsidiaries, and four executives. The plaintiffs had been notified of substantial increases in the premiums for their policies. The plaintiffs alleged that the premium increases had harmed millions of current and former Genworth LTC insurance policyholders, that the defendants had wrongfully depleted reserve liabilities, and that the defendants had enriched themselves. (See Leifer v. Genworth, U.S. District Court, Eastern District of Virginia, Case No. 3:16-cv-1008.)

The Original Complaint
The situation faced by Leifer, a resident of New York, illustrates what prompted the lawsuit. In September 2002, at age 51, she bought an LTC insurance policy from Genworth Life Insurance Company of New York (GLICNY). The quarterly premium was $500.24. About two years later, she bought another LTC insurance policy from GLICNY. The quarterly premium was $270.40. Here is a paragraph of the original complaint:
26. By letters dated February 20, 2016, GLICNY informed Plaintiff Leifer, now age 65, that the premiums on both of her long-term care insurance policies would be increasing by 60%, and warning that "it is possible that your premium will increase again in the future." In that letter, GLICNY explained that the decision to increase premiums was not based on any change in health or "the current economic environment." Rather, "Our decision to increase premiums is primarily based upon the fact that the expected claims over the life of your policy are significantly higher today than was anticipated when your policy form was originally priced, and as a result, a premium increase is warranted."
I reported on the case in No. 197 (posted January 13, 2017). There I offered readers the 61-page original complaint.

The Motion to Dismiss the Original Complaint
The defendants did not respond to the original complaint. Instead, on March 27, 2017, they filed a motion to dismiss the original complaint. They also filed a memorandum and several other documents in support of the motion. They said the motion was based on the "lack of subject matter jurisdiction (due to a lack of standing)" and "failure to state a claim upon which relief can be granted."

The Amended Complaint
The plaintiffs did not respond to the motion to dismiss the original complaint. Instead, on April 10, they filed a 114-page amended complaint on behalf of 19 policyholders. They are residents of California (2), Florida (2), Maryland, Michigan, New York (2), North Carolina (2), Pennsylvania (5), South Carolina, Texas (2), and Virginia.

Aside from the expanded version of the "parties" section in the amended complaint because of the increased number of plaintiffs, the 58-page "factual background" section in the amended complaint was about twice the size of the corresponding section in the original complaint. Also, there were eight counts in the amended complaint, compared to seven counts in the original complaint. Here are the first and last paragraphs of the expanded "introduction" section in the amended complaint:
1. This case concerns the financial harm caused to current and former policyholders of Genworth long term care ("LTC") insurance policies in the United States, as a direct result of Genworth's deliberate misconduct in wrongfully depleting needed policy reserves—which is the portion of an insurer's revenue held aside to pay future claims—while masking its true financial condition by not disclosing facts required by the National Association of Insurance Commissioners ("NAIC") and statutory accounting fundamentals.
31. Consequently, Plaintiffs, as well as other similarly situated policyholders that comprise the Classes, now seek either restitution, damages for the diminution in their LTC policies' economic value, or damages for out-of-pocket losses incurred by former policyholders who have had to pay higher premiums for new LTC coverage to replace terminated Genworth policies.
The Motion to Dismiss the Amended Complaint
The defendants did not respond to the amended complaint. Instead, on May 22, they filed a motion to dismiss the amended complaint. They also filed a memorandum and several other documents in support of the motion. They used the same reasoning they used in the motion to dismiss the original complaint.

The Plaintiffs' Notice of Withdrawal
The plaintiffs did not respond to the motion to dismiss the amended complaint. Instead, on June 10, they filed a notice of withdrawal of the amended complaint and of voluntary dismissal of the case "without prejudice." That expression means the case can be refiled later. On June 26, the judge endorsed the notice and said "so ordered."

General Observations
Why the plaintiffs dropped the case is a mystery. I asked one of the plaintiffs' attorneys, with whom I am acquainted, for an explanation, but received no reply. I will not speculate on why they dropped the case. I will say I am perplexed in view of the enormous amount of resources that must have gone into preparation of the original and amended complaints.

The dropping of the Leifer case is reminiscent of a class action lawsuit I wrote about in No. 110 (posted July 17, 2014). There the 105-page complaint (and 67 additional pages of exhibits) alleged phony reinsurance transactions with affiliates and participation in a Racketeer Influenced and Corrupt Organizations Act (RICO) enterprise. The lead plaintiffs were Clarice Whitmore, an Arkansas resident who bought an annuity in 2012 from Security Benefit Life Insurance Company, and Helga Maria Schulzki, a California resident who bought an annuity in 2013 from EquiTrust Life Insurance Company. The defendants were Guggenheim Partners LLC, Guggenheim Life and Annuity Company, Security Benefit Life, and EquiTrust Life. The complaint was withdrawn without explanation one day after it was filed. In No. 110, I offered readers the 172-page filing. (See Whitmore v. Guggenheim, U.S. District Court, Northern District of Illinois, Case No. 1:14-cv-948.)

Available Material
I am offering a complimentary 118-page PDF consisting of the amended complaint in the Leifer case (114 pages) and the notice of voluntary dismissal (4 pages). Email and ask for the July 2017 package relating to the Leifer lawsuit against Genworth.