Wednesday, May 23, 2018

No. 267: Long-Term Care Insurance—A New and Different Type of Cost-of-Insurance Lawsuit

On May 9, 2018, Carlton F. Gunn filed a long-term care (LTC) cost-of-insurance (COI) class action lawsuit against CNA Financial Corp. (CNA) in federal court in Illinois. He is a California resident but filed the complaint in Illinois, CNA's principal place of business and state of domicile for regulatory purposes. (See Gunn v. CNA, U.S. District Court, Northern District of Illinois, Case No. 1:18-cv-3314.)

The case has been assigned to U.S. Senior District Court Judge Charles P. Kocoras. President Carter nominated him in June 1980, and the Senate confirmed him in September 1980. He served as chief judge from 2002 to 2006 and assumed senior status in June 2006. Magistrate Judge Sheila M. Finnegan has also been assigned to the case.

The Unusual Nature of the Lawsuit
On December 1, 1999, CNA issued an LTC insurance group policy to the Federal Judiciary Group Long Term Care Insurance Trust (Washington, DC). Gunn's certificate of coverage became effective on January 1, 2000. At that time he was an attorney in the federal public defender's office in Tacoma, Washington. According to the complaint, the policy and the certificate contain this language:
We cannot change the Insured's premiums because of age or health. We can, however, change the Insured's premiums based on his or her premium class, but only if We change the premiums for all other Insureds in the same premium class.
The policy and the certificate are not attached to the complaint. According to the complaint, however, the policy contains no additional definition of "premium class."

At the point of sale, CNA also provided a promotional brochure about the coverage. The brochure is not attached to the complaint. According to the complaint, however, the brochure contains this statement about premium changes:
Premiums may change. But for premiums to change, CNA would have to change premiums for everyone in your age category who has the kind of coverage plan that you do.
The Notification Letter
Gunn's policy originally carried an annual premium of $737.52. In a letter dated November 9, 2017, according to the complaint, CNA notified him that his premium would increase by 25 percent, to $921.90, at the beginning of 2018. CNA also said it intends to implement increases of 25 percent in each of the next two years, amounting to a cumulative premium increase of 95.3 percent, to $1,440.38. The letter mentioned options for reducing benefits rather than accepting the premium increases. The notification letter is not attached to the complaint.

According to the complaint, CNA acknowledged in the notification letter that the premium increases may differ by state. The comments are under a heading entitled "Will the premium rate increase be effective for everyone?" The comments allude to Continental Casualty Company (CCC), the CNA subsidiary that wrote the coverage. Here are the comments:
Since CCC must receive approval or authorization from certain states prior to implementing an increase, it is possible that these states will not approve or authorize the same percentage increase or authorize an increase at the same time. It is also possible some states may deny CCC's request for an increase, or require it be reduced or spread over multiple years. In addition, impacted certificate holders have different premium due dates and have different premium billing mechanisms. Premium increases will be staggered in accordance with the timing of regulatory approvals or authorizations and method of premium payment.
The Nature of the Complaint
The nature of the complaint is described in the first two paragraphs of the "Nature of the Case" section of Gunn's complaint. They read:
1. Plaintiff purchased a certificate for LTC insurance offered to those covered by the Federal Judiciary's LTC group policy. LTC insurance covers the costs of assistance with the activities of daily life due to disability or old age, costs not generally covered by health insurance. Insurers selling coverage tout the benefits of purchasing this coverage before reaching old age to guarantee the lowest possible premiums. When an insurance company markets and sells coverage for LTC, it must honor promises made in the policy documents about future premium increases and not misrepresent how premiums will be increased. When marketing materials and the policy state that premiums will not be increased unless they are changed for everyone in the same age group, an insurance company must not increase premiums at different times, and in different amounts, for insureds within the same age group. Similarly, an insurer must not promise that it will change premiums only by age group or premium class when it knows that it will vary future premium increases state-to-state. LTC coverage buyers are buying long-term financial security, and they count on their insurer to accurately describe the process and the commitments it makes and to honor its promises made in touting the policy and in the contract language.
2. CNA has broken these rules. While its marketing materials and policy promise that insureds will never be singled out for a rate increase, and that premiums will not change unless they change for all insureds in the same age category, CNA has done the opposite. CNA has imposed rate increases at different times and in different amounts from one state to the next. As a result, insureds within the same age group find themselves paying completely different premiums from one another, even though they are members of the same age group, premium class, and risk pool. CNA's decisions to seek and implement rate increases that vary from one state to the next blatantly violate its promises of uniform premium increases across the Class. Further, CNA knew its promises of uniform rate increases were false because state regulatory requirements vary. Plaintiff's rates will increase by 95% over three years, an increase far greater than rates charged insureds in other states.
The Allegations
Gunn alleges six causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the District of Columbia's Consumer Protection Procedures Act, fraud, fraudulent concealment, and declaratory and injunctive relief. Gunn seeks, among other things, class certification, appointment as class representative, rescission and return of all premiums paid, disgorgement of ill-gotten gains, declaratory and injunctive relief, compensatory and punitive damages, and attorney fees and costs.

General Observations
I have seen many lawsuits involving COI increases for LTC insurance policies. The policies are "guaranteed renewable," meaning the company may not single out policyholders for premium increases. However, the company is allowed to increase premiums on a "class" basis. The crucial question is how "class" is defined.

I think a "class" consists of policies issued by a company to persons of the same age, gender, health, occupation, and state. Gunn alleges in his complaint that CNA does not have the right to increase premiums on a state basis. This is important because there are wide differences in the timing and amounts of state insurance department approvals of company requests for LTC insurance premium increases.

A possibility in the Gunn case is that CNA made errors in drafting the policy, the certificate, and the promotional brochure. Another possibility is that I have an erroneous understanding of the meaning of the word "class" in the context of guaranteed renewable LTC insurance policies. Either way, I plan to follow developments in the case.

Available Material
I am offering a complimentary PDF containing Gunn's 26-page complaint. Email and ask for the May 2018 complaint in the case of Gunn v. CNA.