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.)

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 and ask for the December 2019 package about Newman v. Metropolitan.


Monday, December 16, 2019

No. 345: Transamerica is the Defendant in a New Individual Lawsuit Relating to Cost-of-Insurance Increases

On this blog I have posted many items relating to cost-of-insurance (COI) lawsuits against Iowa-based Transamerica Life Insurance Company (Transamerica). The most recent post was No. 333 (September 20, 2019).

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.

General Observations
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.

Available Material
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 and ask for the December 2019 package about Terry v. Transamerica.


Monday, December 9, 2019

No. 344: Long-Term Care Insurance—More on the Insolvency of Senior Health Insurance Company of Pennsylvania

Senior Health Insurance Company of Pennsylvania (SHIP) is based in Pennsylvania and is regulated primarily by the Pennsylvania Insurance Department (Department). SHIP has been running off the long-term care (LTC) insurance business of Conseco Senior Health Insurance Company (CSHI) since 2008. The CSHI LTC insurance business was in runoff for five years before SHIP took over the business. In No. 308 (April 11, 2019) and No. 342 (November 25, 2019), I wrote about the insolvency of SHIP. Here I discuss my correspondence with the Department and with the National Organization of Life and Health Guaranty Associations (NOLHGA) after No. 342 was posted.

Correspondence with the Department
In No. 342 I said I would send it to the Department upon posting, mention my plan to post a follow-up, and request from the Department a statement about SHIP in a form suitable for inclusion in the follow-up. When No. 342 was posted, I forwarded it to Joseph DiMemmo, CPA. He is the Department's Deputy Insurance Commissioner for Corporate and Financial Regulation of Insurance Companies. I imposed no length limit, and said this in the email:
Below is No. 342, which was posted this morning. As indicated, I hereby request a statement regarding SHIP from the Pennsylvania Insurance Department. I need the statement by 5:00 p.m. Eastern time on Monday, December 16, 2019. Please acknowledge receipt of this email. Thank you.
An hour later he sent a two-word reply: "As requested." He attached the 51-page SHIP statutory statement for the quarter ended September 30, 2019. An hour later I said:
Thank you for SHIP's statutory statement for the quarter ended September 30, 2019. As pointed out in No. 342, I already had that statement. Is the Pennsylvania Insurance Department planning to comply with my request for a statement about SHIP by December 16?
The next day I asked him whether I may anticipate a statement about SHIP from the Department by December 16. He replied a day later:
The Department is aware of the issues raised in your article and does not comment on the financial affairs of insurers beyond what is public information. Other regulators are also aware of the issues raised and understand we are working with the company to address them. Thank you for your interest.
Correspondence with NOLHGA
On November 26 I forwarded No. 342 to NOLHGA. The next day I informed NOLHGA of the Department's comments, and said:
I hereby request a statement regarding SHIP from NOLHGA by 5:00 p.m. Eastern time on Monday, December 16, in a form suitable for publication in my follow-up blog post. Please acknowledge receipt of this email and indicate whether I may anticipate a statement from you. Thank you for your assistance.
Half an hour later a NOLHGA spokesperson provided a one-sentence response: "We defer to the Pennsylvania Department, but thank you for checking with us."

The Penn Treaty Case
Penn Treaty Network America Insurance Company and its subsidiary American Network Insurance Company (together, "Penn Treaty") are LTC insurance companies based in Pennsylvania and regulated primarily by the Department there. In 2009 the Department petitioned a state court to liquidate Penn Treaty. After a long dispute, including a trial, the court denied the petition and ordered Penn Treaty to be placed in rehabilitation. The rehabilitation failed. On March 1, 2017, the court ordered the Department to place Penn Treaty in liquidation. NOLHGA and the state guaranty associations are now involved.

Penn Treaty's website ( and NOLHGA's website ( provide extensive information about Penn Treaty's liquidation. By contrast, SHIP's website ( and NOLHGA's website say nothing about SHIP's insolvency. As for the Department's website (, some information about SHIP may be found through a search (I provided some of that information in a complimentary package offered in No. 342), but SHIP's policyholders and claimants have no means—other than through lengthy, complex, and hard-to-obtain statutory statements—by which to learn the company is insolvent.

General Observations
When No. 342 was posted, a reader asked what I thought should be done about SHIP. In response, I pointed out that I had said the Department should require SHIP to send annual reports to policyholders and claimants. I made the suggestion because I think policyholders and claimants have a right to know the company is insolvent. Such reports should not only mention the insolvency but also should include more than a mere indication that SHIP is working with the Department to address the problem. I recognize that disclosure of SHIP's insolvency to its policyholders and claimants may hasten the doomsday scenario I mentioned in No. 342, where the company's assets run out. However, I see no way for SHIP and the Department to address the company's insolvency without obtaining court authorization to place the company in liquidation, thus bringing NOLHGA and the state guaranty associations into the process.

I plan to post another follow-up in March 2020, after I see SHIP's statutory statement for the year ended December 31, 2019. However, I may post a follow-up sooner if I learn of any important developments.

Available Material
In No. 342 I offered a complimentary 49-page PDF consisting of four articles in The Insurance Forum about the creation of SHIP, selected pages from SHIP's statutory statement for the quarter ended September 30, 2019 (6 pages), a limited-scope examination report on SHIP as of year-end 2016 (6 pages), and a market conduct examination report on SHIP as of April 2019 (27 pages). The package is still available. Email and ask for the December 2019 SHIP package.


Monday, December 2, 2019

No. 343: Long-Term Care Insurance—A Complaint by a Policyholder Relating to a Genworth Premium Increase

On this blog I have posted several items about class action lawsuits against Genworth Financial, Inc. (Genworth) relating to premium increases on long-term care (LTC) insurance policies. The two most recent are No. 334 (9/26/19) and No. 337 (10/17/19). Here I discuss an individual consumer's complaint to a state insurance regulator relating to a Genworth premium increase, and an ironic incident that occurred more than 20 years ago.

The Genworth Notification
The consumer purchased the policy in 1996. Genworth recently notified the consumer of an 80 percent premium increase. The letter, with the emphasis in the original and over the signature of a senior company officer, reads:
Thank you for choosing Genworth for your long term care insurance needs. We value your business and are committed to providing quality service and being here when you need us the most.
This letter is to inform you that, as a result of higher than expected aggregate policyholder claims costs, the premium on your current long term care coverage will increase from ––– to ––– beginning on your next billing anniversary date, –––. Please refer to the enclosed Coverage Options page and Important information page for more details. Please note that this increase is not due to a change in your health, age, or claims history.
We appreciate the financial difficulty premium increases can cause. That is why we are offering coverage adjustment options to help you manage your premium cost while still maintaining important coverage. The enclosed pages outline these options along with your personalized information. We encourage you to discuss your options with your financial advisor or a member of our Customer Service Team by calling (877) 710-0817 before making a decision. For additional information regarding premium increases, we encourage you to visit
Once again, thank you for being a Genworth policyholder.
The Consumer Complaint
The consumer filed a complaint with the regulator in the state where the consumer resides. The complaint reads:
I have had this Long Term Care Insurance since 1996 and have diligently paid over $27,000 of premiums. Having this Long Term Care Insurance was a key component of my plan to ensure I had adequate care as I aged. Now as I am entering a time of my life when I could very well need this insurance, Genworth has increased the quarterly premium from ––– to ––– (+80%!) which I cannot afford on my very limited budget. They have offered alternative plans however all these options reduce the benefits drastically to the point where I may not have adequate long term care as planned for 23 years ago. I feel this is very unfair and unjustified.
It is clear that Genworth is no longer a reliable and trusted Long Term Care Insurer. Genworth has found a path forward which maximizes its profits but leaves me highly exposed to Long Term Care costs. I feel that they should honor their policy with an immediate payout of the maximum benefit currently contained in my policy ($314,000). This would allow me the chance to live out my life in good care and Genworth to sever its relationship with me as a good corporate citizen.
The Regulatory Reply
A rate review policy analyst in the state insurance department responded to the consumer complaint. The letter reads:
Thank you for taking the time to send in your complaint regarding your long term care policy with Genworth. After a thorough actuarial review, [we] did approve a rate increase for Genworth long term care policies. The current policies in place are not generating sufficient premium to pay future claims to policyholders. This is a common problem for a number of insurers nationwide because policyholders are keeping their policies longer than expected and are living longer than projected, thus using more benefits than the company anticipated when the policies were originally sold. Additionally, the cost of providing long-term care is increasing at a rate much higher than anticipated.
[We] do not have the authority to require the company to take the action you have requested. However, the company has provided several options to mitigate the rate increase.
I know this is not the information you were hoping to receive but I hope it's at least helpful. Please let us know if you have any further questions. Thank you.
An Ironic Incident
My first article about LTC insurance was in the February 1988 issue of The Insurance Forum, the monthly newsletter I edited for 40 years until I shut it down in 2013 and started my blog. In the May 1997 issue I wrote about a promotional letter I had just received concerning guaranteed renewable LTC insurance offered by General Electric Capital Assurance Company, a predecessor of Genworth. The letter included this sentence, with this underlining: "Your premiums will never increase because of your age or any changes in your health." I wrote the company expressing concern that the sentence, although technically correct, was deceptive. I said the promotional letter should make clear that the company has the right to increase premiums on a class basis.

The company officer who had signed the promotional letter responded. He defended the sentence by saying, among other things, that the company had never raised rates on existing policyholders and had an "internal commitment to rate stability." Nonetheless, and without telling me, the company removed the deceptive sentence from its promotional letters. I wrote about the incident in the May 1997 and February 1998 issues of the Forum. Those articles are in the complimentary package offered at the end of this post.

The Genworth 2019 Annual Meeting
In the above mentioned No. 334, I discussed the annual meeting of Genworth's shareholders to be held on December 12, 2019, if the long-delayed merger agreement with China Oceanwide has not been completed by that date. On November 1, 2019, Genworth circulated proxy materials related to the 2019 annual meeting, and indicated that the merger has not yet been completed. Readers interested in the proxy materials may access them here.

General Observations
During the six years I have been blogging, I have received many emails from individuals concerning problems with LTC insurance. Some related to claims practices, and some related to premium increases. It pained me to tell them I am neither an attorney nor a consultant, and am not in a position to comment beyond what I have written. However, I did try to make sure they knew how to find my blog posts on LTC insurance, and some of the email exchanges led to further posts.

For many years I have said that the LTC exposure violates several important insurance principles, and for that reason the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. I explained the situation in an article in the July 2008 issue of the Forum. That article is in the complimentary package offered at the end of this post.

I have also said that even the federal government cannot solve the problem of financing the LTC exposure through a voluntary system. Rather, it can be solved by the government only through a mandatory system that is part of a mandatory, single-payer system of universal health care. I discussed this matter in No. 310 (April 22, 2019) in the section entitled "General Observations."

In Chapter 18 of my 2015 book, The Insurance Forum: A Memoir, I summarized my experiences with LTC insurance. The chapter is in the complimentary package offered at the end of this post. The book is available for purchase at

Available Material
I am offering an 18-page complimentary package consisting of the May 1997, February 1998, and July 2008 Forum articles (9 pages) and Chapter 18 of the Memoir (9 pages). Send an email to and ask for the December 2019 package about LTC insurance.