Monthly LRA Update: June 2020

JUDICIAL DEVELOPMENTS

Athene vs. American General, et al. – COLI SVP Product Dispute

On May 8, the Delaware Superior Court issued a memorandum opinion and order with regard to defendants’ motions to dismiss. The Court granted the motions in part and denied them in part.

Please see our February 2020 LRA Update for a brief recap of this dispute.

The Court granted the motion to dismiss as it relates to allegations that the Defendants’ conduct impaired Athene’s rights (as policyholder) to access the Stable Value Protection value in the event of a surrender or reallocation. The Court concluded that such allegations were not ripe for adjudication because Athene has not attempted to take either action.

The Court denied the motion to dismiss as it relates to the implementation of a 55% cap on the SVP product’s value, which, in turn, has impacted the amount of death benefit proceeds for certain claims.

COI Litigation Update – Proposed Settlement in Thompson vs. Transamerica

On May 4, the California District Court (Central District) granted preliminary approval of a proposed nationwide class action settlement in a matter (Thompson, et al. v. Transamerica) challenging Transamerica Life Insurance Company’s increases to the Monthly Deduction Rates on approximately 7,800 policies issued between 1997 and 2001.

The settlement will provide over $96 million in settlement benefits. Transamerica will contribute up to $88 million to the In-Force Policies Settlement Common Fund, to be distributed to In-Force Policyowners and Death Claim Policyowners who are Settlement Class Members. In general, the settlement proceeds will be distributed proportionately to policyowners (subject to a $200 minimum and a specified maximum). Transamerica will contribute additional funds toward a “Terminated Policies Settlement Common Fund.”

Transamerica agrees that it will not impose any additional MDR increase(s) on any Class Policy within 7 years of the settlement.

Under the settlement, Plaintiffs’ Counsel would receive the first $8 million from Transamerica as separate and apart from the settlement funds. Any additional attorneys’ fees awarded by the court would proportionately reduce the settlement funds.

Brief Summary of Case

Plaintiffs are or were owners of universal life insurance policies known as the “TransUltra 115 98/99” policies and the “TransSurvivor 115 97/98/99” policies issued by TLIC (the “Policies”) from about 1997 through 2001.

Plaintiffs primarily assert that the MDR Increases violate a contractual term in the Policies prohibiting any such increases that recoup past losses (the “Non-Recoupment Provision”).

Plaintiffs allege that the Policies all contain two common contractual provisions limiting TLIC’s ability to increase the MDRs:

Any change in the monthly deduction rates will be prospective and will be subject to our expectations as to future cost factors. Such cost factors may include but are not limited to: mortality; expenses; interest; persistency; and any applicable federal, state and local taxes,

and:

We do not distribute past surplus or recover past losses by changing the monthly deduction rates.

Transamerica contends that the MDR Increases did not in fact recoup past losses, and were instead a contractually permissible response to changes in the Policies’ future profitability due to adverse changes in expectations of future cost factors such as mortality, persistency, and interest rates.

Fairness Hearing

A Fairness Hearing is scheduled for August 31.

Docket: Thompson v. Transamerica Life Ins. Co., Case No. 18-cv-05422 CAS (GJSx)