Court Allows Cost of Insurance Increase Case to Proceed Against Lincoln National Corp. and Lincoln National Life Insurance Co.

9/11/2017 - Judge Gerald J. Pappert of the United States District Court for the Eastern District of Pennsylvania has denied in large measure defendants’ motion to dismiss the Consolidated Class Action Complaint that plaintiffs filed on April 19, 2017, in In re Lincoln National COI Litigation, C.A. No. 16-06605.  Barrack Rodos & Bacine serves as the Chair of the Plaintiffs’ Steering Committee in the action, representing a group of plaintiffs who own flexible premium universal life insurance policies issued between 1999 and 2007 by the Jefferson-Pilot Life Insurance Company, which Lincoln acquired through a merger in 2006.

The case arises from Lincoln National’s announcement in September 2016 that it was implementing a cost of insurance (COI) rate increase on certain policyholders for policies that had been in force for up to eighteen years.  The policies expressly limited the grounds upon which Lincoln could raise COI rates to Lincoln’s expectation of future mortality, interest, expenses, and lapses.  Plaintiffs alleged that Lincoln National based the COI increases on impermissible considerations such as lower investment income, higher reinsurance rates and historically low interest rates, in an effort to recoup past losses.  Plaintiffs further alleged that Lincoln failed to apply the changes uniformly to policyholders in the same rate class, and wrongfully refused to provide some policyholders with illustrations when requested.  

The Court upheld in full plaintiffs’ claims for breach of contract and breach of the implied covenant of good faith and fair dealing, finding that Lincoln’s stated reasons for the COI rate increase, among other allegations included in the Complaint, could be interpreted as supporting the plaintiffs’ allegation that Lincoln had considered impermissible factors.  The Court further found, for purposes of deciding the motion to dismiss, that the size of the increase made the plaintiffs’ breach of contract claim plausible.  The Court also upheld most of the plaintiffs’ state statutory claims, including the claims brought under the North Carolina Deceptive and Unfair Trade Practices Act, New Jersey Consumer Fraud Act, New York General Business Law, and California Unfair Competition Law.  The Court noted that the state statutory claims asserted more than the breach of contract claim, specifically alleging that Lincoln had engaged in an “overall scheme to recoup losses or force policy lapses by effectuating a pretextual COI rate increase, which not only constituted a breach of contract but also the kind of ‘systemic behavior’ that may qualify as unfair and deceptive.”  The Court also upheld the plaintiffs’ claims for injunctive relief seeking to prohibit Lincoln from refusing to provide illustrations during the grace period of any policy and seeking to reinstate any policies that were forfeited or terminated due to the COI increase.  This important decision allows the plaintiffs to move forward with discovery and class certification proceedings. 

If you have any questions about the September 11, 2017 decision, or the litigation against Lincoln National, please contact BR&B partner Jeffrey Golan at jgolan@barrack.com or 215-963-0600.