Court Rules Against Insurer's Rates Practices -- WSJ
September 16 2017 - 3:02AM
Dow Jones News
By Leslie Scism
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 16, 2017).
A federal jury found in favor of policyholders in a closely
watched case that challenged the leeway life insurers have when
raising rates on old policies.
The eight-person jury in Los Angeles awarded $5.6 million in
damages to an investment group, DCD Partners LLC, that alleged
Aegon NV's Transamerica Life Insurance Co. impermissibly used
race-based data when it raised rates by 50%. The jury found that
Transamerica breached its insurance-policy contract and an
obligation to deal fairly and in good faith, according to the
verdict form filed Wednesday.
The investors affected by the increases teamed with Praises of
Zion Baptist Church, founded by Rev. J. Benjamin Hardwick, in south
Los Angeles in 2004 to take out policies for 2,400 churchgoers in
the area, most of whom couldn't otherwise afford them. The
investors receive $225,000 of each $275,000 death benefit, while
church-related social-service programs and beneficiaries of the
insured mostly African-American congregants split the remaining
$50,000.
"We were surprised and disappointed by the verdict in the DCD
lawsuit," a Transamerica spokesman said.
The firm said its decision to increase rates on the policies in
2013 "was permissible under the terms of the policies" and the
insurer "did not raise rates on the policies due to the race of
those insured, nor would we ever increase rates based on racial
considerations." The insurer "will continue to pursue all available
legal avenues to defend that decision."
The company declined to comment further.
"The verdict reaffirms what our clients believed all along --
Transamerica improperly raised the rates on these policies," said
William A. Brewer III, partner at Brewer, Attorneys &
Counselors, and counsel for the plaintiffs. "Beyond the benefits to
the local community, we believe this outcome underscores the rights
and responsibilities of parties to these types of contracts."
Higher charges on older policies have become more frequent as
life insurers look to overcome nearly a decade of ultralow interest
rates. Insurers earn part of their profit from investing premiums
until claims come due, typically in bonds.
At least a half-dozen prominent insurers have bumped up prices
over the past several years, according to ITM TwentyFirst, a firm
that manages policies for trustees and institutions.
Nationwide, these various insurers' rate increases have applied
to at least tens of thousands of people and ranged from
mid-single-digit percentages to more than 200%.
The increases apply to "universal life" policies, which are
combination life-insurance and savings products intended to be in
place until the insured person dies.
Cost increases are permissible under many policies, though the
circumstances under which this is allowed vary by contract.
Numerous other lawsuits on this subject are winding their way
through federal courts.
The DCD policies were purchased during the peak in
"investor-owned" life insurance, an arrangement whereby investors
pay the premiums on policies for people who aren't their
relatives.
DCD said in court filings that the rate increases had added $100
million in costs and made the program unsustainable.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
September 16, 2017 02:47 ET (06:47 GMT)
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