In re Conseco Life Insurance
2013 U.S. Dist. LEXIS 12726
| N.D. Cal. | 2013Background
- Plaintiffs are holders of LifeTrend 3 and LifeTrend 4 policies now administered by Conseco in a multidistrict class action.
- Plaintiffs allege Conseco breached the policy by restructuring COI and expense charges in 2010, seeking injunctive and declaratory relief and restoration of policy value.
- Policies pre-2010 allowed COI and expense charges with a uniform basis tied to age/sex/classification and a guaranteed minimum interest accumulation in the policy, with potential for surrender or continuation.
- October 2008 letter announced underfunding and proposed options to address shortfalls; Responding December 2008 letter deferred to RSA regulatory review.
- May 28, 2010 Regulatory Settlement Agreement (RSA) set procedures and CAP, including a release tied to settlement benefits; Conseco resumed COI/expense charges in October 2010 under an adjusted COI schedule.
- The court certified a nationwide 23(b)(2) class; subsequently decertified former policyholder money damages as non-incidental but left current policyholders’ eligibility for relief intact; a subclass of releasors under the CAP was certified earlier but remains disputed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether duration-based COI rates breach the policy terms | Plaintiffs argue duration in COI calculations violates uniformity in the Brady policy. | Conseco contends uniformity is determined, not strictly defined by duration; industry standards justify it. | Ambiguity exists; duration-based COI increases breach the policy; partial summary judgment for duration theory granted. |
| Whether COI rates must be tethered to mortality changes | COI changes tied to mortality; mortality improved, so COI increases breach. | COI changes allowed by table, notice, and regulator approvals; mortality not the sole controlling factor. | Ambiguity remains; issues of motive prevail; summary judgment denied on this theory. |
| Whether COI charges were used to offset investment/expense losses | COI increases used to subsidize losses, violating non-participating clause. | COI increases tied to break-even projections; other factors possible. | Genuine issues of material fact; summary judgment denied. |
| Filed Rate Doctrine applicability | Regulators approved rates; doctrine does not bar challenge; rates imposed secretly. | Docure governs rates set by agencies; regulators’ process should preclude collateral attack. | Filed Rate Doctrine does not apply; summary judgment denied. |
| Class decertification and subclass relief | Ambiguity does not defeat commonality; subclass releasors’ release does not bar claims. | Ambiguity undermines commonality; subclass may be barred by RSA release terms. | Court declines decertification of class or subclass; denial of decertification. |
Key Cases Cited
- London Market Insurers v. Superior Court, 146 Cal.App.4th 648 (Cal.App.2d Dist. 2007) (contract interpretation and ambiguity principles in insurance)
- E. & J. Gallo Winery v. EnCana Corp., 503 F.3d 1027 (9th Cir. 2007) (application of the filed rate doctrine to state-regulated rates)
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (Cal. 1990) (interpretation of ambiguous insurance terms against the insurer)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. 2011) (class certification and cohesion considerations post-Dukes)