269 F. Supp. 3d 622
E.D. Pa.2017Background
- Plaintiffs are owners of flexible-premium universal life policies (JP Legend / Lifewriter series) originally issued by Jefferson‑Pilot and acquired by Lincoln National in a 2006 merger; Lincoln later managed and changed policy terms such as Cost of Insurance (COI) rates.
- Policies permit Lincoln to set monthly COI rates “based on our expectation of future mortality, interest, expenses, and lapses” and require that any change be applied uniformly within a rate class; illustrations are available upon request.
- In 2016 Lincoln announced large COI increases (effective Oct. 2016) for certain policies, citing low interest rates, updated mortality expectations, higher reinsurance costs and expenses.
- Plaintiffs allege the increases (often 50–95%) were based on impermissible, backward‑looking reasons (recouping past losses, managing profitability, inducing “shock lapses”), were not applied uniformly, and Lincoln refused some in‑force illustrations during grace periods.
- Procedurally: Plaintiffs filed a consolidated class complaint asserting contract claims, breach of implied covenant, injunctive and declaratory relief, and multiple state consumer‑protection claims; Lincoln moved to dismiss; the court granted the motion in part and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Successor privity (Lincoln National liability) | Lincoln is successor‑in‑interest after 2006 merger; thus in privity and liable on contracts | Merger/acquisition alone isn’t dispositive; plaintiffs' successor allegation is conclusory | Allegation that Lincoln is successor‑in‑interest is plausible at pleading stage; contract claims against Lincoln survive |
| Breach of contract — using impermissible factors to raise COI | Lincoln based COI increases on impermissible, backward‑looking reasons (recoup past losses, low past interest, profitability) beyond the four enumerated factors | Lincoln’s public statements mirror permissible factors (future expectations of mortality, interest, expenses, lapses); plaintiffs’ allegations are speculative | Plaintiffs pleaded facts (including Lincoln’s own statements and magnitude of increases) sufficient to make breach plausible; claim survives |
| Uniformity of rate changes within rate class | COI changes were applied unevenly (odd slopes; higher rates at younger attained ages in some illustrations) | Changes were consistent with contract and actuarial adjustments | Allegations of non‑uniform application are sufficient to state a claim at pleading stage |
| Illustrations during grace period / refusal to provide illustrations | Policy requires Lincoln to provide illustrations upon request and policy remains in force during grace period; refusal breached contract | Lincoln’s interpretation: policy not "in force" during grace period for illustration purposes; company policy disallows illustrations while in grace | Policy language ambiguous at pleading stage; plaintiffs’ interpretation plausible and claim survives |
| Implied covenant and consumer‑protection claims | Lincoln abused limited discretion in bad faith to induce lapses and frustrate expectations; conduct was unfair, deceptive and targeted elder policyholders | Allegations duplicate contract claims or are speculative; no reliance or distinct injury in some state claims | Court allows implied covenant and several state consumer‑protection claims to proceed given allegations of systemic misconduct, intent, and substantial aggravating circumstances; declaratory relief claim dismissed as duplicative |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must state plausible claim beyond speculative allegations)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (court must identify conclusory allegations not entitled to assumed truth)
- Connelly v. Lane Constr. Corp., 809 F.3d 780 (3d Cir. 2016) (framework for applying Twombly/Iqbal in three steps)
- Schuchardt v. President of the United States, 839 F.3d 336 (3d Cir. 2016) (plausibility standard and limits on conclusory assertions)
- Fleisher v. Phoenix Life Ins. Co., 18 F. Supp. 3d 456 (S.D.N.Y. 2014) (when policy enumerates COI factors, that list can be treated as exhaustive)
- U.S. Bank Nat. Ass’n v. PHL Variable Life Ins. Co., 112 F. Supp. 3d 122 (S.D.N.Y. 2015) (insurer must set COI rates in good faith; cannot use increases to manage profitability in an unconstrained way)
- Pelman ex rel. Pelman v. McDonald’s Corp., 396 F.3d 508 (2d Cir. 2005) (Rule 9(b) does not automatically apply to consumer‑protection claims under certain statutes)