In the session at ACLI’s Legal and Compliance Section’s Annual Meeting, It’s All ‘Bout That Discretion, ‘Bout that Discretion, there were more than a few in the room who were not familiar with the pop song that inspired the title: All About That Bass by Meghan Trainor. But once we got past that pop culture reference, we were in familiar territory. The three attorneys from Carlton Fields Jorden Burt (Jason Gould, Steven Kass, and Shaunda Patterson-Strachan) presented on litigation trends involving nonguaranteed elements. It was all about the discretion insurers may have – and may not have - with respect to nonguaranteed elements.
Since I am not a litigator and I focus on regulatory trends more than litigation trends, I appreciate the opportunity to hear about litigation in our field.
The presenters divided litigation on nonguaranteed elements into three waves. The first was over DAC tax charges, the second on mortality (COI) adjustments, and the third on the methodology for setting the initial rates. They said that the first two waves were largely decided against insurers, but the third, more recent, wave has been more favorable to insurance companies.
One of the cases they mentioned was Eller v. EquiTrust Life Insurance Co. (12-17119, February 25, 2015). The law firm discussed this putative class action in more detail in their Spring 2015 edition of Expect Focus (p. 4). Christine Stoddard wrote the magazine article. The three nonguaranteed elements of the fixed index annuity in question in that litigation were index credits, the MVA, and the bonus on first year premiums.
Eller affirmed the lower court’s summary judgement decision in favor of the insurer and held that the premium bonus was not fraudulent. The court said “We begin from the settled premise that a seller generally has no duty to disclose internal pricing policies or its method for valuing what it sells.” The insurance company had no duty to disclose, according to the Ninth Circuit Court of Appeals, that an annuity with a bonus feature might have lower index credits than alternative products.
This raised a question for me about the September 2014 bulletin from the Iowa Insurance Division in which Commissioner Gerhart says, “The use of ‘uncapped’ terminology without additional disclosures of limitations is misleading. Consumers should be informed how the limitations of the ‘uncapped’ strategy lower future projected interest credits.” This appears to be an indication that Iowa regulators see the burden to disclose internal pricing somewhat differently than did the court in Eller. It is likely that other regulators do too. The court stated, “[Plaintiff] does not allege that EquiTrust was a fiduciary or that some statute required the disclosure of its internal pricing policies.” One of the open questions in my mind is whether the 2014 Iowa Bulletin would change that determination.
Before attending the session at ACLI, I was very interested in the significance of the Iowa Bulletin, and after attending, I am even more so.