The complaint against Banner Life combines the "captive reinsurance" class action claims brought last year with the cost-of-insurance (COI) class action claims that are now popping up. 

Instead of standing on their own, the captive reinsurance allegations in this complaint are used to support the theory that the COI increases were not contractually justified. Specifically, the plaintiffs allege that Banner Life's captive reinsurance arrangements created the company's financial problems, and its resulting need for COI increases, and thus those COI increases were not based on unexpected investment, mortality, lapse, and expense experience that would contractually permit such higher COI charges.

The plaintiffs have also tried to distinguish themselves from the usual COI case by pointing to their "no lapse guarantee" policies. They say they were induced by Banner Life's falsely-optimistic financial statements into making "excess premium" payments (and locking up money in the policy), rather than making "minimum premium" payments (and thereby retaining more financial flexibility) if Banner had made accurate disclosures about its captive reinsurance arrangements. 

Finally, this complaint sets forth more specific policy data than usual, which allegedly show that the size of Banner Life's COI increases was not justified based on reasonable actuarial assumptions. These allegations make it more difficult to dispose of the case as a matter of law. 

Interestingly, the complaint does not allege facts that Judge McMahon found were sufficient to survive a motion to dismiss in the Phoenix case: that the COI increases discriminated among classes of policyholders. Also, the complaint does not allege two theories that I expect will be asserted by plaintiffs eventually in all these COI cases: 

  • companies supposedly knew by 2003 or so that mortality expectations for certain classes of policyholders would grow worse over time, but allegedly maintained COI rates at artificially low levels in order to sell more policies, knowing that they could raise the rates after they locked in policyholders with surrender charges; and

  • companies knew that life settlement companies were buying their UL policies, which would negatively affect lapse rates and investment results and cause COI charges to go up, but they allegedly maintained COI rates at artificially low levels to sell more policies.