On April 10, 2008, the First Judicial District Court of Santa Fe County, New Mexico in McNabb v. New York Life Insurance Company (No. D-0101-cv9902640) dismissed with prejudice a putative modal premium class action filed against Sutherland’s client, New York Life Insurance Company. The controversy centered upon whether New York Life breached its common law duty to disclose material facts regarding premiums in its individual life insurance policies.

Like most insurance companies, New York Life engages in modal billing, whereby life insurance premium payments are paid semi-annually, quarterly or monthly. If the insured chooses to forgo paying the policy premium in an annual lump sum, the insured typically pays a slightly higher aggregate premium for the ability to pay modally.

Plaintiffs alleged that New York Life did not disclose in its policies the total modal premium to be paid by insureds if they chose to pay on a monthly, quarterly or semi-annual basis and the effective annual interest rate, if payment was made other than annually. According to the plaintiffs, the omitted information was material to insureds, and New York Life’s failure to disclose was a breach of its common law duty. In their Amended Complaint, plaintiffs sought restitution, rescission and prejudgment interest, as well as injunctive relief on behalf of themselves and all others in numerous states who had paid premiums more frequently than annually under New York Life policies.

Almost a dozen insurers have settled modal premium class litigation, paying more than $30 million in plaintiffs’ attorneys’ fees and millions more in class benefits. However, in New York Life’s case, the District Court dismissed, with prejudice, the matter before it and all claims known and unknown which were or could have been brought in the litigation. New York Life paid no attorneys’ fees to plaintiffs’ counsel or any class benefits. Each party was responsible for its own costs, and because no class was certified, notice to the putative class members of the dismissal was not required.

Click here for a copy of the “Joint Motion to Dismiss and Enter Agreed Final Judgment” and the “Agreed Final Judgment.”