Many insurers have been threatened with or embroiled in litigation over cost of insurance (COI) rates in the last few years. The lawsuits, often brought as putative class actions, typically focus on the factors the insurer considered either when setting rates, or in increasing its current COI rate schedules. Insurers recently achieved important victories in both areas.
In Illinois federal court, an insurer secured summary judgment in a putative class action alleging that it was in breach of contract when it considered factors other than those specifically enumerated in the policy. The court in Norem v. Lincoln Benefit Life found that the contract, which provided that the COI rates would be “based on” certain listed items, did not exclude consideration of other factors, and “so long as the rates remained below the guaranteed rates, defendant had discretion in setting those rates.” The court then denied class certification without prejudice, though noting that the summary judgment ruling would “appear to apply equally to any other member of the class.” In Thao v. Midland National Life Insurance, a Wisconsin federal court addressed similar contract language in denying a motion for class certification, holding that, although whether the insurer breached its contracts by considering other factors might be a common question, the disparity in policyholders’ payment preferences – some policyholders would be better off with the current calculations – rendered class treatment inappropriate.
With regard to rate increase litigation, an insurer recently prevailed on motions to dismiss all non-contract based claims in two COI rate increase actions pending in New York and California, respectively. Jorden Burt represents the insurer in those two actions. A separate putative class action involving a COI rate increase by a different insurer recently settled; the proposed relief includes a reduction in the COI rate with a guarantee that the rates will not increase for a period of five years.