Transamerica Successfully Sued for Raising Charges on Universal Life Insurance
Transamerica Life Insurance Co. has been successfully sued for raising the cost of insurance on many of its universal life insurance policies. The plaintiffs in Feller et al v. Transamerica Life Insurance Co. successfully argued that this action constituted a breach of obligations that damaged the contract holders. This class action suit underscores the difficulties insurance companies are having in paying out claims that were underwritten when interest rates were significantly higher than they are now.
Universal life insurance allows customers to buy policies at a relatively low cost, although the exact premium is variable. Transamerica notified its policyholders in 2015 that it was increasing the cost of insurance on universal life insurance policies that it sold during the late 1980s and early 1990s, some by up to 38 percent. Interest rates were quite high during this period, so insurers had to guarantee minimum interest rates to sell these policies. Some of Transamerica’s universal life insurance policies were paying at least 5.5 percent annually.
The suit was filed in 2016, alleging that Transamerica had breached its contract and acted in bad faith by increasing the premiums to offset the guaranteed interest payments it was making to policyholders. The plaintiffs were represented by Harvey Rosenfield, an attorney with Consumer Watchdog. Attorneys from two law firms also prosecuted the case, including Shernoff Bidart Echeverria & Bentley and Bonnett Fairbourn Friedman & Balint. Both of these firms have a history of litigating life insurance cases.
Rosenfield stated that the primary goal of the suit was to get as much money as they could back to the policyholders as quickly as possible. He added that many of these policyholders were senior citizens living on fixed incomes who were surprised and distressed at the premium increases. Rosenfield also alleged that Transamerica was trying to get the policyholders to relinquish their policies so the firm could recoup the losses it was sustaining due to the currently low-interest rates.
Transamerica spokeswoman Julie Quinlan emailed a statement on the firm’s position regarding the premium increases. She stated that Transamerica had communicated with policyholders about the matter, adding that the increases were based on the future costs of providing coverage for its universal life policies. Factors contributing to the rate increases included expected decreases in mortality rates and low-interest rates. Quinlan also stated that the rates were still at or below the maximum specified by the policy, even after the increase went into effect.
The final settlement in the case was reached in February 2019, in which the court found that Transamerica improperly increased the monthly premiums on about 70,000 of its universal life insurance policies. The court also ordered Transamerica to pay $195 million to the policyholders in addition to all of the attorney fees.
Transamerica will pay into a common fund that will reimburse the policyholders who participate in the settlement. The award can take the form of a credit to the policyholder’s account or a cash payment if the policy is no longer in effect. Policyholders will also be protected from any additional increases in premiums for the next five years. The senior spokesman for Aegon, Transamerica’s parent company, stated the company was satisfied with the settlement because it will end the uncertainty for its customers.
The Securities and Exchange Commission also ordered four of Transamerica’s entities to pay a total of $97.6 million for their actions related to faulty investment models. Other life insurance companies such as Axa Equitable Life Insurance and Lincoln National Corp are also facing similar suits. Nationwide agreed to a private settlement regarding the variable costs of its universal life insurance policies in May 2018, and John Hancock Life Insurance Co. settled a suit for $91.25 million in July.