A hearing has been scheduled in California federal court on a class action lawsuit being closely watched by the life settlement industry dealing with an alleged failure-to-disclose issue by an insurance company.
In the case, a California couple allege that they lost money because Lincoln National Life Insurance Co. didn’t tell them they may have been able to sell their policy rather than reduce their coverage if their agent had told them about the life settlement market.
In a reply brief submitted to the court March 13, Lincoln National argues that the case should be dismissed for a variety of reasons. A hearing has been scheduled for April 21 on Lincoln National’s motion to dismiss.
Among the reasons it thinks the case should be dismissed, Lincoln National alleges through its lawyers that the lawsuit “… is an effort to impose upon insurers a life settlement disclosure obligation” that California law does not require and that the California legislature has considered and rejected.
Court documents indicate that the couple had been struggling to pay premiums on a $7.2 million policy, and that they ultimately were forced to reduce the face amount to $2 million to afford the premiums.
See also: Life settlements: What makes a case?
“The active concealment of the option of a life settlement is a common and regular practice employed by [Lincoln National], and indeed is a pervasive practice in the life insurance industry,” the complaint said. It was filed in Federal District Court in Riverside, Calif.
The lawsuit further alleges that Lincoln National “instructs its own agents as well as independent agents that transact insurance on defendant's behalf to conceal the option of a life settlement from its insureds.”
The plaintiffs allege this is a “common and systematic practice by defendant of failing to inform and/or actively concealing from their insureds the option of a life settlement in connection with their life insurance policies.”
The lawsuit alleges that when customers in the situation the couple were in consult Lincoln National and other insurers about retaining or modifying their existing life insurance policies, “defendant -- as a regular practice or policy -- fail to advise them that they can sell all or part of their policy to a third party for more than its cash surrender value (i.e., a life settlement).
“Defendant purposely omits this information from plaintiffs and class members because it knows that other options, such as surrendering the policy (in whole or in part) or letting it lapse, will generate greater profits to defendant than a life settlement would,” the suit alleges.
The lawsuit was filed on behalf of Larry Grill, his wife, Joan Grill, and Steven Grill, the trustee for the Grills’ estate and owner of the $7.2 million policy the Grills ultimately were forced to reduce to $2 million because they couldn’t afford the payments, as well as others “similarly situated.”
George S. Trevor, the lawyer for the Grills at Pearson Simon Warshaw LLP in San Francisco, declined to comment on the Lincoln National answer and motion to dismiss. “The Grills will be filing their opposition to Lincoln National’s motion at the appropriate time,” he said.
Michael Arcaro, a vice president and head of corporate communications at Lincoln Financial, said the company’s policy is not to comment on litigation.
In its answer and motion to dismiss, Lincoln National argues that, “far from concealing life settlements,” the Lincoln National policy change form, which the Grills signed to surrender part of their policy, “explicitly asks about” the “possible sale or assignment of this policy to a life settlement, viatical or other secondary market provider.”
Besides technical reasons for dismissing the suit, Lincoln National says that the plaintiffs have not provided facts supporting their argument that “Lincoln had a duty to disclose that they could sell their policies through a life settlement.”
Lincoln National says that under California law, an insurer is not a fiduciary to the insured and any special duties owed to the insurer arise in the context of coverage and claim processing [is] “not at issue here.”