Lawsuit Claims American National Insurance Company Policyholders Paid ‘Excessive’ Cost of Insurance Charges [UPDATE]
by Erin Shaak
Last Updated on November 16, 2023
Yearby v. American National Insurance Company
Filed: December 18, 2020 ◆§ 3:20-cv-09222
A class action claims American National Insurance Company policyholders have paid unlawfully inflated cost of insurance charges.
November 16, 2023 – American National Insurance Company Agrees to $5M Settlement in COI Charges Lawsuit
The proposed class action detailed on this page has settled for $5 million, and the official American National Insurance Company (ANICO) settlement website can be found at ANICOCOISettlement.com.
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The settlement, which received final approval from the court on November 3, 2023, covers anyone who owns or owned a universal life (including variable universal life) insurance policy issued in California by ANICO, or its predecessors, that provides that cost of insurance (COI) rates are calculated based on expectations as to future mortality experience and that was subjected to monthly COI deductions on or after January 1, 2010.
As part of the settlement, ANICO has agreed to pay $5,000,000 into a fund which will be distributed to class members in proportion to their share of the overall COI overcharges collected by ANICO through February 28 of this year. The settlement website relays that eligible consumers will receive a minimum payment of $100, with no portion of the funds reverting back to ANICO. According to the plaintiff’s October 2023 motion for final approval, the deal is estimated to benefit the owners of more than 3,000 life insurance policies, and amounts to 88 percent of the alleged overcharges at issue collected by ANICO.
In addition, the deal provides policyholders two forms of non-cash relief. First, ANICO has agreed not to increase COI rate scales for five years following the deal’s final approval date. Second, the defendant will not take any legal action in an attempt to void, rescind, cancel, have declared void, or otherwise seek to deny coverage under or deny a death claim for any eligible policy based on an apparent lack of valid insurable interest under any applicable law or equitable principles or any misrepresentation allegedly made on an application for, or otherwise made in applying for, the policy.
Per the website, class members do not need to do anything to receive a share of the settlement funds. Payments will be sent automatically by mail, using the addresses that ANICO has on file.
Case records show that the parties first notified the court of the settlement in January 2023, and United States District Judge Edward M. Chen preliminarily approved the deal on August 11.
The settlement was given final approval following a November 2 hearing, and payments will be distributed to eligible class members after any appeals or objections are resolved.
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A proposed class action claims American National Insurance Company (ANICO) policyholders have paid unlawfully inflated cost of insurance charges “that are not allowed by the plain language of their insurance contracts.”
More specifically, the lawsuit claims that although ANICO expressly states in its universal life insurance policies that the monthly cost of insurance (COI) will be determined “from time to time” based on the insurer’s expectations as to “future mortality experience,” policyholders’ costs of insurance have not decreased with decreasing mortality rates. From the complaint:
“Despite its contractual commitment that monthly COI rates will be determined ‘based on the Company’s expectations as to future mortality experience,’ and despite the fact ANICO has recently enjoyed significantly improved mortality experience and expectations, monthly COI rates have not been determined based on ANICO’s improving mortality expectations, and the results of ANICO’s new mortality reviews are being ignored to the detriment to the members of the Class.”
The breach of contract case explains that the policies at issue are flexible-premium universal life policies that combine death benefits with a savings or investment component. While other kinds of whole life insurance require fixed monthly premiums, universal life policies require that the premiums cover only the monthly cost of insurance and certain other specified expenses, according to the suit. Each month, the cost of insurance is deducted directly from the policy’s savings component, while any excess premiums are applied to the policy value and earn interest, the complaint relays.
The cost of insurance, the suit goes on to explain, is “supposed to be the insurer’s cost of providing mortality coverage” and is designed to fluctuate based on the insurer’s mortality experience. The rate is significant to policyholders, the case says, as the cost of insurance is typically the most expensive part of the contract and makes up the largest deduction from the owner’s account value.
The lawsuit stresses that because ANICO’s universal life insurance policies are “Single Consideration Policies” that determine the monthly cost of insurance based only on the insurer’s “expectations as to future mortality experience,” if those expectations improve, the cost of insurance rates must be adjusted downward.
According to the suit, it has been “well-documented” that nationwide mortality expectations have significantly improved, with some mortality tables showing an improvement of one percent per year. The lawsuit claims that although ANICO has expressed that it conducts reviews of its mortality experience “[a]t least annually” and has admitted that its own expectations of future mortality experience have improved, the insurer has failed to update its cost of insurance rates based on the improved mortality assumptions, which would have resulted in “far lower rates” than those charged to policyholders.
The case claims ANICO has breached its contract with policyholders and looks to represent all owners of universal life insurance policies issued in California by the defendant, or its predecessors in interest, that provide that the cost of insurance rates are determined based on the company’s expectations as to future mortality experience.
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