Beasley Allen has recently filed a class action lawsuit in the District of Maryland against Banner Life Insurance Company for its unfounded cost of insurance increases. The complaint alleges that these increases are being implemented ultimately to benefit shareholders and rid Banner of near-term liabilities it has accrued due to its wrongful use of captive reinsurance companies.
Banner and its parent corporations Legal and General America, Inc. (LGA) and Legal and General Group PLC (L&G) have created a scheme to take funds set aside to pay policyholders’ death claims and convert them into investors’ and executives’ benefits. This scheme revolves around the use of wholly-owned captive reinsurance companies. For more than a decade, Banner, under the direction of its parent companies, has pretended to offload billions of dollars of liabilities to its wholly-owned captives and other affiliates. Because this created a false surplus on the balance sheet, L&G was able to pay more than $800 million in extraordinary stockholder dividends.
In reality, Banner was merely dumping billions of dollars of liabilities into wholly-owned captive reinsurance companies that are incapable of satisfying their assumed obligations, thereby freeing up hundreds of millions of dollars Banner would otherwise be legally required to hold as reserves. These captive companies are strategically domiciled in jurisdictions that allow the “reinsurers” not to file any public financials, hiding the true nature and details of these transactions.
However, in order to find new cash with which to fund future dividends and delay the inevitable financial disaster that could occur because of its near-term liabilities, Banner has told policyholders that dramatic cost of insurance increases are necessary because the company “did not adequately account for future experience,” i.e., the number and timing of death claims, how long people would keep their policies, how well the company’s investments would perform, and the cost to administer policies.
At no point in time before its August 2015 letter did Banner ever indicate that the profitability of the policies was being severely eroded. Instead, policyholders were lulled into a false belief that their policies were performing adequately and building cash value. Banner’s willful decision to allow the policyholders’ damages to escalate to a point where many policyholders would have no choice but to forfeit their policies or allow their cash value to be taken is tantamount to an attempt to cancel the policies and/or raid the policies of accumulated policyholder savings. Because of these actions, Plaintiffs and Class Members are seeking relief under breach of contract, unjust enrichment, conversion, and fraud theories.
Banner is not the only insurance company raising premiums and cost of insurance in order to account for its wrongful use of captive reinsurance schemes. Multiple other life insurers have sent their universal life and/or flexible premium policyholders letters informing them of an upcoming raise in costs — usually claiming these increases are due to “an increase in mortality rates.” In order to avoid a loss of coverage, consumers are paying these increases — oftentimes tripling or quadrupling the policyholders’ original costs.
Beasley Allen is currently preparing to file complaints against other companies, alleging similar wrongful activity. If you have seen this practice by any life insurance company, there may be a claim that our firm would like to investigate. Please contact Dee Miles, head of our Consumer Fraud section, at [email protected], or lawyers Andrew Brashier or Rachel Boyd in our Consumer Fraud section at [email protected] or [email protected], or call us at 800-898-2034 to discuss further.