Lawyers at Beasley Allen have filed a class action lawsuit in the Eastern District of Washington against Voya Retirement Insurance & Annuity Company (Voya) and Lincoln Life & Annuity Company of New York (Lincoln NY), along with their parent companies, for their unfounded cost of insurance (COI) increases. Both Voya and Lincoln NY are for-profit life insurers, and per an agreement between the companies, as of October 1998, Lincoln NY reinsures and serves as administrative agent for certain Voya policies – policies held by the Plaintiffs to the action. The complaint alleges that the Defendants have implemented the COI increases ultimately to benefit shareholders and rid Voya and Lincoln of near-term liabilities they have accrued due to their past poor investments and wrongful use of captive reinsurance companies.

Due to heavy investments in illiquid mortgage-backed securities just before the financial crisis of 2008, the Defendants became severely financially distressed. As a result, they devised a scheme to conceal their true financial condition by moving billions of dollars of liabilities for policyholder claims off their balance sheets by using wholly owned captive reinsurance transactions. But in reality, these liabilities remain with the insurer, since the wholly owned captive reinsurance companies (unlike traditional reinsurance with third-party reinsurers) are incapable of satisfying the assumed obligations. This allowed Defendants to “free up” billions of dollars they otherwise would be legally required to hold as reserves – dollars that Defendants could now use to pay shareholder dividends. Conveniently, the finances of these captives are hidden from consumers, the public, and even most regulators, and both the Lincoln and Voya Defendants used this lack of transparency to further their scheme.

However, because the captive reinsurance transactions did not actually transfer the underlying risk associated with these liabilities, Voya and Lincoln NY remain responsible for meeting these insurance obligations as they come due. Importantly, this included a need for cash to cover the billions of dollars of insurance obligations for universal life policies issued by Voya and reinsured and administered by Lincoln National and Lincoln NY.

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, the Lincoln and Voya Defendants conspired with each other to generate more cash, or cause policyholders to lapse or surrender their policies, thereby erasing Defendants’ liabilities, by hitting policyholders with exorbitant charges that Defendants falsely told policyholders were based on COI increases.

In reality, the dramatic increases in monthly payments that Defendants levied on policyholders are not due to legitimate COI increases but are the direct consequence of the Lincoln and Voya Defendants’ scheme to continue taking cash out of their insurance company subsidiaries while masking their troubled financial condition from the public. The improper increases are not permitted under the terms of the policies.

These charges do not result because of an increase in the COI, but rather are a result of a conspiracy on the part of Defendants to address past practices of funneling billions of dollars out of their insurance subsidiaries despite their financial distress by raiding policyholder accounts and improperly charging insureds who have dutifully paid premiums to Defendants for years, often decades. Because of these actions, Plaintiffs and Class Members are seeking relief under the Racketeering Influenced and Corrupt Organizations (RICO) Act, the common law, and other statutory provisions.

Lincoln and Voya are not the only insurance companies raising premiums and cost of insurance in order to account for 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.

Lawyers at Beasley Allen have also filed lawsuits against Banner Life Insurance Company and Transamerica, and they are 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 valid claim. If so, our firm would like to investigate those potential claims. You can contact Andrew Brashier or Rachel Boyd, lawyers in our Consumer Fraud and Commercial Litigation Section, at 800-898-2034 or by email at Andrew.Brashier@beasleyallen.com or Rachel.Boyd@beasleyallen.com.

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