Insurance Policy Paper Document

The life insurance industry has seen a significant number of class actions brought against it for allegedly wrongful conduct in increasing the cost of insurance (“COI”) component of the policy premium.  In many of these cases, the life insurance company will remove a state case to federal court under the Class Action Fairness Act (“CAFA”).  In a recent case, the Eleventh Circuit was asked to determine whether the amount-in-controversy jurisdictional requirement of the CAFA was met based on the face value of the policies or whether the face value was not the proper measure.

In Anderson v. Wilco Life Ins. Co., No. 19-14127, 2019 U.S. App. LEXIS 34952 (11th Cir. Nov. 22, 2019), The insured brought this putative class action in state court after her universal life insurance policy lapsed.  She claimed that her insurer wrongfully increased the policy’s COI and that, after sixteen years of being in force, the policy was no longer affordable.  She brought claims on behalf of “all Georgia residents who owned or own policies with the same COI language as her policy and whose COI rates increased after December 6, 2012.” For relief, she sought money damages, and declaratory and injunctive relief, asking to have the illegal COI increases reversed and to reinstate those policies that were surrendered or lapsed.

The insurer removed the action to federal court citing jurisdiction under the general diversity statute and the CAFA.   The district court found that that the insurer had not shown by a preponderance of the evidence that CAFA’s $5 million amount-in-controversy requirement had been satisfied and remanded the case back to state court.  This interlocutory appeal followed, addressing only whether CAFA’s jurisdictional threshold was met.  The Court of Appeals concluded that it was.

The Court of Appeals made clear that when analyzing the amount-in-controversy, the focus is on the amount in controversy at the time of removal, and that courts should not focus on speculative events that could impact that amount.  The court stated that where an “insured seeks equitable relief to restore a lapsed life insurance policy, the continuing validity of the policy is at stake and the face value of the policy is the amount in controversy.”  Indeed, if the policies were reinstated the insurer would be exposed to the risk of a present liability for the face value of the death benefit.  Here, the insurer submitted evidence that the putative class consisted of 581 policies with an aggregate face value of over $75 million.  Accordingly, the court reversed the district court’s decision and remanded the action back to the district court for further proceedings.