Class of life insurance holders gets $195 million in settlement

A large purveyor of universal life insurance policies has agreed to pay class members $195 million to resolve claims the company breached its contract with policy holders by improperly raising monthly deductions, according to a proposed settlement filed Thursday in Los Angeles federal court.

The settlement involving Transamerica Life Insurance Company, pending approval by U.S. District Judge Christina A. Snyder, will affect nearly 71,000 policies that plaintiffs say were terminated or lapsed as a result of monthly deductions that spiked by as much as 38 percent.

California-based Consumer Watchdog, which in 2016 was the first to file such a lawsuit against a life insurance provider, argued Transamerica instituted the hike in order to offset or avoid making rising interest payments to policyholders of its universal life insurance.

Such policies were popular with baby boomers in the 1980s and 1990s when interest rates were relatively high, but they dipped around the time of the 2008 recession. The lawsuit alleged that as a result of not getting the returns it was expecting, Transamerica arbitrarily raised the amount it deducted monthly from policies. Gordon and Mary Feller v. Transamerica Life Insurance Company, 16-CV01378 (C.D., Cal., filed Feb. 28, 2016).

"The bottom line is when they issued these policies, the economic world was a lot different," said Harvey Rosenfield, founder of Consumer Watchdog who represents the class. "They weren't making what they thought they would make decades after they sold these policies."

Plaintiffs' attorneys also included Shernoff, Bidart, Echeverria & Bentley LLP and Bonnett, Fairborn, Friedman & Balint P.C.

Transamerica is represented by Texas-based Thomas Hetherington of McDowell Hetherington LLP, who deferred comment to Aegon, parent company of Transamerica.

Company spokeswoman Dick Schiethart said Transamerica implemented the adjustments "in accordance with the policies' contractual terms," and the settlement brings an end to "uncertainty for our customers and the company."

Under the terms of the settlement, Transamerica has agreed not to levy any additional increases in monthly deduction rates for five years unless ordered to do so by a regulatory authority, but it will be allowed to retain its current increase.

Those individuals who participate in the settlement agree to release all related claims and will have their account credited or receive cash if their policies are no longer in force, according to the settlement.

"This will allow Transamerica to retain its monthly deduction rate increases," the company said in a statement.

The settlement money covers 62 percent of the past alleged overcharges, Rosenfield said.

Per the settlement, plaintiffs are entitled to attorney fees not exceeding 25 percent of the settlement funds, plus litigation expenses.