A federal jury found in favor of policyholders in a closely watched case that challenged the leeway life insurers have when raising rates on old policies.
The eight-person jury in Los Angeles awarded $5.6 million in damages to an investment group, DCD Partners LLC, that alleged Aegon NV's Transamerica Life Insurance Co. impermissibly used race-based data when it raised rates by 50%. The jury found that Transamerica breached its insurance-policy contract and an obligation to deal fairly and in good faith, according to the verdict form filed Wednesday.
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The investors affected by the increases teamed with Praises of Zion Baptist Church in south Los Angeles in 2004 to take out policies for 2,400 churchgoers in the area, most of whom couldn't otherwise afford them. The investors receive $225,000 of each $275,000 death benefit, while church-related social-service programs and beneficiaries of the insured mostly African-American congregants split the remaining $50,000.
"We were surprised and disappointed by the verdict in the DCD lawsuit," a Transamerica spokesman said.
The firm said its decision to increase rates on the policies in 2013 "was permissible under the terms of the policies" and the insurer "did not raise rates on the policies due to the race of those insured, nor would we ever increase rates based on racial considerations." The insurer "will continue to pursue all available legal avenues to defend that decision."
The company declined to comment further.
"The verdict reaffirms what our clients believed all along -- Transamerica improperly raised the rates on these policies," said William A. Brewer III, partner at Brewer, Attorneys & Counselors, and counsel for the plaintiffs. "Beyond the benefits to the local community, we believe this outcome underscores the rights and responsibilities of parties to these types of contracts."
Higher charges on older policies have become more frequent as life insurers look to overcome nearly a decade of ultralow interest rates. Insurers earn part of their profit from investing premiums until claims come due, typically in bonds.
At least a half-dozen prominent insurers have bumped up prices over the past several years, according to ITM TwentyFirst, a firm that manages policies for trustees and institutions.
Nationwide, these various insurers' rate increases have applied to at least tens of thousands of people and ranged from mid-single-digit percentages to more than 200%.
The increases apply to "universal life" policies, which are combination life-insurance and savings products intended to be in place until the insured person dies.
Cost increases are permissible under many policies, though the circumstances under which this is allowed vary by contract. Numerous other lawsuits on this subject are winding their way through federal courts.
The DCD policies were purchased during the peak in "investor-owned" life insurance, an arrangement whereby investors pay the premiums on policies for people who aren't their relatives.
DCD said in court filings that the rate increases had added $100 million in costs and made the program unsustainable.
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(END) Dow Jones Newswires
September 15, 2017 18:43 ET (22:43 GMT)