Virginia firm helps score $40.5M class action settlement

A Richmond-based law firm is part of a legal team that won a $40.5 million settlement against insurance companies accused of improperly jacking up premiums for existing life insurance policies.

Geoff McDonald & Associates and three other firms represented policyholders who received notices that their monthly payments would increase by as much as 1,000%. The case has taken five years to resolve.

Maryland U.S. District Judge Richard D. Bennett approved the settlement May 20. The terms call for a common settlement fund of $22.5 million, agreement that the insurance companies will forgo similar rate increases for five years and other relief. The collective value of the proposed settlement benefits is $40,749,525, according to the plaintiffs’ lawyers.

The Maryland case is Dickman v. Banner Life Ins. Co., No. 1:16-cv-192.

Surprise premium hikes

Richard Dickman of Charlottesville was one of about 7,600 policyholders who received surprise premium increases. Banner Life told him in 2015 his monthly premium would increase from about $285 to $1,860, according to a summary from the McDonald firm.

It had to be a mistake, Dickman thought.

Dickman and the others who received increase notices had bought their universal life policies from Banner about 20 years ago, the McDonald firm said. The plaintiffs’ lawyers contended the defendant insurance companies unjustifiably increased the “cost of insurance” on certain universal life products, potentially affecting more than 12,000 policyholders.

The lawsuits described a “captive reinsurance” arrangement providing the companies with undue profits while allowing Banner Life to recoup revenue though a cost-of-insurance rate increase.

“There are strict and complex rules for premium increases,” McDonald said May 26.

The companies’ practices amounted to fraud, the plaintiffs claimed. They sued in 2016 for breach of contract, fraud, conversion and unjust enrichment.

In 2017, the judge dismissed the conversion and unjust enrichment claims and all claims against the parent companies of the defendant insurers. The court also limited the scope of the fraud claim, according to attorneys for Banner Life.

“The fraud count was the one that stuck,” McDonald said.

The litigation was “hard fought,” he said. Multiple discovery disputes emerged and the parties did not come to terms until briefing was complete on both summary judgment and the propriety of class certification.

A settlement in principle was reached in June with the assistance of mediator David Geronemus of New York, pleadings said.

Fee dispute

The settlement agreement contemplates a total fee award of $7,851,011.86, according to court documents. That amount is almost 40% of the common settlement fund but just over 20% of the total settlement value.

Some of the plaintiffs’ lawyers are still battling over fees, McDonald said.

One of the other attorneys involved changed firms during the pendency of the case, leading to a clash over fee allocations.

The original fee-splitting agreement called for the McDonald firm to get 35.8% of the fee recovery. The firm had a relationship with a consulting expert who alerted the firm to the underlying “bad acts” of the defendants, the firm said in a pleading.

“A whistleblower gave us a list of bad insurance companies,” McDonald said.

One of the co-lead counsel in the class action asked that a special master be appointed to investigate, review and recommend a fair and equitable fee apportionment. The McDonald firm is urging the court to pass on the special master and approve the original fee agreement.

The McDonald firm has hired attorneys from Williams Mullen to represent it in the fee dispute.

‘Bad activity’

McDonald expressed satisfaction with the amount of the recovery for policyholders, and the impact on the insurance companies.

“We like to think we put a damper on some of this bad activity that’s going on,” he said.

McDonald said Frank H. Hupfl III of his firm assisted in the litigation. The other firms involved were The Finley Firm PC of Auburn, Alabama, and the Beasley Allen Law Firm of Montgomery, Alabama. Christopher T. Nace of Washington served as local counsel.

Banner Life is represented by Faegre Drinker Biddle & Reath of Philadelphia.