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Class certification affirmed over member’s objection

Correy E. Stephenson//April 18, 2022

Class certification affirmed over member’s objection

Correy E. Stephenson//April 18, 2022

Stand out from the crowd concept

A district court properly approved the settlement of a long-running class action suit brought by life insurance policyholders, the 4th U.S. Circuit Court of Appeals has held.

Writing for the 4th Circuit in its March 15 opinion, Judge Diana Gribbon Motz rejected the objection by a single policyholder and laid down for the first time clear rules about who bears what burdens when a class member objects to a proposed settlement.

The 25-page decision is The 1988 Trust for Allen Children dated 8/8/88 v. Banner Life Insurance Company (VLW 022-2-073).


A proposed class of life insurance policyholders sued Banner Life Insurance Company and the William Penn Life Insurance Company of New York in 2016, alleging that, as former policyholders, they paid an excess premium to accrue a higher cash value in their account.

They claimed that the “cash-strapped” insurers increased their cost-of-insurance, or COI, charges to prompt policyholders to move more money into their accounts, then “raided” the cash value and attempted to force policyholders to surrender their policies in an effort to solve the insurers’ liquidity problems.

Years of litigation followed. The ­ parties reached a settlement agreement in October 2019. Pursuant to the deal, the insurers would refund class members a portion of the money they’d paid, with a minimum of $100 per class member and a total value of $40 million. In return, class members released the insurers from liability for any and all claims arising out of or relating to COI rate increases.

The district court judge in Maryland preliminarily approved the settlement. In response, 89 policyholders — less than 1% of the class — opted out.

A single policyholder, the 1988 Trust for Allen Children Dated 8/8/88, filed an objection, alleging that the class members hadn’t given sufficient weight to the specific allegations it had made while the class was negotiating the settlement.

The district court continued its final fairness hearing and allowed the Allen Trust to conduct discovery. Following the interim discovery, the court concluded the hearing and overruled the Allen Trust’s objection, certifying the class for purposes of settlement as fair, reasonable and adequate.

The Allen Trust appealed.

No abuse of discretion

Motz found that the district court didn’t abuse its discretion either in certifying the class or approving the settlement.

“‘Because a district court possess greater familiarity and expertise than a court of appeals in managing the practical problems of a class action, its certification decision is entitled to ‘substantial deference,’ especially when the court makes ‘well-supported factual findings supporting its decision,’” Motz wrote. “This case, chock-full of the most esoteric principles of life insurance accounting imaginable, could be the poster child for that rule. The district court did a commendably careful job in evaluating the Allen Trust’s arguments and determining that they did not justify refusing to certify the class. It did not abuse its discretion in doing so.”

Motz took the opportunity to explain “who bears what burdens when a class member objects to a proposed settlement,” something that had not been previously done by the 4th Circuit.

An objector to a class settlement must state the basis for its objection with enough specificity to allow the parties to respond and the court to evaluate the issues at hand, Motz said. Next, the parties propounding the settlement — in addition to bearing the initial burden to satisfy the Rule 23(a) and (e)(5) requirements — must show that the objection does not demonstrate that the proposed settlement fails one of those requirements.

At all times the district court remains a fiduciary of the class, Motz said, and must protect the class’s interests, both from parties and counsel overeager to settle, and also from frivolous objectors.

“Upon a review of the record, we do not understand the district court to have done anything different than what we have just outlined,” Motz wrote. “The court required the Allen Trust to specify and support its objection, while keeping the ultimate burden on the proponents of the settlement to demonstrate its fairness. Thus, the Allen Trust’s argument that the court improperly placed upon it the burden of overcoming the settlement provides no basis for

Class certification

Motz then addressed the Allen Trust’s argument that the district court abused its discretion by certifying the class. The Allen Trust contended that its allegations against Banner were different enough to defeat the requirement all class members’ claims must generally involve common questions of fact and law.

“But upon closer examination, the Allen Trust’s and [class] claims are two sides of the same coin,” Motz wrote. “The difference, such as it is, turns on when the plaintiffs would have to pay the ­ allegedly unlawful charges. The [class] had been paying them on a rolling basis, going above and beyond the guaranteed minimum payment during the first twenty years. The Allen Trust may have to pay these charges all at once, in year 21. But the COI charges themselves are the same.”

Nor had the district court abused its discretion when it found the settlement fair, reasonable and adequate, Motz said. The parties litigated their claims through motion practice, discovery, dispositive motions and protracted mediation; settlement was reached after multiple discussions and hearings.

The Allen Trust’s contention that it was giving up its claims against the insurers in the settlement for nothing also failed to pass muster.

“The district court found that at this time, the Allen Trust did not have much of a claim at all, and so was not really giving up very much,” Motz wrote, noting that the trust’s concerns were not widespread, as it was the only class member to object to the settlement.

Further, the district court carefully weighed the size of the proposed settlement against the claims at issue and found that it compared favorably to ­ similar deals.

Neither Jeven Robinson Sloan of Loewinsohn Flegle Deary Simon in Dallas, Texas, who represented the trust, nor George Walton Walker III of Boles Holmes White in Auburn, Alabama, who represented the insurer responded to requests for comment.

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