Purchasers of long term care insurance from MetLife who experienced a hike in premium rates may soon receive relief pursuant to a settlement agreement reached in the case Newman v. Metropolitan Life Ins. Co., No. 1:16-cv-03530 (N.D. Ill).

The settlement follows a rare victory in the Seventh Circuit Court of Appeals for aggrieved long term care policyholders subjected to unforeseen rate hikes. See Newman v. Metro. Life Ins. Co., 885 F.3d 992, 996 (7th Cir. 2018). Unlike life insurance, long term care insurance policies have adjustable rates; and courts will often uphold the right of insurers to increase premiums in any amount, for any reason, provided the contract of insurance contains the appropriate disclaimers.

The policy at issue in Newman v. MetLife contained such disclaimers, but the Seventh Circuit Court of Appeals nevertheless sided with the plaintiff, ruling that the underlying policy language was ambiguous, and that the plaintiff had additionally stated causes of action for consumer and common law fraud. Hopefully, the case reflects a growing appreciation by the courts of the injustice of these rate hikes and a willingness to look beyond blanket disclaimers to the equities of the case.

The named plaintiff, Margery Newman, purchased a long term care insurance policy from MetLife at age 56 and elected a non-standard option for paying premiums called “Reduced-Pay at 65.” A promotional brochure described the payment option as follows: “By paying more than the regular premium amount you would pay each year up to the Policy Anniversary on or after your 65th birthday, you pay half the amount of your pre-age 65 premiums thereafter.” The policy itself recited that “your” annual premium of $3,231.93 would be reduced to $1,615.97 after age 65. It also recited that “PREMIUM RATES ARE SUBJECT TO CHANGE,” and “MetLife reserve[s] the right to change premium rates on a class basis.” (The policy did not define “class.”)

Newman paid the elevated premium associated with the Reduced-Pay payment option until age 65, at which time it was reduced in half. However, after Newman turned 67, MetLife more than doubled the premium, resulting in the highest payment due under the policy so far. MetLife justified the rate hike by stating that it had been imposed on policyholders on a class-wide basis, and that Newman still paid half the premium of a Reduced-Pay policyholder who had not yet reached 65, and far less than if she had not selected the Reduced-Pay option.

Applying Illinois law, the Seventh Circuit ruled that the district court had erred by dismissing Newman’s compliant for breach of contract, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and common law fraudulent misrepresentation and fraudulent concealment.

Concerning the breach of contract claim, the Court of Appeals ruled that the policy was subject to more than one reasonable interpretation, thus rendering it ambiguous. In particular, the court cited the absence of a definition of “class” in the policy. However, the court ruled that, on remand, MetLife could introduce extrinsic evidence supporting its interpretation of the contract.

Regarding the statutory and common law fraud claims, the court ruled that Newman had sufficiently pled a deceptive act or practice upon which it intended Newman to rely. It added that MetLife’s actions were unfair because Newman, in reliance on MetLife’s promise of reduced premiums after age 65, had invested eight years of enhanced premiums that she now had no way of recovering.

On November 7, 2019, the district court gave preliminary approval to a settlement agreement of $1.3 million to class members who had been subjected to a premium rate increase after they turned 65, who had reduced their coverage so as to avoid a rate increase, or who had let their policies lapse as the result of a rate increase.   The settlement also prohibits MetLife from subjecting class members to further rate increases. Finally, the settlement provides for $5 million in attorneys’ fees to Newman’s counsel.

The Newman case provides hope for long term care policyholders faced with unexpected policy hikes. After Newman, courts within the Seventh Circuit will be less inclined to defer to blanket disclaimers that “premiums may increase at any time” to defy the reasonable expectations of policyholders. Of course, Newman involved particularly sloppy draftsmanship and may yet be limited to its facts. The decision also insurers to become more sophisticated in their disclosure of policy provisions related to premiums.

If you have been faced with a denial of long term care insurance or an unexpected rate hike, contact the attorneys at DeBofsky Sherman Casciari Reynolds P.C. at 312-561-4040 to discuss your rights.

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