Regulators, ACLI Mindful Of Modal Premium Cases

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Lawsuits regarding modal premiums–or paying premiums in installments rather than at one time, and usually at a higher rate–are impinging on the ability of state insurance commissioners to oversee insurance regulation, leaving decision-making to juries, according to one regulator.

Speaking at a recent legal seminar, Larry Mirel, District of Columbia commissioner of insurance and securities, said the complaints cited failure to provide an annual percentage rate for these fees as an unfair trade practice.

Among the cases Mirel cited was a suit against Massachusetts Mutual Life Insurance Company, Springfield, Mass., for approximately $10 million. An original proposed settlement that would have gone largely to plaintiffs attorneys, was withdrawn, he said, and now plaintiffs will receive $50 off the purchase of their next MassMutual policy.

The American Council of Life Insurers, Washington, is tracking 17 such class-action suits, 16 of which are in New Mexico, says Carl Wilkerson, ACLI chief counsel of securities and litigation.

The common thread running through the cases the ACLI is tracking, according to Wilkerson, is that they allege that the federal Truth in Lending Act has been violated. Modal premiums payments are not lending situations, so the argument is misplaced, he contends.

The ACLI argued its position in an amicus brief filed in the case of Azar v. Prudential Insurance Co. of America. The case reached the New Mexico Appellate court and was remanded to the district court where it is currently pending.

The case centers around disclosing APRs as well as the dollar difference associated with different payment options.

In a decision filed in January of this year, the Appellate Court found that although Prudential may have a duty to provide consumers with such information, issues of fact remain as to the materiality of the undisclosed information. It also remanded the case because it was not clear why Prudentials request to have the issue handled by the insurance department was denied by the district court.

In its opinion, the court found that the Truth in Lending Act does not preempt state law claims.

John Hancock Financial Services, Boston, also entered into a settlement agreement for $19.5 million in July 2002 in McCall v. John Hancock. The case affects roughly 1.5 million customers and a variety of life insurance products offered by Hancock.


Reproduced from National Underwriter Edition, May 12, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.