A federal appeals court has decided that, under federal securities laws, a children’s term life rider should be reviewed separately from the primary insured’s variable life policy.
A 3-judge panel of the 2nd Circuit Court of Appeals has ruled unanimously in Ring et al. vs. AXA Financial Inc. and Equitable Life Assurance Society of the United States that a district court should distinguish between the children’s term life rider and the underlying variable life policy when applying the Securities Litigation Uniform Standards Act of 1998.
Joshua Rose, a Washington lawyer who represents Shirley Ring, the lead plaintiff, and other plaintiffs in the case, has argued that Equitable, a unit of AXA Financial Inc., New York, violated the New York state consumer protection law by continuing to bill parents for children’s term life riders after the children reached age 25 and no longer qualified for rider coverage.
SLUSA preempts state-law securities claims.
Lawyers for Equitable had asked the courts to dismiss the Ring suit state-law claims, arguing that the variable life policies and children’s term riders in question should be considered together as securities covered by SLUSA, Circuit Judge Rosemary Pooler writes in the decision for the 2nd Circuit.
The U.S. District Court in New York agreed with Equitable that the children’s term rider was part of a SLUSA-covered security.
The 2nd Circuit vacated the District Court judgment and returned the case to the District Court with instructions to send it back to the New York state court.
“The fact that the [children's term rider] can be appended to either a whole life policy or a variable life policy, does not change the character of the [rider] depending on the product to which it is attached,” Pooler writes in the 2nd Circuit decision. “The [rider] standing alone is pure insurance, with the underwriting risks borne by the insurer and no residual value remaining at the end of the term. The [rider] does not take on the qualities of the insurance or annuity with which it must be purchased simply because it cannot be sold alone.”
The 2nd Circuit decision “did not rule on whether plaintiff stated a valid claim under the laws of New York,” AXA Equitable says in a statement about the ruling. “The decision narrowly held that for purposes of removal to federal court under the federal securities law, the children’s term rider can be treated separately from the primary insured’s policy. We believe that the premium schedule for the children’s term rider was appropriately disclosed and intend to vigorously defend the lawsuit.”