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Regulation and Compliance > Litigation

Allianz Sued for ‘Assessing a Surrender Charge on the Surrender Charge’ in VAs

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What You Need to Know

  • Allianz performed an improper extra-contractual application of grossing and netting, according to a lawsuit.
  • Allianz deducts surrender charges from the requested withdrawal amount, contractually disallowed.
  • Allianz is assessing excess charges as a matter of uniform application, the plaintiffs state.

Allianz Life Insurance Co. was hit with a lawsuit Monday for “assessing a surrender charge on the surrender charge” on its variable annuity contracts.

The plaintiffs, who are seeking class-action status, assert that Allianz improperly charged all variable annuity contract holders with respect to “surrender charges” in connection with administration of variable annuity contracts issued by Allianz.

According to the suit, filed in the U.S. District Court for the Eastern District of Texas, Allianz performed an improper extra-contractual application of “grossing and netting.”

Allianz “will ‘gross up’ the requested withdrawal by formulae and simply charge the respective withdrawal charge on the larger ‘grossed up’ withdrawal amount instead of the actual amount requested,” the plaintiffs contend. “By modifying the requested withdrawal amount internally, the contract owner receives the expected amount in cash as per the service form.”

Allianz “breaches its contract language by then dividing the excess withdrawal amount by the formulae (amount of withdrawal subject to penalty divided by 1 — the applicable penalty percentage) resulting in the contract owner suffering a larger surrender charge than contractually owed,” according to the complaint.

In this way, Allianz “is able to use the sum-of-an-infinite series calculation to charge surrender charges on surrender charges themselves,” the plaintiffs state.

Alternatively, according to the plaintiffs, Allianz will “net down” the requested withdrawal by formulae after calculating the withdrawal charge on the entire requested withdrawal amount.

Allianz “breaches its contract language by simply deducting the entire surrender charge from the contract owner’s check which forces surrender charges themselves to become subject to their own surrender charges,” according to the suit.

Allianz, the plaintiffs continue, “is required to issue the contract owner a check equal to the requested withdrawal amount and deduct the Withdrawal Charge from the remaining Contract Value (or Bonus Value) as separate deductions of Accumulation Units, and then internally reduce the Purchase Payments and Withdrawal Charge Basis in their proper amounts.”

Instead, according to the plaintiffs, Allianz “deducts surrender charges from the requested withdrawal amount, contractually disallowed, which ensures that surrender charges themselves are subject to their own surrender charges.”

The plaintiffs state: “Given the astounding level of the variable annuity sales to elderly individuals, one would think that charges which are assessed by Allianz against the savings of retirees and other variable annuity contract holders Allianz would be scrupulously fair in assessing such charges. In fact, however, that is not the case, and instead, Allianz is assessing excess charges as a matter of uniform application of its methodology and breaching the terms of its contract as to all contract holders who incur such charges.”

Allianz told ThinkAdvisor: “While we cannot offer any additional comment at this time, we fully intend to defend ourselves against these claims.”

The plaintiffs are seeking to represent a class of annuity holders affected by the surrender charge calculation method and living in every state but Texas and New York.

The plaintiffs are also seeking to represent a separate class of affected annuity holders living in Texas.