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Skochin v. Genworth Life Insurance Co.

United States District Court, E.D. Virginia, Richmond Division

August 29, 2019

JEROME SKOCHIN, et al. Plaintiffs,
v.
GENWORTH LIFE INSURANCE CO. Defendant.

          MEMORANDUM OPINION

          ROBERT E. PAYNE SENIOR UNITED STATES DISTRICT JUDGE

         This is a matter before the Court on MOTION TO DISMISS THE AMENDED COMPLAINT (ECF No. 39) (the "Motion to Dismiss"). For the reasons stated below, the Motion to Dismiss will be granted in part and denied in part.

         Jerome Skochin, Susan Skochin, and Larry Huber (the "plaintiffs") filed this proposed class action against Genworth Life Insurance Company ("Genworth"), alleging claims arising out of the plaintiffs' renewals of PCS Series III Long Term Care Insurance policies (the "policies"), a type of insurance policy provided by Genworth. The Amended Complaint (ECF No. 36) asserts claims for breach of contract, fraud, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1 et seq. (the "UTPCPL"). The facts reasonably and plausibly pled in the Amended Complaint are recited below. And, in doing so, the plaintiffs are given the benefits of all inferences that may be drawn from the well-pleaded facts.

         BACKGROUND

         The plaintiffs each bought the policies from Genworth. The Skochins reside in Pennsylvania while Huber resides in Maryland. Amended Complaint (ECF No. 36) ¶¶ 35-36. The plaintiffs allege that Genworth has steadily and substantially increased the premiums on the policies. Id. ¶ 1. Long Term Care Insurance ("LTC Insurance") is a type of insurance intended to defray costs of home care, assisted living care, nursing home care, and other specialized skilled facility care required when an individual can no longer perform the basic activities of daily life. Id. ¶ 3. Consumers usually begin buying these policies in their 50s or 60s, and, once they buy a policy from one of the providers, they usually never leave, because they have already put a significant sum of money in those policies, and because switching companies is quite expensive. Id. ¶¶ 6-7. Policyholders typically pay premiums on LTC insurance for 20-25 years before making a claim. Id. ¶ 54. Thus, the financial condition and stability of the company are very important when consumers choose a company. Id. ¶¶ 56-66. Most policies of this type have provisions allowing insurers to increase premiums if the increases are made across the entire policy class and if those new rates are first approved by the policyholder's state insurance regulator. Id. ¶ 9.

         Genworth is the largest provider of LTC insurance, and it previously emphasized that it had never raised rates in the decade in which it had provided LTC insurance, making the plaintiffs expect that Genworth would only make increases at a minimal rate. Id. ¶¶ 12-14. In 2004, although Genworth originally had marketed itself as stable because it was part of General Electric at the time, it was soon after spun off. Id. ¶¶ 69-70.

         Genworth represented in 2011 that it had a $17.91 billion reserve fund while only incurring $6.7 billion in claims. Id. ¶ 72. When the LTC insurance market began to fold in 2012 (with many large carriers exiting the market), Genworth remained stable. Id. ¶¶ 74-77. But Genworth ran into trouble in 2 014; it had significant decreases in its reserves. Id. ¶ 16. The plaintiffs allege that Genworth relied almost entirely on billions of dollars in future rate increases to plug its reserves. It is also alleged that Genworth needs to continue to make significant rate increases in the future if it is to remain viable. Id. ¶¶ 19-21.

         The plaintiffs allege that Genworth has not been honest with insureds, such as the plaintiffs, about the rate increases that it has sought, and will continue to seek, from insurance regulators. Id. ¶¶ 22-23. In 2013 and 2014, Genworth told investors and the SEC that it would have to increase rates at a rate of over 50% to preserve the requisite reserve levels. Id. ¶¶ 89-91. Genworth also told investors (but not policyholders) that its viability depended on significant price increases or benefit reductions in the policies. Id. ¶ 97. When Genworth did raise premium prices for the policies, Genworth told the plaintiffs only that it was "likely" that a premium rate would increase in the future, without telling the plaintiffs that Genworth had significant reserves holes and without disclosures that Genworth planned to increase premiums by at least 15 0% over the next few years (and maybe even more than 300% during that period). Id. ¶¶ 24-29. Although Genworth eventually included in its policy letters a description of phased-in premium increases each year, it did not begin the practice of including that information until 2018. id. ¶¶ 126-28. Further, as to the policies at issue here, Genworth has known for years that it needed to significantly increase its rates. For example, as of 2017, the future rate increases were estimated to be 350% in the next 5-9 years, allegedly material information that it did not disclose to its policyholders. Id. ¶¶ 130-38.

         All four counts of the Amended Complaint are predicated on Genworth's failure to adequately disclose certain information. In the plaintiffs' view, Genworth's disclosures fail in tour ways: (1) the disclosures fail to inform policyholders that Genworth initially requested approval for significantly higher increases; (2) the disclosures fail to inform policyholders of the magnitude of the rate increase requests; (3) the disclosures fail to inform policyholders that Genworth's internal testing shows that there will need to be premium increases that are double, triple, or even quadruple in the near future; and (4) the disclosures fail to inform policyholders that Genworth's asset adequacy testing and financial reporting depended upon massive rate increases to ensure that revenues were adequate. Id. ¶ 139. A look at the four claims shows how these failures to disclose are presented.

         Count One alleges a breach of the LTC insurance contract in two ways. First, Genworth is alleged to have breached the portion of the contract called the "LTC Insurance Potential Rate Increase Disclosure" section (ECF No. 36-4), which provides that "[t]he company will provide a description of when premium rate or rate schedule adjustments will be effective on the next policy anniversary date." Id. at 5, 10. That breach was accomplished because Genworth did not inform the policyholders that "certain increases it requested would be phased-in over several years and when those rate increases would take effect." Amended Complaint (ECF No. 36) ¶ 199.[1]

         Second, the plaintiffs allege in Count One that every LTC "contains an implied covenant of good faith and fair dealing," id. ¶ 211, and that Genworth breached is duty of good faith and fair dealing by:

a. Disclosing only that future rate increases were "possible" or "likely," but failing to disclose that each of Genworth's rate increases were part of a Rate Increase Action Plan that reqruired significant repeated rate increases in successive years;
b. Not disclosing that Genworth initially requested significantly higher increases than it was initially approved for, and that it planned to seek successive rate increases until the first phase of the Rate Increase Action Plan was fully implemented;
c. Not disclosing that Genworth's actuarial testing demonstrated it needed unprecedented additional rate increases to build adequate reserves to pay future claims throughout the relevant period;
d. Not disclosing that Genworth's internal actuarial testing included assumptions for billions of dollars in future (yet to be filed) rate increases; and
e. Not disclosing that if Genworth was unsuccessful in attaining these significant rate increases in the next six to nine years, that its LTC business would be significantly imperiled or that it might be currently insolvent.

Id. ¶ 215.

         Count Two alleges a claim for "fraudulent inducement" in that Genworth made inadequate factual disclosures by failing to disclose known information that was material to the decisions that the plaintiffs had to make when renewing the policies at higher premium rates. The specific alternatives that Genworth made available to the plaintiffs upon receiving notice of a premium increase were: (1) an increased premium to maintain the same benefits; (2) pay a lower premium for decreased benefits; or (3) elect the limited "non-forfeiture" option (basically fixed benefits) and pay no further premiums. Id. ¶ 221.

         According to the Amended Complaint, Genworth intended that the plaintiffs would rely on the knowingly inadequate disclosures in making the election among those three choices. Further, the plaintiffs allege that they made elections to renew their contracts without material information about Genworth's plans to substantially increase premiums and that "[h]ad they known the full scope and magnitude of Genworth's rate action plans, and the Company's reliance on massive rate increases in the future to remain viable, they would have made different policy option elections." Id. ¶ 224.

         Count Three alleges a claim for "fraudulent omission." In all material respects, Count Three is the same as Count Two. And, counsel for the plaintiffs so acknowledged at oral argument on the Motion to Dismiss. See July 12 Hearing Tr. (ECF No. 61) at 99:14-99:23.

         Count Four alleges a violation of the "Pennsylvania Unfair Trade Practices and Consumer Protection Law." Amended Complaint (ECF No. 36) ¶¶ 235-4 5. In essence, Count Four is the same fraud claim as Counts Two and Three, except that the UTPCPL has a slightly lower standard for what constitutes "deceptive conduct" compared to fraud.

         As relief, the plaintiffs request:

(1) certification of a class or classes;
(2) a judgment that the conduct alleged is unlawful; 3) an award of compensatory, consequential, and general damages; and ...

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