United States District Court, E.D. Virginia, Richmond Division
JEROME SKOCHIN, et al. Plaintiffs,
GENWORTH LIFE INSURANCE CO. Defendant.
E. PAYNE SENIOR UNITED STATES DISTRICT JUDGE
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.
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
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.
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.
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.
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. ¶¶
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.
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.
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.
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.
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.
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.
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.
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;