An Ensemble Drama

Peter Bezich was surfing the web to find answers to a question he had about his insurance policy when he came across Stueve Siegel Hanson in Kansas City, Missouri. “He saw that we were investigating overcharges for cost of insurance coverage [in two cases] and called us,” says business litigator Patrick Stueve. 

Bezich, Stueve says, purchased a $200,000 permanent variable life policy—Lincoln Financial’s “Ensemble II.” 

“What he didn’t understand at the time he purchased the policy is that under the cost of insurance coverage [COI]—which is based on age, sex classification and health to determine mortality risk—[Lincoln National Life Insurance] was adding undisclosed hidden loads into the COI charge.

“You put premiums in and they deduct certain monthly charges,” he adds. “So when someone is overcharged for COI, that equals less money left over to cash fund the policy. So 13 years later, in his 60s, Mr. Bezich could no longer afford the policy.”

Stueve hired an actuary to look into the issue, who confirmed that there were substantial overcharges. “We discovered that for the first four or five years of his policy, 70 percent of Mr. Bezich’s COI was loaded with these undisclosed expenses,” he says.

What’s more, Stueve says, the actuary believed this was a systematic issue with all of Lincoln’s Ensemble II policies. 

Bezich alleged three claims of breach of contract against Lincoln—(1), that the insurance company had included non-mortality factors in determining the COI rate, (2), violated the expense cap by loading administrative fees and expenses into the COI rate and (3), failed to reduce the COI rate in response to improving mortality rates. 

In 2014, a trial court denied class certification on claims one and two, but granted it on the third. That case went up on appeal. 

“The Court of Appeals, in fact, believed that not only one of the claims should be certified, but all three claims should be certified,” Stueve says. “The court interpreted the policy consistent with our claim, which was that the insurance company was not authorized to load those hidden expenses without the authorization of the policy holder. It should be no different than if you buy a mutual fund: If there’s an expense load, you’re entitled to know about it before you buy. The bottom line is, a lot of folks don’t realize they’re getting overcharged.” 

Thanks to Stueve and co-counsel John Schirger of Miller Schirger, those folks got their day in court. 

You might say Stueve was bred to take such a case. “My father has been in the life insurance business for 50 years,” Stueve says. “One of the very reasons my father has sold very few of these types of policies is that they get expensive down the road, and for a lot of folks, even if you don’t add in the hidden expenses, they become so hard to afford. The whole idea of people buying these policies is that, theoretically, they are going to be in place when they die.”

Stueve says Lincoln admitted in discovery that, in addition to mortality factors, it added administrative and other expenses into the COI charge. “But they were not able to identify with any specifics besides ‘other’ expenses,” he says. 

In February 2016, after six and a half years of litigation, an Indiana court granted final approval in Bezich v. The Lincoln National Life Insurance Company for a $2.25 billion settlement—one of the largest of its kind. As part of Lincoln’s agreement, the company will issue term life insurance certificates to almost 80,000 policyholders.

“The settlement class included all Ensemble II policyholders in every state except New York and New Jersey,” Stueve says. “We brought this up to the court. At the time, when Lincoln issued these policies, they had to be reviewed, and both New York and New Jersey confronted Lincoln and said, ‘Please confirm COI won’t include expenses.’ … So what Lincoln did was it modified the language in those two states to explicitly state that, in addition to the mortality factors, that there could be additional expenses. So they knew darn well how to draft a policy to authorize these expenses.”