Preliminary injunctions in insurance class actions are relatively rare, which is why the recent decision granting such an injunction in Yue v. Conseco Life Ins. Co., 2012 U.S. Dist. LEXIS 46565 (C.D. Cal. Apr. 2, 2012), caught my attention.  The case involves life insurance products sold by Conseco Life that apparently became a particularly bad deal for the company.  There were fewer policy terminations than projected, and the death benefits projected to be paid out would result in substantial losses to the company.  (The business lesson here may be not to rely on such an assumption that many people will not continue to hold their policies.)  The policy had the following provision allowing a change in cost of insurance (COI) charges, which the company tried to take advantage of:

Current monthly cost of insurance rates will be determined by the Company based on its expectation as to future mortality experience.  Any change in such rates will apply uniformly to all members of the same age, sex, and premium class.

Id. at *2.  Conseco first tried to impose a future rate increase starting in the 21st year of policies, which would rein in its projected losses, but not result in any profits.  The court rejected that approach in a summary judgment decision, holding that the policy provision only allowed immediate, “current” changes, not future changes in rates, and that “expectation as to future mortality experience” was limited to increases in the rate of deaths, not increases in the payment of death benefits due to lower policy termination rates.

Conseco then tried another approach in 2011, implementing immediate and substantial rate increases for the vast majority of policyholders.  If, for example, the mortality rate for a particular class of policyholders was 47.466 per 1000 policyholders, the rate would become $47.466 per $1000 of coverage.  These rate increases were implemented notwithstanding that morality rates for the vast majority of policyholders had decreased.

The court came down hard on Conseco’s second attempt to implement a rate increase.  It certified a class of those policyholders who had not surrendered their policies, finding Rule 23(b)(2) certification proper because the class was seeking only injunctive and declaratory relief preventing implementation of the rate increase.  The court concluded that “[a]ny monetary relief sought by the class, such as the return of any additional COI charges deducted after the rate increase, would be incidental to the equitable relief sought by Plaintiff.”  Id. at *27.  The court also indicated that it would consider certification of a class of policyholders who had surrendered their policies if an appropriate representative of that proposed class joined the suit. 

The court went on to grant a preliminary injunction.  It found a likelihood of success on the merits because it concluded that the policy provision quoted above likely did not allow a rate increase where it was the insurer’s expected losses, not actuarial mortality rates, that were increasing.  The court explained that “in order to ‘base’ COI rates on expected mortality rates, Conseco must consider the relationship between current and past expected mortality rates and determine how those rates have changed.”  Id. at *35.

What I found most significant was the court’s finding of imminent irreparable injury in a manner that seems to have potentially broader application:

The Court finds that without a preliminary injunction, policyholders are likely to suffer imminent irreparable harm. It is common knowledge that people purchase insurance policies for “security” and “peace of mind.” See Weinberger v. Wiesenfeld, 420 U.S. 636, 642, 95 S. Ct. 1225, 43 L. Ed. 2d 514 (1975) (comparing social security benefits to insurance because they provide “security” and “peace of mind”). In the context of life insurance, the “security” being purchased is the knowledge that the policies’ designated beneficiaries will be left with some degree of financial support when the insured passes away. When policyholders face large, unanticipated increases in charges, the “peace of mind” they paid for is irreparably lost — instead, they are left with stress, anxiety, and uncertainty regarding the state of their life insurance.

 . . .

If a policyholder surrenders her account while this case is pending, she may never be made whole, even if Plaintiff is ultimately successful in this case. Some surrendered policyholders may pass away without life insurance, resulting in their having suffered an emotional injury — failure to provide for their loved ones — that no monetary award could ever compensate. Others may be eligible for reinstatement but may have purchased a policy with another insurer, making it difficult to calculate damages. Still others may have invested their accumulation accounts elsewhere, making reinstatement impossible. These are but some of the irreparable injuries that may result. The Court recognizes that the aforementioned injuries are speculative, but these are not the injuries that warrant a preliminary injunction here. The immediate irreparable threat common to all class members is that without a preliminary injunction, they will be deprived of the opportunity to make an informed decision that would help them avoid the above scenarios. In other words, if Plaintiff is correct, policyholders are currently being forced to make a choice that they should not have to consider in the first place. Monetary damages cannot turn back time and return to any class member the right to be free from being compelled to make a choice that would prevent irreparable harm. It is precisely this type of situation that warrants preserving the status quo until a decision is made on the merits.

Id. at *40-43 (boldface added).

What troubles me is that, aside from bad faith claims, which the court is not dealing with here, the concept that people buy insurance for “security” and “peace of mind” is not something that the law of contracts generally finds to be relevant to judicial analysis, let alone grounds for a preliminary injunction.  There are all kinds of situations in which “security” and “peace of mind” are factors in consumer relationships with businesses.  When people put money in a bank they presumably do so because they have a sense of security that the bank is a better place than holding cash in a safe at home, and they have some sense of security in the bank they choose (and perhaps the FDIC).  When the court talks about people dying without life insurance and sustaining a non-compensable emotional injury (presumably pre-death?), again I’m wondering why that is not the kind of loss that money damages really can compensate – all the beneficiaries would be entitled to is money, i.e., the policy proceeds, and those can be paid later, with interest.  Difficulty in calculating damages also is typically not grounds for an injunction.  Preliminary injunctions are appealable as of right, and perhaps the Ninth Circuit will weigh in here.