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Protective Life asks court to toss complaint over allegedly inflated charges, claims it is time barred

By John Breslin | May 15, 2019

BIRMINGHAM, Ala. (Legal Newsline) – An insurance company is seeking the dismissal of a potential class action over alleged inflated monthly charges being pursued by representatives of a trust formed out of the bankruptcy of a high-profile life settlement company.

Alabama-headquartered Protective Life Insurance was sued in U.S. District Court for the Northern District of Alabama by Advance Trust and Life Escrow Services, a division of Texas law firm, Dunnam and Dunnam, in August 2018.

Advance Trust is the named plaintiff but it is suing on behalf of Life Partners Position Holder Trust, which was formed to manage investors' interests following the bankruptcy re-organization of Life Partners, a Waco,Texas-based company headed by businessman Brian Pardo.

Life Partners bought life insurance policies for cash. Normally, such companies then sell on to institutional investors who collect the death benefit when the holder passes away.

However, court hearings, including the bankruptcy proceedings, revealed how Pardo and his company sold "fractionalized" interests in the $2.4 billion portfolio to some 22,000 retail investors, many of them elderly, who later found they faced strict premium payment requirements.  

The trust has filed a number of class actions in various parts of the country based on those life insurance policies. In the Alabama action and others, the plaintiff claims Protective wrongfully inflated the cost of insurance (COI) charges.

It is alleged that Protective hiked charges based not on expectation of mortality, as is supposed to be the industry standard, but solely as a way of increasing profits.

Protective sought a judgment on the pleadings in October 2018, essentially asking the court to toss the suit based on what has already been filed and without hearing any further evidence.

The defendant argued in its brief in support of the motion that any breach of contract claim is barred by Alabama's statute of limitations, which, the motion states, is six years under the state's contract law. The claim also fails under the state's "rule of repose," where legal rights are annulled if not acted on by a certain point, Protective argues.

In support of its argument, Protective also took aim at the plaintiff, describing it as "not a typical policyholder."

"In a typical life insurance situation, an individual purchases a life insurance policy insuring that individual’s own life or the life of a loved one," the life insurance company stated, adding that the premiums are paid, a beneficiary is named, and a payout is then made at the time of death.

The brief continues: "In this case, the plaintiff describes itself as 'Advance Trust & Life Escrow Services, LTA, as securities intermediary for Life Partners Position Holder Trust.'

"Advance Trust was created out of a bankruptcy proceeding from a life settlement company that purchased life insurance policies from individuals, who originally owned the policies, and then sold interests in those life insurance policies."

The brief added, "The trust here is essentially engaged in the business of wagering on the life expectancy and death of strangers."

Advance, in its response to the motion for judgment filed in November 2018, said the action cannot be time barred because the "monthly breaches of an in-force life insurance policy" continued well within the six year limit.

To argue for dismissal on the basis that some of the breaches happened outside that limit is "contrary to Alabama law and has been consistently rejected by state and federal courts around the country," it said.

Advance filed a motion to amend its complaint in January. This, according to the filing, was because the plaintiff allegedly discovered that Protective increased COI rates at some points relevant to the action.

"Protective’s futility defense ignores the plain language of the Alabama Code," Advance argues, adding that it states that actions related to a contract start within six years.

"...The statute requires that an action commence within six years of a breach, and that is exactly what the FAC (first amended complaint) alleges: impermissible COI deductions within the past six years," the motion states.

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