A relatively consistent flow of premium rate increase litigation has been filed against long-term care (LTC) carriers over the past several years. Following the plaintiffs’ bar having early success in a limited number of LTC rate increase class actions in the early 2000s, the tide turned definitively in favor of carriers in what we think of as the first generation of such litigation, where the plaintiffs’ bar focused primarily on an alleged duty to disclose possible rate increases and challenging the language of the contract itself. Despite the industry’s overall success, premium rate increase litigation has attracted an increased level of sophistication from the plaintiffs’ bar, which shifted to more creative theories based on extra-contractual representations (e.g., marketing materials) in what we view as the second generation of premium rate increase litigation. While the industry remains mostly successful in warding off rate increase litigation, a new trend may be developing as recent cases focus on more nuanced contractual limitations and rate increase implementation issues.
First Generation Premium Rate Increase Litigation
First generation premium rate increase complaints typically asserted claims of some combination of breach of contract, fraud, bad faith, violations of unfair trade practices statutes, and unjust enrichment, supported by allegations that the carriers knew the policies were underpriced at the time of sale, intended to close blocks knowing that doing so may lead to financial losses, and intended to raise premiums to encourage “shock lapse.”
Alvarez is one of the industry’s early generation class action victories and it set the tone for the industry’s defense against challenges to insurers’ contractual right to raise premiums. In Alvarez, the plaintiff’s complaint was a typical bait-and-switch theory.