Smith Phillips Mitchell & Scott ...when results count.

Life Insurance Deceptive Sales Practices Litigation in Mississippi

By Richard T. Phillips
Smith Phillips Mitchell Scott & Rutherford
103 Bates Street
Batesville, Mississippi 38606
(662) 563-4613
www.smithphillips.com

"Alabama is the worst state in the union to litigate a deceptive sales practices case -- and Mississippi is not far behind. . . . All the good decisions in the world are of no use [in Alabama and Mississippi.]"

    Insurance Company Speaker at ALI-ABA Conference
    on Life Insurance Litigation, New York, May 1999.

Introduction

Over the past few years, I have had the pleasure of visiting New York on numerous occasions as the representative of life insurance policyholders pursuing "vanishing premium" and deceptive sales practices claims against insurance companies headquartered in the city. In May of this year, I was in New York for the annual ALI-ABA Conference on Life Insurance Litigation held by the American Law Institute and American Bar Association. As usual, policyholders’ representatives were a minority at the conference. The program is attended primarily by attorneys from throughout the country who defend life insurance companies in deceptive practices litigation and by in-house counsel who, from the home offices of the companies, seek to avoid litigation or the practices that give rise to it.

One of the speakers at the conference was a litigation partner in a prestigious New York law firm who is an able and extremely effective representative of a number of life insurance companies in deceptive sales practices cases throughout the country. He and I have appeared opposite each other in cases and hearings in such cases in Mississippi, South Carolina, New York, and Massachusetts.

After reviewing a number of reported decisions, primarily from New York, in which insurance companies prevailed in vanishing premium and deceptive sales practices cases, the speaker declared 1998-99, "A Vintage Year for Insurance Company Defendants" -- the title of his paper. He noted, however, there exist certain exceptions to his thesis, "primarily in the South -- Alabama, Mississippi, Texas and Florida." It was in off the cuff remarks based on experience that my colleague made the statement quoted above about litigation of these cases in Alabama and Mississippi.

Because I was scheduled to speak the next day at another seminar in the city, I was particularly interested in the above statements. I was to speak on "Sales Practices Litigation Against Insurance Companies: The Plaintiffs’ Perspective" as the only plaintiffs’ representative at a Defense Research Institute (DRI) program entitled, "Business Litigation: Representing the Financial Services and Insurance Industries."

Life insurance company-defendants and their counsel in deceptive sales practices cases seem to attribute the results in Mississippi cases to a perceived ignorance on the part of residents of the state (jurors, lawyers and judges included), or some insurmountable prejudice shared by all residents of the state against business in general. Our current Governor, Kirk Fordice, occasionally helps foster these erroneous attributions. The WALL STREET JOURNAL recently reported Governor Fordice as stating in a letter to the NAFTA Dispute Resolution Tribunal that the $500 million verdict in the Loewen Group case was the result of "xenophobic rhetoric" which "deprived [the Canadian company] of fundamental rights of due process." See, WALL STREET JOURNAL, January 13, 1999, "Loewen Seeks $725 Million from U.S.," reporting on claim by Canada’s Loewen Group under North American Free Trade Agreement. [Loewen claims the Mississippi civil justice system denied it minimum standards of justice required by international law. The company is reported as having submitted a letter from Governor Fordice in support of its claim.]

In fact, as recent life insurance deceptive sales practices litigation makes clear, the differences in the outcomes in "vanishing premium" and deceptive sales practices cases are largely a result of differences in particular laws which apply in these cases. These differences in state law appear to reflect cultural differences which may have helped give rise to the deceptive sales practices problem to begin with.

Life Insurance Deceptive Sales Practices Litigation
An Overview

The life insurance sales practices cases of recent years fall into three categories: (1) cases involving the disguise and misrepresentation of life insurance policies as "retirement accounts," (2) cases involving "churning" or improper replacement practices, and (3) cases involving the sale of so-called "vanishing premium" policies.

1. "Retirement" cases
An example of deceptive "retirement" sales practices may be found in the early MetLife "nurses retirement" cases from Florida. In 1993-1994, the Insurance Departments of the state of Florida and thirteen other states charged Met Life with deceptive sales practices as a result of actions by Met Life agents operating from the company’s Tampa, Florida regional office. The agents were selling life insurance in the guise of a "retirement plan" through nurses’ benefit organizations.

In January, 1994, BUSINESS WEEK reported on the Met Life "nurses scam" in a national feature article. Met Life paid fines totaling $20 million to the states and refunds to 60,000 policyholders allegedly defrauded by the scheme. "Met Life Will Pay $20 Million to States to Settle Charges Tied to Sales Practices," March 8, 1994 WALL STREET JOURNAL. A number of successful civil actions have occurred throughout the country where "pockets" of agent misconduct involve misrepresentation of life insurance as "retirement accounts."

2. "Churning" cases
"Churning," or improper policy replacement, is an old and widely condemned practice employed in life insurance sales. "Churning" the policies of a regular customer produces large new commissions for the agent at the expense of the customer. Seldom is it in the best interest of a policyholder to start over with a new life insurance policy. Most of the first-year premium is swallowed up in commission; the premium is higher because the insured is older; and the "waiting" periods begin anew.

Virtually all regulatory and industry organizations condemn the practice of "churning." In spite of widespread condemnation, it is estimated that 30% of all new life insurance sales are replacements. Gordon Williams, "The Good Life," FINANCIAL WORLD, May 20, 1996.

"Churning" clients’ policies is encouraged by the commission structure of many life insurance companies. Agents are paid high first-year commissions, followed by lower subsequent renewal commissions. (Insurers often pay salespersons up to 80% of the first year premium on life insurance policies with greatly reduced commissions thereafter. Black & Skipper, LIFE INSURANCE, 12th Ed., [Prentice Hall, 1994], p. 103.) This agent compensation practice is slowly changing, in part because of the recent sales practices litigation. The WALL STREET JOURNAL reported in October, 1995, for instance, that Prudential Insurance Company was changing its agent compensation procedures in an effort to curb abusive sales practices such as "churning." "Prudential Changing Agent Incentives; Move Seen as Bid to Alter Sales Practices," WALL STREET JOURNAL, October 13, 1995.

"Churning" problems were exacerbated by the rise of "vanishing premium" insurance. As explained below, vanishing premium coverage was the perfect tool for agents to use to "churn" existing policies. What really gave rise to the sales abuses driving the current deceptive sales practices litigation was development of the "vanishing premium" sales technique in the 1980's.

3. "Vanishing premium" cases
The third category of deceptive sales practices cases is "vanishing premium" cases. The real story of the current deceptive sales practices litigation explosion is, part and parcel, the story of "vanishing premiums."

"Vanishing Premium" Litigation

Background
"Vanishing premium" insurance is a creature of the times. In the late 1970’s, the life insurance industry was revolutionized by (1) introduction of new interest-sensitive life insurance products, and (2) development of computer technology. Interest-sensitive Universal Life (UL) afforded flexibility in premium payments and contemporaneous interest rates for the investment aspect of the policies.

New "enhanced" participating products involved complex combinations of whole life insurance, term insurance, and paid-up additions in such combinations and proportions as to allow adjustable premium levels and/or face amounts. Policy dividends, additional premiums, and "dump ins" were used to purchase paid-up insurance.

Complex new products were interest sensitive. Employing computer-generated "vanishing premium" sales illustrations, agents would show customers how they could "roll over" the cash value from existing policies, or make only a limited number of premium payments, and the premium on their new policies would "vanish" so that no further cash outlay would be due.

Vanishing premium life insurance never would have been possible without the development of the computer. Complex pricing calculations were done internally by sales illustration software. The computer would then produce a "ledger" or "sales illustration" with columns of figures illustrating the performance of the resulting vanishing premium "product." The result was a highly effective new sales tool -- the computer-generated "sales illustration."

The "pitch" for vanishing premium insurance was simple and effective: "Make just a limited number of premium payments and your life insurance premiums will ‘vanish.’ The ‘dividends’ will carry the premium from then on. You’ll never have to make another cash outlay for life insurance." There it was in "black and white" on the computer-generated sales illustration on company letterhead. Projected death benefits on "vanishing premium" illustrations increased to figures many times the original face amount of the insurance.

A "Ticking Time Bomb"
Vanishing premium insurance was an immediate success. As vanishing premium sales mushroomed, the marketing and product development departments of aggressive life insurance companies developed ever-more competitive variations of the products. In the competition for faster-vanishing products, more aggressive -- and more volatile -- products were developed.

New products employed internal borrowing and other actuarial devices to shorten the vanish period. Illustrations for "Single Premium Drop In Riders" (SPDIR) illustrated funding new policies with a one-time payment, usually a "rollover" from an existing policy. New and highly volatile portfolios were established to capitalize on interest rates which were at historic highs. Purchasers were not told that even slight reductions in dividend interest rates would cause the "vanishing premiums" in policies so illustrated to "re-appear."

Life insurance companies soon became addicted to the huge stream of income generated by vanishing premium sales. Just as vanishing premium sales reached their zenith in the mid-1980's, however, interest rates started to fall. On highly leveraged products, a reduction of a single percent in the dividend interest scale would cause the "vanish year" to extend for years. No company wanted to be the first to reduce their interest scales.

Hoping interest rates would turn back up, the companies began a game of "chicken," each waiting for the other to reduce its dividend scale first. In May, 1986, The AMERICAN BANKER quoted Robert MacDonald, president of the ITT Life Insurance Group, as saying: "Insurers are still crediting these high rates because they’re scared to lower them and lose market share. The marketing people and the agents are screaming they’ll lose customers if they lower the rate." A managing principal of Tillinghast, Nelso & Warren, Inc, a leading insurance actuarial and consulting firm, called it "‘playing chicken’ with credited interest rates." "They’re playing chicken," wrote syndicated consumer reporter Jane Bryant Quinn on January 20, 1986, "Nobody wants to be the first to cut [the rates at which they are illustrating.]."

Without telling customers, many companies continued to illustrate at rates no longer supported by their earnings. The companies gambled that interest rates would turn back up. Prospective purchasers, however, were not told of the gamble. Little did they know that, in order for their premiums to vanish as illustrated, the life insurance company would have to go back to earning returns at rates it had not seen since the early 1980’s.

Interest did not turn back up, but continued to decline throughout the rest of the decade. By 1990, the "house of cards" had crumbled and the vanishing premium "time bomb" was ready to explode.

Deceptive Sales Practices Litigation

By the early 1990’s, premiums, which according to the sales illustrations were supposed to have "vanished," were coming due. Complaints were logged by the thousands from policyholders who thought their policies were "paid up." MONEY MAGAZINE dubbed vanishing premiums one of "The Eight Biggest Rip-Offs in America." [MONEY Magazine, August, 1995.] NEWSWEEK called for a federal investigation similar to the one that uncovered massive deception in the life insurance industry at the turn of the century. "Here They Go Again," Jane Bryant Quinn, NEWSWEEK, February 7, 1994.

Legislative inquiries were too late to provide policyholder relief. Public opinion demanded a remedy. The author of this paper was reported in NEWSWEEK as saying "When public opinion gets ahead of the legislative process, the place that people turn is to the courts." NEWSWEEK, Feb. 7, 1994. And turn to the courts they did.

Individual Cases for Deceptive Sales Practices
Early suits alleging deceptive sales practices were won by insurance companies. The companies blamed problems on "misunderstandings" by purchasers or sales abuses by individual "rogue" agents. Soon, in cases such as the Mississippi Crown Life litigation, the legal approach employed by the plaintiffs began to change. Recognizing that the problem rested not with the policies, but with the method by which policies were illustrated and sold, vanishing premium plaintiffs began to focus not on the contract, but on the sales presentations and sales illustrations generated on company-produced software. Liability of companies, as well as individual agents, arose from fraudulent inducement, intentional misrepresentation, and fraudulent concealment. See, e.g., Ferrell v. Crown Life, No. 2:93-CV-29-B-O, United States District Court for the Northern District of Mississippi, consolidated with Dunlap v. Crown Life Insurance Company, No. 2:94CV204-B-O.

Vanishing premium litigation was soon a "new ballgame." Defenses employed by the companies were no longer supported by known facts in the vanishing premium cases:

Disclaimers on the illustrations.
Illustrations contained language in footnotes such as "Dividends are not guaranteed and are expected to change." Defendants had employed this language as an absolute defense. Universally omitted from the disclaimer language, however, was any information about the volatile actuarial assumptions upon which the illustrations depended, the highly leveraged nature and extreme volatility of the vanishing premium products, the rate of interest upon which the dividend factor depended, or the effect of even slight reductions in the dividend interest rate in causing the "vanished" premiums to "re-appear."

Frequently disclaimer language not only omitted significant facts, but actually contained misstatements of facts. Disclaimers would say "Dividends are based on the current scale and reflect the company’s current investment experience" when current earnings were actually less than the rate being employed to generate rapid "vanishes" on the vanishing premium sales illustrations.

Illustration not a contract.
The defense that the policy, not the illustration, controlled the transaction worked in states such as New York. See, e.g., Goshen v. Mutual Life Insurance Company of New York, No 95-600466, Supreme Court of New York, County of New York [applying New York’s "merger-integration" law.] In Mississippi, however, the cases arose not from the policy "contracts" but from the misrepresentations and omissions, used to induce the purchase of the contracts. Such practices give rise to viable actions in Mississippi. See, e.g., Kuzenski v. Connecticut Mutual and Eustice Raines, Cause No. 96-0178, Circuit Court of Attala County [Order Denying Motion of Defendants to Dismiss]; Myers v. Guardian Life Insurance Company, 5 F.Supp.2d 423 (N.D. Miss. 1998).

Statute of Limitations.
Because the bulk of the vanishing premium sales occurred in the mid-1980’s, defendant companies frequently raised the statute of limitations defense. In Mississippi, however, as in most Southern states, active fraudulent concealment extends the statute of limitations. See, MISSISSIPPI CODE §15-1-67;

Not only had the companies concealed material matters at the time of the sale, but they continued to conceal the volatile nature of the products as interest rates declined. Efforts to "explain" the problem to customers without revealing the deceptive nature by which the sales had been induced took the form of continued active concealment.

Non-actionable statements regarding future events.
Efforts by insurance company defendants to portray the alleged misrepresentations as "relating to future events" also failed. Claims for fraudulent misrepresentation cannot be predicated on promises relating to future events. No one knew what interest rates were going to do in the future. The misrepresentations and concealment upon which the vanishing premium cases were predicated, however, were not promises relating to future events. They were misrepresentations of current matters. Even viewed in "freeze frame," they illustrated omissions and concealment of material facts known to the vanishing premium purveyors at the time of sale.

The tide turned with a vengeance. Insurance companies which had sold massive amounts of vanishing premium coverage faced million dollar jury verdicts in "vanishing premium" cases. More cases were obviously on the way and the cost to the industry eventually would be staggering.

Class Actions and Multidistrict Litigation
A. Class Actions
As individual cases against vanishing premium purveyors proliferated, it became apparent that class actions would be an effective way to resolve "vanishing premium" disputes. As to each individual company, the claims of that company’s policyholders were often identical. Each claim arose from similar sales practices, usually involving standardized sales materials and training. Each computerized vanishing premium sales illustration was prepared using identical company-developed and company-distributed computer software. Each illustration employed, and depended for its performance on, the same underlying actuarial assumptions and devices.

Class actions were filed in both state and federal courts throughout the nation. e.g., Texas: Justice v. Great-West Life Assurance Co., 94-3155, Dist. Ct. Dallas County, Texas (Aug. 1, 1995); Nickle v. Crown Life Insurance Company, No. M-96-238, United States District Court, S.D. Tex. (1995); New York: Willson v. New York Life Ins. Co., 1995 N.Y. Misc. LEXIS 652 (N.Y. Supp. Ct. Feb. 1, 1996); Michels v. Phoenix Home Life Mut. Ins. Co., No. 5318-95 1997 N.Y. Misc. Lexis 171 (Albany Sup. Ct., Jan. 3, 1997); Mississippi: John L. Burwell, Jr., Karen Burwell, Robert O’Connor, Marcella O’Connor and Robmar Holding Co., Inc., Individually and on Behalf of Others Similarly Situated v. The Manufacturers Life Insurance Company, the Manufacturers Life Insurance Company of America, and the Manufacturers Life Insurance Company (U.S.A.), Civil Action No. 4:96CV41-B-B (United States District Court, N.D. Miss.) [subsequently transferred and consolidated by the Judicial Panel on Multidistrict Litigation (see below) as In re Manufacturers Life Insurance Company Premium Litigation, MDL Docket No. 1109 (United States District Court, S.D. California); Edward A. Landrum, Individually and on Behalf of all Others Similarly Situated v. Sun Life Assurance Company of Canada, No. 4:95 CV 409-B-B (N.D. Miss.), transferred and consolidated as In re Sun Life Assurance Company of Canada Sales Practices Litigation, MDL Docket No. 1102 (United States District Court, New Jersey); Chain v. General American Life Insurance Company, Civil Action No. 4:96CV046-B-B (N.D. Miss.), transferred and consolidated as In re General American Life Insurance Company Sales Practices Litigation, MDL Docket No. 1179 (United States District Court, E.D. Mo.); Snipes et al v. Mutual of New York, Civil Action No. 4:95CV400-B-B, (N.D. Miss.) transferred and consolidated as In re Mutual Life Insurance Company of New York Sales Practices Litigation, MDL Docket No. 1143 (U.S. Dist. Ct. Massachusetts; McRaney et al v. New England Mutual, Civil Action No. 4:95CV406-B-B (N.D. Miss.) transferred and consolidated as In re New England Mutual Life Insurance Company Sales Practices Litigation, MDL Docket No. 1105 (United States District Court, Massachusetts); Massachusetts: Duhaime v. John Hancock Mutual Life Ins. Co., No. 96-10706 GA), 1997 U.S. Dist. LEXIS 21157 (D. Mass. 1997); California: Natal v. Transamerica Occidental Life Ins. Co., Case No. 694829 (Cal. Sup. Ct. San Diego County); Green v. Metropolitan Life and Annuity Co., No. 969547 (Cal. Super. Ct. 1997); Florida: Elkins v. Equitable Life Assurance Co. of Iowa, No. 96-296-CIV-T-17B, 1998 U.S. Dist. LEXIS 1557 (M.D. Fla. Jan. 27, 1998); Hearth v. First National Life Ins. Co., No. 95-818-CIV-T-21A (M.D. Fla. 1996).

In Mississippi, a state with no Rule 23 class actions in state court, class actions had to be filed either in Federal Court or under ancient common law "equitable class action" procedures in Chancery Court. e.g., federal class actions, John L. Burwell, Jr., Karen Burwell, Robert O’Connor, Marcella O’Connor and Robmar Holding Co., Inc., Individually and on Behalf of Others Similarly Situated v. The Manufacturers Life Insurance Company, the Manufacturers Life Insurance Company of America, and the Manufacturers Life Insurance Company (U.S.A.), Civil Action No. 4:96CV41-B-B (United States District Court, N.D. Miss.); Edward A. Landrum, Individually and on Behalf of all Others Similarly Situated v. Sun Life Assurance Company of Canada, No. 4:95 CV 409-B-B (N.D. Miss.); Chain v. General American Life Insurance Company, Civil Action No. 4:96CV046-B-B (N.D. Miss.); Snipes et al v. Mutual of New York, Civil Action No. 4:95CV400-B-B, (N.D. Miss.); McRaney et al v. New England Mutual, Civil Action No. 4:95CV406-B-B (N.D. Miss.). For an example of case seeking "equitable class action" status in state chancery court, see, Jo Ann Lott v. Phillip Kennedy, William P. Meagher, and Massachussetts Mutual Life Insurance Co., Cause No., 96-11-1340, Chancery Court of Desoto County, Mississippi [motion to dismiss on grounds of non-existance of state court class action procedures denied.]

The NEW YORK TIMES reported on July 19, 1995 that seven (7) major life insurance carriers were at that time defendants in various class action suits seeking damages for "vanishing premium," "churning," and other deceptive sales practices. NEW YORK TIMES, July 19, 1995. By September, 1998, according to REINSURANCE MAGAZINE, the number of "vanishing premium" class action suits filed against U.S. and Canadian life insurers had reached one hundred (100). At the ALI-ABA "Fourth Annual Life Insurance Litigation Seminar" in New York last month, defense counsel reported the number at now over one hundred and fifty (150). [May, 1999].

Class Action Settlements
New York Life was the first carrier to seize upon the class action as a means of resolving its vanishing premium problem on a "global" basis. On August 14, 1995, New York Life announced it was settling a state court class action brought on behalf of all its vanishing premium customers. "New York Life Agrees to Settle Lawsuit Over Its ‘Vanishing Premium’ Policies," WALL STREET JOURNAL, August 15, 1995. The New York Life settlement, initially announced as $65 million, was subsequently estimated by the company to cost $87 million plus fees and expenses.

Having watched the courses taken by Crown Life and others, on the one hand, and that of New York Life on the other, additional carriers followed New York Life’s lead toward "global" resolution of the deceptive sales practices litigation problem. As of today more than twenty (20) class action settlements of "vanishing premium" and deceptive sales practices cases have been announced by U.S. and Canadian life insurers. Among the companies announcing proposed class action settlements are American General, CIGNA, Connecticut General, Crown Life, Equitable of Iowa, Great West, John Hancock, Manulife, MetLife, National Life of Vermont, Nationwide, Pacific Life, Phoenix Home Life, Prudential, State Farm, State Mutual, Sun Life and Transamerica.

Multidistrict Litigation
As vanishing premium and deceptive sales practices cases multiplied, management of the litigation demanded invocation of complex litigation procedures. MANUAL FOR COMPLEX LITIGATION, 3rd, Chapter 31, "Multiple Litigation." The vanishing premium cases were ripe for coordination under 28 U.S.C. §1407.

Under the Multidistrict Litigation (MDL) procedures of 28 U.S.C. §1407, the Judicial Panel on Multidistrict Litigation (JPML) is authorized to transfer civil actions pending in more than one district to a single district for coordinated or consolidated pretrial proceedings if the actions involve common questions of fact and transfer "will serve the convenience of the parties and witnesses and promote the just and efficient conduct [of the actions]." 28U.S.C.§ 1407; MANUAL FOR COMPLEX LITIGATION, 3rd, ¶31.13.

Petitions to consolidate and transfer were filed before the MDL Panel in a number of the vanishing premium cases. e.g., Judicial Panel on Multidistrict Litigation, Docket No’s: MDL-1061, "In re: The Prudential Insurance Company of America Sales Practices Litigation"; MDL-1091, "In re: Metropolitan Life Insurance Company Sales Practices Litigation"; MDL-1096, "In re Crown Life Insurance Company ‘Vanishing Premium’ Litigation"; MDL-1102, "In re: Sun Life Assurance Company of Canada Sales Practices Litigation"; MDL-1105, "In re: New England Mutual Life Insurance Company Sales Practices Litigation"; MDL-1109, "In re: Manufacturers Life Insurance Company Sales Practices Litigation"; MDL-1122, "In re: Jackson National Insurance Company Premium Litigation"; MDL-1143, "In re Mutual Life Insurance Company of New York Sales Practices Litigation"; MDL-1179, "In re General American Life Insurance Company Sales Practices Litigation." The Judicial Panel on Multidistrict Litigation has uniformly found coordination and transfer proper in the vanishing premium cases addressed.

State and Federal Actions
The Multidistrict Litigation (MDL) procedures of 28 U.S.C. §1407 govern transfer and coordination only of cases in federal court. As with much complex litigation, the vanishing premium litigation frequently involves cases brought in both federal and state courts. This occurs where individual cases or competing class actions are filed by multiple policyholders of a single Coordination becomes much more difficult and complex when cases are dispersed across state and federal courts. Moore’s Federal Practice, Manuel for Complex Litigation, 3rd, §31.3, "Related State and Federal Cases." Actions in both state and federal courts against the same insurer for the same alleged scheme of deceptive sales practices can cause substantial jurisdictional complexities and conflicts. See, e.g., Snipes v. Mutual Life Insurance Company of New York, No. 4:95CV400-B-B, July 3, 1996, (N.D. Miss.), in which Judge Biggers denied the motion of MONY to transfer or stay in favor of a pending state court class action under the "Colorado River doctrine." Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976).

Removal and Remand
With MDL transfer a consequence of removal, the statement of a viable claim against the local in-state agent becomes an issue of practical importance. Properly plead and litigated, the cases do indeed present viable actions against both the life insurance company and the local selling agent.

In Mississippi, for instance, New England Mutual Life Insurance Company removed four different cases from four different state court jurisdictions. Upon removal, the cases were assigned to four different federal judges, three in the Southern District and one in the Northern District. In each case New England alleged "fraudulent joinder," claimed the case was barred by the statute of limitations, and pled the other traditional vanishing premium defenses.

Motions to remand were filed in all four cases. Each case was briefed and argued separately. Each of the four federal judges issued separate written opinions. All four cases were remanded to state court. Chain v. New England, et al, No. 3:98CV349BN (S.D. Miss. [Barbour, J.], Dec. 11, 1998); Dickerson v. New England, et al, 3:97CV519WS (S.D. Miss. [Wingate, J.], Jan. 13, 1999); Little v. New England, et al, 1:98CV173DD (N.D. Miss. [Davidson, J.], July 27, 1998); and Phillips v. New England, et al, 3:98CV348LN, (S.D. Miss. [Lee, J.] Nov. 3, 1998), 1998 WL 970190 (S.D. Miss.).

"Out of the Frying Pan . . ."
While many major life insurance companies embraced the class action settlement as a method of resolving their vanishing premium problems, a few chose to contest certifiability of vanishing premium cases as class actions. These companies now face multiple individual actions. Guardian Life Insurance Company of American, for instance, obtained a ruling from Judge Robert Keeton denying class certification in Clarke v. Guardian, CA 95-12590-REK, (United States District Court, N.D. Mass., June 2, 1997). (In a subsequent case addressing class certification in the vanishing premium context, however, Judge Keeton stated that "developments since the Guardian case" had caused him to "rethink" himself. In re: New England Life Insurance Company Sales Practices Litigation, MDL-1105 (REK), April 1, 1998 hearing, p.37.) Guardian now finds itself facing additional cases seeking class certification, including cases in both the Northern and Southern District of Mississippi. Myers v. Guardian Life Ins. Co. of America, Inc., 5 F.Supp.2d 423 (N.D. Miss. 1998); Keyes v. Guardian, No. 3:97CV439LN (S.D. Miss.).

Jackson National Life Insurance Company had all federal cases against it transferred to the United States District Court for the Western District of Michigan under the multidistrict litigation procedures of 28 U.S.C. §1407. In a much publicized decision in October of 1998, Jackson National obtained an order denying the class certification. Crain’s Detroit Business, "Judge Bars Class Action Against Lansing Insurer," November 30, 1998; Mealey’s Insurance Law Weekly, "Varying State Laws Create Conflict for Certification of Michigan Premium Case," November 2, 1998.

One reason cited in the Jackson National opinion for denial of class status was the individual action of JN brokers who induced reliance by policy purchasers. See, Opinion and Order on Plaintiffs’ Motion for Class Certification, pp. 9-12, In re: Jackson National Insurance Company Premium Litigation," MDL-1122. With class certification denied, Jackson National now finds itself, along with individual agents, faced with suits seeking both actual and punitive damages by individual policyholders. e.g., Dolton Haggan, Irma Myers, and Linda and S. E. McDaniel v. Jackson National Life Insurance Company, et al, No. 96-0295, Circuit Court of Copiah County, Mississippi.

Conclusion

Life insurance deceptive sales practices cases, while time consuming, expensive and difficult, are viable under Mississippi law. See, e.g., Bobby L. Chain, Sr., Individually and on Behalf of Others Similarly Situated v. General American Life Insurance Company, 1996 WL 408914 (N.D. Miss. 1996) (not reported) [Memorandum Opinion by Judge Biggers on July 5, 1996]; Kenneth Kuzenski v. Connecticut Mutual Life Insurance Company and Eustice Raines, Jr., Cause No. 96-0178, Circuit Court, Attala County; Myers v. Guardian Life Ins. Co. of America, Inc., 5 F.Supp.2d 423 (N.D. Miss. 1998); Phillips v. New England, Civ.Ac.No. 3:98CV348LN (S.D. Miss.) [Memorandum Opinion and Order by Judge Tom Lee remanding this case on November 3, 1998]. Under Mississippi law, wrongdoing which nets billions of dollars for the perpetrators does not go unpunished, even where the actual damages to each victim are relatively small.

There is a difference in the outcome of life insurance deceptive sales practices litigation in New York, on the one hand, and in Mississippi, Alabama and other Southern states, on the other. This difference, however, is not the result of bias or ignorance on the part of Mississippians, as some counsel seem to imply, or "xenophobic rhetoric," as Governor Fordice would have it. The success of policyholders in Mississippi litigation is attributable to a different approach taken by lawyers trying the cases in Mississippi -- an approach based on the fraudulent concealment and misrepresentations used to induce purchases of the policies. It is also due to a difference in the law prevalent in the region -- law such as Davidson v. Rogers, 431 So.2d 483 (Miss. 1983); Allen v. Mac Tools, Inc., 671 So.2d 636 (Miss. 1996); and Myers v. Guardian Life Ins. Co., 5 F.Supp.2d 423 (N.D. Miss. 1998) -- which holds that oral misrepresentations or omissions may not be used with impunity to defraud purchasers even when written contracts are involved.

Richard T. Phillips
Batesville, Mississippi
June 10, 1999