Hoffman v. Life Insurance Company of the Southwest

Background

Eleven California public school teachers brought a putative class action against Life Insurance Company of the Southwest (LICS). They alleged that LICS charged undisclosed fees for deferred indexed annuity plans in violation of California Education Code sections 25101 and 25107 and California’s Unfair Competition Law (UCL). The complaint asserted one UCL claim under both the “unlawful” and “unfair” practices theories.

The teachers alleged that cap, participation, and spread rates were undisclosed fees. These rates affect how an indexed annuity’s interest is calculated. Two plaintiffs also alleged that LICS charged undisclosed fees for riders, which are added contract features. One of those plaintiffs, Blisten, alleged that the plan connected to his rider was never registered on 403bCompare.com. The other, Krimbow, alleged that her registered plan listed a rider fee of 0.65% to 0.75% of the account balance but that LICS charged her 0.90%.

Requests for Judicial Notice

The court granted the plaintiffs’ request for judicial notice of four legislative documents and a screenshot from 403bCompare.com.

The court granted LICS’s request in part and denied it in part. It took notice that specified 403bCompare.com webpages contained the submitted material as of October 16, 2023, but did not accept the truth or accuracy of statements on those pages. It denied judicial notice of the plaintiffs’ annuity policies, two quarterly account statements, and emails between counsel. It took limited notice that two dictionaries contained the submitted definitions of “fee,” without giving those definitions legal weight. It also granted notice of the existence and contents of a National Association of Insurance Commissioners brochure, without deciding that the brochure was accurate or that LICS’s interpretation was correct.

Motion to Dismiss

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed when the complaint does not contain enough factual allegations to plausibly show that the defendant is liable. Accepting the complaint’s factual allegations as true for this motion, the court concluded that cap, participation, and spread rates are not “fees” or “expenses” under the relevant Education Code provisions. The rates are contract terms used to determine the interest paid to annuity customers, even if LICS set them with profitability in mind. Because the alleged rates were not fees, their nondisclosure did not establish a violation of the Education Code and could not support the UCL’s unlawful-practice theory.

The court also rejected the related unfair-practice theory based on those rates. The complaint did not clearly allege that the rates were undisclosed everywhere, including in the contracts, or explain why failing to list them on 403bCompare.com violated the UCL’s unfair-practice theory. The claim based on the rates was therefore dismissed without leave to amend as to the unlawful-practice theory and with leave to amend as to the unfair-practice theory.

As to Blisten, the court held that section 25107 applies to fees associated with registered products. Because Blisten alleged that the FIT Income Plus plan was never registered, its rider fee was not a fee associated with a registered product under that statute. The court dismissed Blisten’s UCL claim without leave to amend as to the unlawful-practice theory and with leave to amend as to the unfair-practice theory.

As to Krimbow, the court held that she plausibly alleged a violation because her registered plan listed a lower rider fee than the 0.90% fee she allegedly paid. The court also held that paying a fee LICS was not entitled to charge would constitute economic injury, regardless of whether the fee appeared elsewhere, such as in the contract. The court denied LICS’s motion to dismiss both Krimbow’s unlawful-practice and unfair-practice theories.

Disposition

Judge P. Casey Pitts ordered that the plaintiffs’ request for judicial notice was granted, LICS’s request for judicial notice was granted in part and denied in part, and LICS’s motion to dismiss was granted in part and denied in part. The plaintiffs were granted leave to amend their dismissed claims under the UCL’s unfair-practice theory, with an amended complaint due August 8, 2024, if they chose to file one.