Class Action: American General Life Insurance Underpays Interest Rates on California Policies

American General Life Insurance Co. is facing a class action lawsuit alleging the insurer of cheating policyholders in California out of potentially tens of millions of dollars by underpaying interest owed on amounts deposited with AmGen.

Plaintiff LSIMC LLC is a Delaware LLC and has only one member, a New York common law trust. LSIMC owns an AmGen universal life insurance policy that was issued in California on Feb. 20, 2010. 

LSIMC filed the AmGen class action lawsuit in California federal court on Dec. 21, 2020, seeking to represent a proposed Class of current and former owners of American General Life Insurance policies in California that state redetermination of interest rates will be based “only on expectations of future investment earnings.”

The policies at issue in the AmGen class action lawsuit include flexible-premium, universal, and variable universal life policies issued by AmGen in California. These policies were all issued on standardized policy forms, according to the AmGen class action lawsuit. Policyholders are reportedly not able to negotiate the terms of these policies.

What Is a Universal Life Policy?

Universal life insurance policies combine death benefits with an investment or savings component. This investment or savings component is reportedly referred to in AmGen policies as the “accumulation value.” 

Instead of having a fixed monthly premium payment, universal life policyholders pay into the accumulation value. Monthly charges, including the cost of insurance (COI), are then deducted from the accumulation value. 

The universal life policy will remain in force as long as there is sufficient cash available to pay the cost of insurance and other charges. Excess amounts in the accumulation value will earn interest at the current interest rate. This interest payment is used to pay for policy charges and reduces the amount of premiums the policyholder will ultimately have to pay.

AmGen Life Insurance Policy Interest Rates

The credited rates are supposed to reflect the current rate of return the insurer expects to earn, the AmGen class action lawsuit states. These rates are reviewed at least once per year, if not quarterly, and are subject to a guaranteed minimum credited rate. This minimum rate is set forth in each policy.

In LSIMC’s AmGen policy, the guaranteed minimum credit rate is reportedly 3 percent. The AmGen class action lawsuit points out that insurers of AmGen’s size have projected earned rates of 5 percent to 6.5 percent over the last four years. LSIMC’s policy also includes a persistency bonus provision, which provides for an increase in the interest rate once the policy has been in effect for five years.

LSIMC says its AmGen life insurance policy sets forth several factors that may be taken into consideration when setting COI rates and other charges, but makes it clear that the only factor that can be considered when setting credited rates is AmGen’s expectations of future investment earnings.

AmGen allegedly breached the terms of its policies by redetermining credited rates by considering factors other than AmGen’s expectations of future investment earnings. By keeping the interest rates artificially low, AmGen has caused California policyholders to lose out on tens of millions of dollars, according to the AmGen class action lawsuit.

If you are a current or former owner of an American General Life Insurance policy in California, you may be able to take legal action to seek compensation for the money you lost due to AmGen’s allegedly unlawful practices.

LSIMC is represented by Steven Sklaver, Ryan C. Kirkpatrick, and Seth Ard of Susman Godfrey LLP.

The AmGen Life Insurance Class Action Lawsuit is LSIMC LLC v. American General Life Insurance Co., Case No. 2:20-cv-11518, in the U.S. District Court for the Central District of California, Western Division.