Putative Class Action Against Farmers Life Insurance Goes On

Farmer’s New World Life Insurance Company (“Farmers”) sold a flexible universal life insurance policy to plaintiff, who brought a putative class action alleging breach of contract, breach of implied covenant of good faith and fair dealing, and violation of the Washington Consumer Protection Act. Plaintiff alleged that Farmers inflated the cost of insurance by loading the risk charge with non-mortality factors and by failing to reduce it as mortality rates improved over time. She further alleged that Farmers credited only the guaranteed minimum interest rate to her accumulation account even though it had discretion to pay more. The parties referred to these allegations as the overcharge theory and the underpayment of interest theory.

Universal health insurance policies differ from traditional policies because there is no fixed monthly premium. Rather, the policyholder makes deposits into an interest-bearing account from which the insurer deducts monthly premiums to cover the cost of the insurance. The monthly deductions include a risk charge and a monthly administration fee. The risk charge is basically what it would cost to pay for a death. Farmers, in calculating this cost, takes into account risk at the policyholder’s attained age and other factors. The remaining funds accrue interest. Plaintiff alleged that Farmers overcharged for the insurance by adding non-mortality factors to the risk charge and by failing to reduce the cost even though mortality rates have improved over time. She also alleged that Farmers breached its duty of good faith and fair dealing by failing to increase interest rates on the remaining funds.

In denying Farmer’s motion to dismiss, the Court, applying Washington law, stated that Plaintiff’s reading of the policy (not allowing other factors to determine mortality rates and failing to increase them over time and allowing increased interest rates for the balance of the premium account) was reasonable and her allegations plausible. It found that Farmers chose the policy language, for example, when it chose to call the charge a “Risk Charge” that pays for the risk of loss, and a reasonable purchaser could take that description at its word. The life insurance case will therefore go on.

The case is Sheila Marino v. Farmers New World Life Insurance Company, Case No. 2:25-cv-02200-JNW, U.S.D.C., Western District of Washington