CNA Long-Term Care Class Action — Could It Have Long-Term Consequences?A long-term care insurance class action filed in May 2018 highlights the importance of clearly defined policy language. At dispute in the lawsuit pending in the United States District Court for the Northern District of Illinois is the definition of “premium class.” The phrase is not defined in the Continental Casualty Company (CNA) policy, which was issued through CNA’s Federal Judiciary Group Program. The plaintiff, who was a resident of the state of Washington at the time the policy was purchased, alleges that the term “premium class” refers to the “nationwide pool of insureds under the group insurance plan within a given age category.”  According to CNA, the plaintiff’s interpretation of “premium class” would render each state’s individual authority to approve premium rate increases a nullity, effectively “negat[ing] [state] insurance laws that are incorporated into the Policy as a matter of law.”

The policy states:

We cannot change the Insured’s premiums because of age or health.  We can, however, change the Insured’s premium based on his or her premium class, but only if  We change the premiums for all other Insureds in the same premium class.

CNA applied for premium rate increases for Washington participants in its group programs to the Washington State Office of the Insurance Commissioner (OIC) in 2015. The OIC approved certain rate changes. In 2017, CNA advised the plaintiff that his premium would increase by 25 percent in the first year, with a 25 percent premium increase each of the following two years. The CNA letter also indicated that the premium increase was not uniform across the premium class as laws and approval requirements varied by state, and the requested premiums might not be approved by all states. Plaintiff argues that the premium increase violates the terms of the policy because it is not uniform nationwide.

Plaintiff Took Issue with 2017 Rate Increases

Plaintiff Carlton Gunn, individually and on behalf of all others similarly situated, alleges that CNA breached the terms of the policy, breached the implied covenant of good faith and fair dealing, violated consumer protection laws, and engaged in fraudulent concealment relating to the premium increases. Plaintiff claims that both the marketing materials used in soliciting purchasers and the policy itself state that premiums would not be increased unless they were increased uniformly for everyone in the same age group. The plaintiff alleges that CNA improperly “imposed rate increases at different times and in different amounts from one state to the next.”

CNA filed a motion to dismiss arguing the complaint is not viable as a matter of law.  CNA argues that plaintiff’s interpretation of “premium class” is not reasonable and therefore cannot support the plaintiff’s claims. CNA also argues plaintiff’s interpretation would negate state authority to approve premium rate increases, which states are permitted to do with federal deference to state jurisdiction under the McCarran-Ferguson Act.

Alternatively, CNA seeks a stay of the proceedings, asserting that there is a threat of inconsistent judgments if the Washington State Office of the Insurance Commissioner is not allowed to first address plaintiff’s “challenge to [the OIC’s] authority and how the rate decision was made” since the challenged rate increase “applie[s] to policies that fall outside plaintiff’s current proposed class definition.”

Stay tuned. If the court adopts plaintiff’s interpretation, the ruling could change how and when insurers increase long-term care premium rates.

Ninth Circuit Affirms Denial of Motion to Compel Arbitration of ERISA ActionIn Munro v. Univ. of S. Cal., the Ninth Circuit recently affirmed the district court’s denial of a motion to compel arbitration of an ERISA action brought by current and former employees of the University of Southern California (USC). The employees alleged that USC, as administrator of certain employee retirement plans, had breached its fiduciary duties as plan administrator. They sought equitable and monetary relief against USC with regard to the past and future administration of the plans. USC moved to compel arbitration, arguing that each of the employees had signed arbitration agreements in their employment contracts, which required all disputes, including any alleged violations of federal law, between the employees and USC to be arbitrated. The district court denied the motion to compel, finding that the dispute did not fall within the scope of the arbitration clause.

In affirming the decision of the district court, the Ninth Circuit recognized that arbitration clauses have been interpreted broadly under the Federal Arbitration Act where an arbitration clause exists. Nevertheless, the Ninth Circuit focused on the fact that the action was brought on behalf of the retirement plans (and their participants) and not on behalf of the employees as individuals.  The court compared this particular ERISA action to a qui tam claim, and looked to a prior case (U.S. ex rel. Welch v. My Left Foot Children’s Therapy) in which the Ninth Circuit similarly found that a qui tam claim did not fall within the scope of an arbitration clause. Accordingly, the court held that the arbitration clauses, which required employees to arbitrate their own claims against USC, could not be “stretched” to apply to ERISA claims brought by the employees on behalf of the retirement plans.

Notably, in a concluding footnote, the court stated that USC’s argument that one particular Ninth Circuit case (Amaro v. Cont. Can Co.), concerning the arbitrability of ERISA actions, should be overruled based on intervening Supreme Court case law, had “considerable force.” The court noted, however, that it was unnecessary to opine on the continued viability of Amaro because the “claims asserted in this case fall outside the arbitration clauses in the employee agreements[.]”

Given the court’s holding in this action, employers should revisit their employment contracts and consider broadening the arbitration clauses and class action waivers in them to apply specifically to instances where an employee is asserting claims on behalf of an ERISA plan and its participants, and to apply specifically to breach of fiduciary claims asserted by an employee in any capacity against the employer as a plan administrator.