On February 6, 2018, the Seventh Circuit Court of Appeals departed from a number of recent decisions holding that long-term care insurance (LTCI) policyholders cannot challenge rate increases when the insurer has disclosed in the policy its right to increase premiums. The case is Newman v. Metropolitan Life Insurance Company, No. 17-1844, 2018 WL 732912 (7th Cir. Feb. 6, 2018).
The court found that a MetLife sales brochure and the company's LTCI policy were susceptible to the interpretation that the plaintiff's rates could not be increased because she had elected a reduced payment option after age 65. The policy contained four disclaimers reserving the right to change premiums on "a class basis," but the court nonetheless found that the policy was ambiguous because it did not define the term "class." Newman underscores the importance of clearly disclosing the potential for rate increases in LTCI advertising materials and policy language. Potential plaintiffs may see the decision as opening the door for new class action attacks on premium rate increases by sub-classes of LTCI policyholders who have elected special payment arrangements.
The relevant facts, as reported by the court, are as follows. At age 56, plaintiff Margery Newman purchased a long-term care insurance policy from MetLife. She elected a non-standard payment method called "Reduced-Pay at 65." In a brochure given to applicants, MetLife described this payment method as follows:
"By paying more than the regular premium amount you would pay each year up to the Policy Anniversary on or after your 65th birthday, you pay half the amount of your pre-age 65 premiums thereafter."
Ms. Newman purchased the policy and selected the Reduced-Pay option. When she received her policy, it contained only one reference to the Reduced-Pay option, which showed that her premium amount at age 65 would be half the amount she paid until age 65:
"In addition, you have selected the following flexible premium payment option: Reduced Pay at 65 Semi-Annual Premium Amount:
Before Policy Anniversary at age 65 $3231.93
On or after Policy Anniversary at age 65 $1615.97"
The policy disclosed, in a bold, all-caps header, that "PREMIUM RATES ARE SUBJECT TO CHANGE." In three other places, the policy reserved MetLife's right to increase premium rates on a "class basis." The policy defined more than 30 terms, but not the word "class."
Ms. Newman paid her premium, and when she attained age 65 her premium was cut in half....