State Farm Stuck With $34 Million Loss in Overcharging Suit

State Farm Life Insurance Co. failed to shake off a $34 million judgment in favor of a class of whole life policyholders who allege the company overcharged based on factors other than mortality, after the Eighth Circuit found the policy language is ambiguous and must be construed in favor of the customers.

The U.S. Court of Appeals for the Eighth Circuit upheld a trial court ruling that State Farm breached the contract with its policyholders by collecting “cost of insurance” fees based on factors not listed in the contract.

The contract states that the monthly COI rates rates for each policy year are based on the policyholder’s age, sex, and applicable rate class.

But the plaintiffs alleged that State Farm used “non-mortality factors” in the COI, including taxes, profit assumptions, investment earnings, and capital and reserve requirements.

The company therefore added more to the monthly premium payments than what the policy stated would be included in the COI fees, they alleged.

Affirming the trial court, the Eighth Circuit rejected State Farm’s argument that the phrase “based on” in a life insurance contract doesn’t imply the listed factors were the only ones that could be considered.

The court also rejected State Farm’s contention that class certification was inappropriate because the class included members who didn’t suffer damages, depriving them of standing to sue.

Whether some plaintiffs are unable to prove damages is a merits question, not a standing question, and trial courts may amend the class definition at any time before judgment, the court said.

This is what the district court did, amending the class definition following the jury trial to exclude those class members who suffered no damages, the court said.

Judge Bobby E. Shepherd wrote the opinion, joined by Judges Jonathan A. Kobes and L. Steven Grasz.

Stueve Siegel Hanson, LLP and Miller Schirger, LLC represented the policyholders.

Dechert LLP, Stinson Leonard Street LLP, and Faegre Drinker Biddle & Reath represented State Farm.

The case is Vogt v. State Farm Life Ins. Corp., 8th Cir., No. 18-03419, 6/26/20.