Background on Equitrust Life Insurance Company
Equitrust Life Insurance Company (Equitrust Life) is an Iowa-based life insurance and annuity provider that operates in the brochure-space insurance marketplace of the United States. The company is a for-profit life insurance organization that is licensed in 49 states—except for New York—and the District of Columbia. As of the time of this writing, Equitrust Life is rated "B" by AM Best—the second-lowest rating for the independent rating organization.
Equitrust Life’s parent company is EquiTrust Financial Services of West Des Moines, Iowa , which in turn is a sub-company of Sammons Financial Group, based in Chicago, Illinois. Financial Services of Poughkeepsie is managed by Equitrix Life under the „Smart Foundation" annuity program. Copies of annual financial reports are available on the EquiTrust website.
In 2010, Equitrust Life reported total assets of $16.2 million, including $10.3 million in general reserves and $5.2 million in separate account reserves. The company’s account liabilities totaled $15.8 million. The company’s statutory surplus was $30.4 million as of December 31, 2010.
The Equitrust Lawsuit
Equitrust Life Insurance Company is being charged with selling fraudulent and misrepresented life insurance policies to Georgia and Virginia residents. The suit was filed in April 2015 in the United States District Court for the Northern District of Georgia by dozens of plaintiffs, each facing monetary damages individually over $100,000 due to Equitrust’s actions. According to the suit, Equitrust sales representatives misrepresented the cost and terms of multiple life insurance policies to clients, assuring them that their premiums would not increase. While Equitrust did not disclose any specific increases, clients were assured that rates would never increase above those that applied when the policy was purchased. However, once the policies were purchased, Equitrust allegedly created a "hidden cost," a fully refundable "annual marginal premium." Clients were told that this annual charge could be used to purchase an additional rider on the policy, but the riders carried their own distinct monthly premiums that increased over time. The "annual marginal premium" was disguised as an asset, but was anything but. Under the guise of providing an "increase in death benefit," Equitrust can increase the entire monthly cost of a policy using this concealed premium. Furthermore, during the policy’s first ten years, the policyholder’s interest in the policy can be certificate of partial interest, worthless when it comes to gaining a monetary value on the policy. Even if the policyholder borrows against the policy using the offered rider, they will be unable to recoup what they have already lost due to the "annual marginal premium." And all the while, Equitrust reaps a profit. These fraudulent policies were sold to clients by agents that never specifically disclosed fees or costs in writing. Some Equitrust agents held themselves out to be insurance agents, writing their own policies, in violation of insurance regulations. The suit alleges Equitrust of violating the Georgia Fair Business Practices Act and the Georgia Uniform Deceptive Trade Practices Act, amongst several other counts.
Legal Consequences for Policyholders
Due to the fact that this case was brought as a class action, Equitrust policyholders may be in position to seek refund or change of policy in accordance with the outcome of the case. Both past and present policyholders of Equitrust may be affected by the lawsuit. The ultimate claim in the law suit is that the policyholders were misled into purchasing the policies and were not informed that the company would have the power to charge unreasonable charges and fees, similar to an adjustable rate mortgage. There are many policies that may be affected. Policyholders are encouraged to consult with their financial planners and insurance attorneys in evaluating their individual policies and the potential impact of the suit.
Equitrust and Legal Defense
Equitrust Life Insurance Company’s response to the lawsuit has been to file a motion to dismiss. The legal arguments made by Equitrust are that the Court lacks jurisdiction of the claims asserted since summer 2022 because the claimant is not a "customer" of Equitrust under the Texas Finance Code, where the "action sought is in determination of an insurance claim", and "subject matter jurisdiction under the Finance Code does not extend to claims arising out of alleged violations of the Texas Insurance Code . "
Equitrust further argues that the arbitration provisions within the agreements "prohibit any court or administrative action to resolve the dispute", and that "Plaintiff’s claims involve the interpretation and application of interpleaded policies", and seek "a declaration regarding Plaintiff’s entitlement to relief from the insurance proceeds that are the subject of the interpleader".
Impact on the Life Insurance Industry
The lawsuit against Equitrust Life Insurance Company by the Iowa Insurance Commissioner (the "Commissioner") may have broad implications for the life insurance industry. If the Commissioner prevails, it will give more authority to regulators to review the relationship between life insurance companies and their insurers. The Commissioner’s stated objective is to protect policyholders who are current Equitrust Life policyholders and potential policyholders from the financial instability that might flow from the acquisition of control of Equitrust Life. If a policyholder could lose coverage because of the instability of Equitrust Life, the policyholder should be allowed to choose an insurer that has a stable financial future.
If the Commissioner prevails, the Equitrust Life Insurance Company Lawsuit may give rise to further actions against insurers that are acquiring control over a life insurance company. The Commissioner may even attempt to impose some type of community rating system on insurers. This would not bode well for insurers and owners of life insurance companies.
Advice for Existing and Potential Policyholders
Current Equitrust Life Insurance Company customers should carefully read the terms of their life insurance policies, especially if they have large face value policies. Depending on the language of their contracts, some clients may wish to seek the advice of legal counsel regarding whether their policy has cash value and whether they can expect to receive a certain percentage of that cash value if Equitrust stops paying claims due to receivership . As to prospective insurance customers, they should make sure they have read and understood the terms of their life insurance contract before purchasing a policy. There are many insurance companies that offer similar plans that are financially sanctioned by state insurance commissions. It is recommended that potential buyers shop around for the best plan in order to determine which company best meets their needs.