United States: Second Circuit Affirms Dismissal Of Policyholder Lawsuits Challenging Captive Reinsurance Disclosures

On February 23, 2017, the United States Court of Appeals for the Second Circuit affirmed the rulings of several US district courts, shutting down a series of policyholder class actions that had been filed against Metropolitan Life Insurance Company and AXA Equitable Life Insurance Company challenging the companies' disclosures surrounding captive reinsurance transactions. See attached order in the cases captioned Ross et al. v. AXA Equitable Life Ins. Co., Robainas et al. v. Metropolitan Life Ins. Co., Yarbrough et al. v. AXA Equitable Life Ins. Co. and Intoccia et al. v. Metropolitan Life Ins. Co. The order is a strong signal from the Second Circuit that plaintiffs who fail to demonstrate concrete, non-speculative injury lack Article III standing to sue, and also dashes future putative plaintiffs' hopes of leveraging New York's insurance laws to support lawsuits by policyholders who are not personally affected by the conduct they challenge.

In the decided cases, all putative class actions, the plaintiffs, holders of term life insurance and variable annuities with guaranteed benefit riders, had seized upon rhetoric in a June 2013 policy report issued by the New York Department of Financial Services (NYSDFS) to challenge the defendant insurers' failure to disclose certain details of captive reinsurance transactions. Specifically, the plaintiffs alleged that each insurer had misrepresented its financial strength by failing to disclose in its statutory annual statement that affiliated reinsurers used parental guarantees from the insurer's holding company parent, in support of evergreen letters of credit from banks backing their reinsurance obligations.

According to the plaintiffs, these "shadow insurance" transactions were a kind of "financial alchemy" that created the appearance of reducing risk, but had the effect of making insurers' capital reserves "appear larger and rosier than they actually are," allegedly leaving policyholders with less protection. The complaints, all of which were filed in the US District Court for the Southern District of New York, did not challenge the captive transactions themselves—which are routinely used in the industry, are perfectly legal and were specifically approved by the NYSDFS. Nor did they allege violations of any specific disclosure requirement regarding captives. Instead, the plaintiffs charged that the defendants had violated New York Insurance Law Section 4226(a)(4), which prohibits insurers from making "any misleading representation, or any misrepresentation of the financial condition of any such insurer or of the legal reserve system upon which it operates." Based on this claim, the plaintiffs asserted that the nationwide classes they sought to represent were entitled to penalties afforded by Insurance Law Section 4226(d), in the amount of all of the life insurance premiums (and/or contributions to annuity benefit riders) that they had paid, i.e., a claim for free life insurance and guaranteed benefits.

The insurers moved to dismiss these cases on multiple grounds, including the plaintiffs' failure to allege injury-in-fact sufficient to confer Constitutional Article III standing. In 2015, all three district court judges dismissed the complaints for a lack of standing.1 The plaintiffs appealed.

On appeal, the Second Circuit considered three theories of injury raised by the plaintiffs. First, the plaintiffs' argument that they faced an increased risk that claims would not be paid, because the insurers' reserves were compromised and lower than represented. Second, the plaintiffs' claim that they were injured by holding policies that were less valuable than represented. And third, the plaintiff's contention that a violation of the insurance law was enough to confer standing, because they had been deprived of their "right to truthful information" from the insurers.

The last theory had been weakened by the US Supreme Court's 2016 decision in Spokeo v. Robins, issued just before this appeal was briefed. In that decision, the Supreme Court clarified that a statutory violation, without more, is not sufficient to confer Article III standing, reaffirming that a plaintiff must always suffer a concrete injury. Following the Supreme Court's lead, the Second Circuit held that plaintiffs could not rely on a violation of the insurance law alone to supply standing. The Court reasoned that while a statutory violation that necessarily creates a risk of harm could conceivably be a sufficient injury—assuming it meets all of the other elements of the Supreme Court's test (i.e., concrete, particular, not conjectural or hypothetical, fairly traceable to defendants' conduct, etc.) —a misleading representation does not, by itself, create that risk. Indeed, in this case, the plaintiffs did not even allege, much less demonstrate, that they, or any other policyholders would not have purchased the products but for the alleged omissions.

Plaintiffs' other two theories of injury were also rejected by the Second Circuit. In order for the allegedly increased risk that claims would not be paid to manifest itself into an actual injury, an extended series of hypothetical events, including an economic downturn and a bank failing to honor the letter of credit, would have to occur. Thus this theory travelled "too far down the speculative chain of possibilities to be 'clearly impending,'" and was rejected. Addressing the plaintiffs' decreased-value theory of injury, the Second Circuit explained that "the value of a life insurance policy or an annuity rider is the amount that will be paid by the policy in the future." As plaintiffs had only alleged that the amount that will be paid out might decrease in the future, they had not alleged a current injury.

Since the plaintiffs lacked Article III standing, the dismissal of their case was affirmed.

Although a summary order, the Second Circuit's opinion is a strong signal from the Court regarding Article III standing. It also dashes future potential plaintiffs' hopes of leveraging Insurance Law 4226 to support a cause of action for policyholders who are not affected by the alleged misrepresentation or omission over which they sue.


1.The cases against Metropolitan Life Ins. Co. were both before Judge Denise Cote. The cases against AXA Equitable Life Ins. Co. were before Judge Jesse Furman (life insurance) and Judge Richard Sullivan (annuities).

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
24 Oct 2017, Seminar, Washington, DC, United States

The Dentons Forum for Women Executives invites you to join us for a luncheon featuring guest speaker Liza Mundy, journalist and author. Ms. Mundy recently released her latest book, Code Girls, the riveting untold story of more than 10,000 spirited young American women who cracked German and Japanese codes to help win World War II.

27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

1 Nov 2017, Seminar, Washington, DC, United States

Celebrate the 58th anniversary of Dentons' Government Contracts practice

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.