On March 3, the Ninth Circuit in Walker v. Life Ins. Co. of
the SW, ruled that an alleged violation of California's
life insurance illustration statutes could serve as a predicate for
liability under the California Unfair Competition Law (UCL). The
ruling reversed in part a U.S. District Court for the Central
District of California decision in a 2010-filed action by a
certified class of indexed universal life policyholders residing in
California. The state's illustration statutes, Cal. Ins. Code
§ 10509.950 et seq., are substantially similar to NAIC Model
582, and apply to all individual life insurance policies sold in
California, with a few exceptions. The statutes mandate the
inclusion of certain information, and prohibit various practices.
For example, an insurer may not "represent the policy as
anything other than a life insurance policy."
Plaintiff alleged that the insurer violated California's
statutes because it touted the policies as retirement or investment
vehicles, "misrepresent[ed]" the costs, risks, safety and
security of the policies, treated policy lapse "in a
misleading matter," "deceptively present[ed] the
guarantee values, fail[ed] to define key terms, and impl[ied] that
nonguaranteed elements are annual guarantees." The district
court dismissed those claims at the pleading stage.
In 2014, after the statewide class was certified, the case
ultimately went to trial, resulting in a jury verdict for the
insurer on the fraudulent concealment claim. The district court,
nearly a year later, found for the insurer on the remaining UCL
claims, which required resolution by a judge.
On appeal the California Department of Insurance filed an amicus
brief supporting the plaintiff's position, and the panel spent
a fair amount of time at the oral argument questioning all counsel
about the statutory issue. The Ninth Circuit ultimately affirmed
the district court in all respects, except on the narrow issue of
whether UCL liability could be predicated on a violation of the
illustration statutes. As to that issue, the Ninth Circuit found
that even though the illustration statutes lack an express private
cause of action, "private UCL claims are barred only when the
underlying statute either actually bars private rights of action or
provides a 'safe harbor' that renders the alleged conduct
The implications for the Walker case are unclear: the
Ninth Circuit specifically affirmed the district court's
finding "that the illustrations of the policy charges and
interest rates were not unfair or deceptive." Even assuming
there were technical violations of the statute, rendering the
insurer's conduct "unlawful," the plaintiff would
still need to prove that those violations caused her and the class
damage, as another California federal court recently held in
Davis v. Riversource Life Ins. Co. There, the court
dismissed solely unlawful prong UCL violations because the
plaintiff failed "to allege that his economic injuries were
the 'result of' Defendants' alleged violations of"
The ruling suggests, though, that insurers selling individual
life insurance policies in California may expect to see more
lawsuits – individual and putative class actions –
alleging violations in the illustration statutes. Given the Ninth
Circuit's pronouncement about the UCL unlawful prong more
generally, insurers might also be faced with other statutory
violations serving as UCL predicates.
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