In a summary order issued February 23, the United States
Court of Appeals for the Second Circuit affirmed the dismissal of
two so-called "shadow insurance" putative class action
lawsuits — Ross v. AXA Equitable Life Insurance
Company and Robainas v. Metropolitan Life Insurance
Company — on the basis that the plaintiffs lacked
standing under Article III of the United States Constitution to sue
in the federal district court. The suits were two of several class
actions that arose in the wake of a 2013 investigation by the New
York Department of Financial Services into certain captive
reinsurance transactions. Specifically, the complaints alleged that
the insurance companies misused captive reinsurers domiciled in
foreign jurisdictions to avoid higher reserve requirements of U.S.
jurisdictions, resulting in the misstatement of their financial
information and increased risks for plaintiffs. As reported in the
Summer 2015 and Fall 2015 editions of Expect Focus, the
district court dismissed the suits based on the plaintiffs'
failure to establish Article III standing.
The court of appeals affirmed, and found the complaints failed
adequately to allege that the plaintiffs had suffered
injury-in-fact, a necessary element of Article III standing. First,
the court rejected plaintiffs' argument that allegations that
the insurance companies had violated New York Insurance Law section
4226 sufficiently alleged injury-in-fact because of injury
"inherent in the statutory violation."
The court held "[t]he mere fact that an insurer may make a
misleading representation does not require or even lead to the
necessary conclusion that the misleading representation is material
or even likely to cause harm." Second, citing Spokeo, Inc.
v. Robbins, (2016), the court held that, to establish
standing, plaintiffs had to allege the injury-in-fact was concrete,
particularized, and "actual or imminent, not conjectural or
hypothetical." The court found the harm alleged in the
complaints — an augmented risk that the insurers would be
unable to pay death benefit claims in the event of an economic
downturn and their policies' inferior status, relative to
policies unaffected by shadow transactions, which plaintiffs claim
they would have been able to buy for the same price — was
speculative and hypothetical, and insufficient to establish
While the Second Circuit's ruling is non-precedential, it
reinforces that the alleged harms of "shadow insurance"
are inherently conjectural, a fundamental flaw in this genre of
litigation when pursued in federal court.
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