State Farm Deducted Excessive Expenses from New York Life Insurance Policies, Class Action Alleges

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A proposed class action alleges State Farm Life Insurance Company has deducted certain monthly expenses from policyholders’ account values in excess of what’s permitted under the terms of the policies.

The 12-page case more specifically claims that despite representing in its policy terms that it would deduct from an account no more than $5.00 monthly for an “expense charge” for costs related to offering the policy, State Farm has nevertheless inflated its monthly cost-of-insurance charge by billing consumers for charges related to “expense recovery.”

According to the breach-of-contract suit, policyholders have been damaged in that their account values have been unlawfully reduced due to State Farm’s apparent practice of deducting excessive, unauthorized amounts each month.

“The policy does not state that State Farm can include loads for expenses in the cost of insurance charge, and State Farm did not disclose to policyholders that it was including such expenses in the cost of insurances charge,” the complaint states. “A reasonable policyholder would understand the policy as promising that expenses included in the monthly deduction are five dollars per month, and State Farm breached this promise by including additional expense loads in the cost of insurance rate.”

The suit explains that State Farm offers life insurance policies that include both a death benefit and an interest-bearing account into which a policyholder deposits monthly premiums. Per the case, this amount accumulates over time and is referred to as the policy’s “account value.” 

The lawsuit says that State Farm makes a monthly deduction from an account’s value that consists of the cost of insurance, the monthly charge for any riders and a monthly expense charge. Each policy represents that the monthly expense charge from State Farm will not exceed $5.00, the suit relays.

The cost of insurance, on the other hand, is determined by an insured’s age on the policy anniversary, sex, and applicable rate class, according to the complaint. The suit alleges, however, that among the factors included in the applicable rate class are charges related to expense recovery—a fact that the case claims is not disclosed to policyholders.

“In other words,” the lawsuit says, “in addition to assessing a five-dollar charge as part of the monthly deduction, State Farm also recovered for expenses through the cost of insurance charge.”

The case claims that a reasonable consumer would understand the policy as promising that State Farm would deduct no more than $5.00 per month for expenses associated with their policy. Thus, the insurer breached this promise by deducting additional expense-related costs as part of the cost of insurance rate, the lawsuit argues.

The plaintiff, a Lynbrook, New York resident who owns a State Farm flexible premium adjustable insurance policy, looks to represent similarly situated individuals who own or owned a universal life insurance policy issued by State Farm on Form 94030 in New York.

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