Expect Focus Life Insurance, September 2018

Even Disclaiming ‘Magic Words’ Won’t Save Plaintiffs from SLUSA Preclusion

Life, Annuity, and Retirement Litigation   |   Insurance   |   Life, Annuity, and Retirement Solutions   |   Class Actions   |   October 1, 2018

In 2016, a putative class action lawsuit was filed in California state court on behalf of all persons over the age of 60 who were issued a variable annuity policy by defendants within the state. The complaint in Davis v. Riversource Life alleged that the defendants failed to comply with California’s Unfair Competition Law by neglecting to include certain required disclosures. Specifically, the law mandates that any annuity contract issued to a senior citizen must disclose all surrender periods and charges and display a 30-day “free-look disclosure” plainly on the policy’s cover page. The purpose of a free-look period is to allow the policyholder the chance to return the policy and receive a full refund of the premiums without penalty. The plaintiff claimed that defendants’ failure to include this information on the policy’s cover page caused him to incur surrender charges that he would not have incurred had he been provided with proper notice of the potential penalties and free-look period.

In July, the court entered an order dismissing the action as barred by the Securities Litigation Uniform Standards Act (SLUSA), which precludes plaintiffs from bringing class actions based on state claims involving the use of deceptive practices in connection with the purchase or sale of a covered security. In an attempt to save his claims from dismissal, the plaintiff argued that the amended complaint explicitly disclaimed fraud, thereby bringing it outside SLUSA’s reach. However, the court summarily rejected this argument as the plaintiff’s complaint was still based on deceptive practice claims, including misrepresentation and omission. In its order, the court asserted that plaintiff could not avoid SLUSA preclusion by “scrubbing the [complaint] of the ‘magic words’” while leaving in concepts intended to be covered by the Act.

When faced with a class action lawsuit, defendants should always be on the lookout for potential ways to preempt those claims at the outset. The Davis holding is a reminder that SLUSA preemption can be a useful tool for defendants seeking to defeat class action claims early in litigation. 


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