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Security Life of Denver Insurance Co. v. Ferguson5/28/1999
In this case we must determine whether the trial court erred in granting certification as a class action. Security Life of Denver Insurance Company brings this interlocutory appeal from an order certifying a class of more than 1400 purchasers of its joint survivor whole life (JSWL) and joint survivor whole life enhanced (JSWLE) life insurance policies. See Tex. Civ. Prac. & Rem. Code Ann. ยง 51.014(3) (Vernon 1999); Tex. R. Civ. P. 42. Appellant asserts the trial court abused its discretion in certifying the class because:
"(1) the trial court failed to conduct a "rigorous analysis" of the prerequisites of rule 42; (2) the class does not satisfy the four criteria set forth in rule 42(a); and (3) the class does not satisfy the predominance, superiority, or manageability requirements of rule 42(b)(4) . Concluding that no abuse of discretion has been shown, we affirm the trial court's order."
Factual Background
Evidence presented at the two-day certification hearing revealed the following. From 1987 through 1992, Security Life sold JSWLE policies in thirty nine states. The sales were made through independent insurance agents. The JSWLE policy was developed in response to a 1986 federal tax law change allowing an unlimited marital deduction on estate taxes. This fixed premium whole life plan insured two lives and paid death benefits on the second death. It was designed as an estate planning tool to fund anticipated estate taxes after the surviving spouse died. As long as the fixed annual premium was being paid, a death benefit equal to the face value of the policy was guaranteed. However, the policy also featured three "vanish" options. The vanish options used a portion of the policy's accrued value, and additional amounts credited to the policy, to pay future premiums. The amount of the guaranteed death benefit after vanish, and how soon after issuance a policy owner could elect a vanish option, depended in part on the vanish option chosen and amounts Security Life credited to the insured's account in the form of "excess interest credits," or EICs.
According to Security Life Chief of Marketing Leslie Durand, the primary criterion potential purchasers used for comparing Security Life's policy to similar policies offered by other companies was the total cash outlay required to ensure that upon the second death, the death benefit would be adequate to cover projected estate taxes. Because these policies operated under a fixed annual premium scheme that was payable until the youngest surviving insured reached age 100, the total cash outlay depended in large part upon the EICs credited to the policy. EICs were used to purchase more insurance as "paid up additions" to the policy base value. These paid up additions could then be surrendered to help pay the annual premium, to reduce policy loans, or for cash, thereby reducing the total cash outlay required for the ultimate desired death benefit.
EICs were calculated using a complex mathematical formula that included a "crediting rate" established by Security Life. Primarily through the use of illustrations, either prepared directly by Security Life or by the independent agents with Security Life software, potential purchasers would receive projections of their total cost of the policy for the desired death benefit using crediting rate assumptions. Changing the crediting rate used in calculating EICs would affect the anticipated number of annual premium payments a potential purchaser could expect to pay out of pocket before the premium payment would "vanish."One of the primary issues in this case is the precise nature of the EICs and how Security Life presented this concept in the marketing literature,
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