• ‘Vanishing premium’ policies, well, vanished; so did the class action Monday, November 23, 2009

    Raymond Kaldenbach sued Mutual of Omaha alleging the insurance company’s practice of selling “vanishing premium” life insurance policies violated the California Consumer Legal Remedies Act and the Unfair Business Competition Law.

    Kaldenbach claimed fraud and concealment on the part of Mutual of Omaha for selling vanishing premium life insurance policies. These are policies in which the policyholder pays higher-than-normal premiums in the early years of a policy as a way to accumulate premium dollars for investment purposes. The premise was that enough cash would accumulate so that in the future insurance, costs would be covered and the policyholder would no longer pay out of pocket premiums. 

    In the late 1980s, sharply declining interest rates upset the economics of these policies. By the 1990s, many consumers who had purchased the policies were required to continue to pay premiums to remain insured. 

    Kaldenbach bought his life insurance policy in 1990 when he age 56. It had a death benefit of $100,000, and would mature when he received age 95.

    Based on his agent’s claims, Kaldenbach believed that after paying four annual premiums of $3,162, or $12,648 total, the cash reserves would cover all future premiums. Kaldenbach made the four annual premium payments, and then paid no premiums for many years. In 2002, Mutual told him the cash reserves were not adequate and the policy would lapse if he failed to start making premium payments again.

     Kaldenbach sued on behalf of himself and all Californians who bought these policies from Mutual of Omaha between 1988-1995. He claimed agents selling the policies touted the potential benefits of the policies but failed to disclose risks. 

    The Court of Appeal in a decision by Justice Kathleen O’Leary affirmed a ruling by Superior Court Judge Stephen J. Sundvold of Orange County, and denied class certification. The justices focused upon the “highly individualized” nature of the presentations made to each client. The testimony of Kaldenbach’s agent indicated that he determined each client’s “dominant buying motive” and tailored his sales pitch to that motive and that all other agents varied in their individual presentations. The court ruled that Kaldenbach could not demonstrate sufficient common facts among the plaintiffs. 

    Kaldenbach v. Mutual of Omaha Life Insurance Company, Court of Appeal 4th Dist Div 3 (G 038539) 

    Steve Ingram

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