ORIGINAL Cage 2:10-cv-09198-JVS:JDE Document1 Filed 10/26/10 ,Page 1 of 67 Page ID #:1 JONATHAN A. SHAPIRO us 7199 WILMER CUTLER PICKE ALE AND DORR LLP 950 Page Mill Roa Palo Alto, CA 94304 Tel: feat 858-6101 1 Dm Mm Fax: (650) 858-6100 : sek. “QO, A jonathan.shapiro@wilmerhale.com oe A, C eS tics Attorney for Defendant Life Insurance % LO oe : Company of the Southwest \Y “EEX Sh Cn w» AO; : TOs ] oO UNITED STATES DISTRICT COURT lt 19 NORTHERN DISTRICT OF CALIFORNIA Y : JOYCE WALKER, KIM BRUCE HOWL BT, ) Case No. ff CS and MURIEL SPOONER on behalf of themselves and all others similarly situated, 1 0 48 85 a Plaintiff, NOTICE OF REMOV vs. DEMAND FOR JURY TRIAL LIFE INSURANCE COMPANY OF THE SOUTHWEST, a Texas corporation, and DOES 1-50, Defendants. Pursuant to 28 U.S.C. §§ 1332, 1367, 1441, 1446, and 1453, Defendant Life Insurance Company of the Southwest (“LSW”) removes the above-captioned civil action, formerly pending in the Superior Court of the State of California, County of San Francisco, No. 10-504020, to this Court. As grounds for removal, LS W states the following: Introduction l. Plaintiff Joyce Walker is a resident of San Diego, California. See Exhibit A, | 16 (Complaint) (“Ex. A”’). 2. Plaintiff Kim Bruce Howlett 1s a resident of San Diego, California. See Ex. A, 9 17. .|- NOTICE OF REMOVAL Case 2:10-cv-09198-JVS:JDE Document1 Filed 10/26/10 Page 2 of 67 Page ID #:2 Oo Oo NAN HB WN 3. Plaintiff Muriel Lynn Spooner is a resident of San Diego, California. See Ex. A, § 18. 4. Defendant LSW is, and was at the time this matter was filed, incorporated under the laws of the State of Texas, with its principal place of business in Dallas, Texas. See Ex. A, ¥ 19. | 5. On September 24, 2010, Plaintiffs filed the instant action in the Superior Court of the State of California, County of San Francisco, although they did not serve LSW until September 27, 2010. A copy of the Complaint 1s attached as Exhibit A. 6. LSW now removes this action to this Court pursuant to 28 U.S.C. §§ 1332, 1367, 1441, 1446, and 1453. This Court has removal jurisdiction over this action on at least two separate bases, as set forth below. First Ground For Removal: Class Action Removal Jurisdiction G This Court has removal jurisdiction of this action pursuant to 28 U.S.C. § 1332(d) (federal jurisdiction over class actions as established by the Class Action Fairness Act). Pursuant to § 1332(d)(2), a putative “class action” may be removed to the appropriate United States District Court if (in relevant part): (a) the amount in controversy with respect to the putative class exceeds $5,000,000, exclusive of interest and costs, and (b) there is “minimum diversity” insofar as any member of the putative class is a citizen of a state different from any defendant. 8. This action is a putative “class action” within the meaning of §§ 1332(d)(1)(B) and 1453(a) because Plaintiffs (1) seek to bring it “on behalf of themselves and others similarly situated;” (see Ex. A J 1) and (11) seek to represent a class of persons in a civil action filed under Cal. Code Civ. Proc. §§ 378-84 and Cal. Bus. & Prof. Code 17200 et seq., which are “statute[s] or rule[s] of judicial procedure authorizing an action to be brought by | or more representative persons as a class action.” The exclusions of 28 U.S.C. § 1332(d)(5)(A) do not apply. See Ex. A, ¥ 59 (there are “hundreds or thousands” of class members). 2. NOTICE OF REMOVAL Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 3 o0f67 Page ID #:3 9, There is more than $5,000,000 in controversy. Under § 1332(d)(6), the amount in controversy in a putative class action is determined by aggregating the amount at issue in the claims of all members of the putative class. Here, the three named Plaintiffs alone claim compensatory damages in excess of $237,000. See Ex. A, 4 43 ($81,366.21 alleged losses by Walker); § 48 ($101,750 alleged losses by Howlett,); 4 53 ($54,686.83 alleged losses by Spooner). The Complaint asserts that there are “hundreds or thousands” of similarly situated persons in the class. See Ex. A, 7 59. 10. The requisite “minimum diversity” of citizenship exists under 28 U.S.C. §§ 1332(d)(2) and (d)(7). Plaintiffs, all citizens of California, seek to represent a class of LSW policyholders who are also citizens of California. See Ex. A, | 56 (defining putative class as policy holders in California). Defendant LSW 1s a citizen of Texas because it 1s a corporation incorporated under the laws of Texas, with a principal place of business in Dallas, Texas (see Ex. A, J 19). 28 U.S.C. § 1332(c)(1). Thus, LSW is a citizen of a state different from at least one putative class member (and indeed 1s a citizen of a state different from all putative class members), and the requisite diversity exists under 28 U.S.C. § 1332(d)(2)(A). 11. Accordingly, this Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(d), and it may be removed to this Court under 28 U.S.C. §§ 1441, 1446, and 1453(b). Second Ground For Removal: Diversity Jurisdiction 12. This Court also separately has removal jurisdiction of this action pursuant to 28 U.S.C. § 1332(a) (diversity jurisdiction where more than $75,000 is in controversy). 13. The required diversity under 28 U.S.C. § 1332(a)(1) exists because, as set forth above, LSW is a citizen of Texas and Plaintiffs are citizens of California. See supra {fj 1-4. we NOTICE OF REMOVAL se 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 4 of 67 Page ID #:4 14. The amount in controversy exceeds $75,000, exclusive of interests and costs, as further described below. See 28 U.S.C. § 1332. 15. Plaintiff Walker alleges that she paid $224,000 in insurance premiums and incurred a “net loss in excess of $81,366.21.” Ex. A, 943. She also seeks punitive damages and attorneys’ fees. See Ex. A, § 33. 16. Plaintiff Howlett alleges that she paid $105,750 in insurance premiums and that her loss exceeds that amount. Ex. A, 448. She also seeks punitive damages and attorneys’ fees. See Ex. A, ¢ 33. 17. Plaintiff Spooner alleges that she paid $59,500 in insurance premiums and incurred a “net loss in excess of $54,686.83.” Spooner also seeks punitive damages and attorneys’ fees. See Ex. A, 7 33. Plaintiff's claim clearly exceeds the required amount in controversy because, for purposes of determining the amount in controversy, Ninth Circuit courts at least double the amount claimed as actual damages where, as here, plaintiff also seeks recovery of punitive damages and attorneys’ fees. See Guglielmino v. McKee Foods Corp., 506 F.3d 696 (9th Cir. 2007). 18. The Court also has supplemental jurisdiction over Plaintiff Spooner under 28 U.S.C. § 1367 regardless of whether she independently satisfies the amount in controversy requirement because (as detailed above) Plaintiffs Walker and Howlett satisfy the amount in controversy requirement. See Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 566-67 (2005) (supplemental jurisdiction over plaintiff who does not meet amount in controversy requirement proper if other plaintiffs in case do satisfy amount in controversy requirement). 19. Accordingly, this Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1332(a) and 1367, and it may be removed to this Court under 28 U.S.C. §§ 1441 and 1446. A. NOTICE OF REMOVAL jo. . OO ~~ ON se 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page5of67 Page |ID#:5 Compliance With Procedural Requirements 20. Because this Notice of Removal was filed within 30 days of receipt of the Complaint and Summons, each served upon LSW on September 27, 2010, this Notice of Removal is timely under 28 U.S.C. § 1446(b). 21. Removal to this District and Division is proper pursuant to 28 U.S.C. § 1441(a), since the U.S. District Court for the Northern District of California embraces the place where the state court action was formerly pending. 22. Pursuant to 28 U.S.C. § 1446(a), true and correct copies of all process, pleadings and orders served upon LSW in the state court action are attached hereto. 23. Pursuant to 28 U.S.C. § 1446(d), LSW has served this Notice of Removal on the Plaintiff and has filed a Notice of Defendant’s Notice of Removal with the Superior Court. | WHEREFORE, Defendant LSW prays that this action be removed to this Court. DEMAND FOR JURY TRIAL LSW hereby demands a trial by jury in the above-captioned matter. sh: NOTICE OF REMOVAL Cease iid um Document 1 Filed 10/26/10 Page 6 of 67 Page ID #:6 Respectfully submitted, LIFE INSURANCE COMPANY OF THE SOUTHWEST By its attorney: Pee aes —_——eee Jonathan A. Shapiro (257199) WILMER CUTLER PICKERING HALE AND DORR LLP 950 Page Mill Road Palo Alto, CA 94304 Tel: (650) 858-6101 Fax: (650) 858-6100 jonathan.shapiro@wilmerhale.com ifs NOTICE OF REMOVAL Mase —— Document 1 Filed ao 7 of 67 Page ID #:7 PROOF OF SERVICE I am employed in the County of Santa Clara, State of California. I am over the age of 18 and not a party to the within action. My business address is 950 Page Mill Road, Palo Alto, California 94304. On October 26, 2010, I served the foregoing document(s) described as: NOTICE OF REMOVAL AND DEMAND FOR JURY TRIAL on each interested party, as stated on the attached service list. LJ T (BY ELECTRONIC MAIL) I caused the foregoing document to be served electronically by electronically mailing a true and correct copy through Wilmer Cutler Pickering Hale and Dorr LLP’s electronic mail system to the e-mail address(es), as set forth below. (BY OVERNIGHT DELIVERY SERVICE) I served the foregoing document by Federal Express Overnight Express, an express service carrier which provides overnight delivery, as follows. I placed a true copy of the foregoing document in sealed envelopes or packages designated by the express service carrier, addressed, as stated on the attached service list, with fees for overnight delivery paid or provided for. ‘Z (BOX DEPOSIT) I deposited such envelopes or packages in a box or other facility regularly maintained by the express service carrier. By putting a true and correct copy thereof, together with a signed copy of this declaration in a sealed envelope with postage thereon fully prepaid, in the United States mail at Palo Alto, California addressed as set forth below. I am readily familiar with the firm's practice of collecting and processing correspondence for mailing. Under that practice, it would be deposited with the U.S. Postal Service on the same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if the postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on October 26, 2010, at Palo Alto, California. [abr Ont Latricia Baltodano 72 NOTICE OF REMOVAL A Hh WwW NO — So CO s NWN 10 1] 12 13 14 15 16 17 18 19 20 21 22 23 24 Zo 26 Zi 28 se 2:10-cv-09198-J¥S-JDE Document1 Filed salad sous 8 of67 Page ID #:8 SERVICE LIST Charles N. Freiberg Brian P. Brosnahan Jacob N. Foster KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 California Street, Suite 2300 San Francisco, CA 94111 Attorneys for Plaintiffs Harvey R. Levine Craig A. Miller Levine & Miller 550 West C Street, Suite 1810 San Diego, CA 92101-8596 -8- NOTICE OF REMOVAL &@. CT Corporation TO: Rhonda Miller Case iii: te Document 1 Filed —. oa 9of67 Page ID #:9 Service of Process 1 AW DEPARTME Nl transmittal 09/27/2010 Log Number 517346636 : 0 2010 SEP 29. AT FRNA A BT National Life Insurance Company iy = etal Nia - Law ade M500, One National Life Drive: Montpelier, VT 05604- ah uw | re RE: Process Served in California FOR: Life Insurance Company of the Southwest (Domestic State: TX) ENCLOSED ARE COPIES OF LEGAL PROCESS RECEIVED BY THE STATUTORY AGENT OF THE ABOVE COMPANY AS FOLLOWS: TITLE OF ACTION: DOCUMENT(8) SERVED: COURTIAGENCY: NATURE OF ACTION: ON WHOM PROCESS WAS SERVED: DATE AND HOUR OF SERVICE: APPEARANCE OR ANSWER DUE: ATTORNEY(S) / SENDER(S): ACTION ITEME: SIGNED: FER: ADDRESS: TELEPHONE; hele Pol et al., Pltfs. vs. Life Insurance Company of the Southwest, etc., et a Le §. Summons, Attachment(s), Stipulation Form, Statement Form, Notice, Cover Sheet(s}, Complaint, Demand for Jury Trial San Francisco county, Superior Court, CA Case # CGC1050402 Insurance Litigation - Class Action - Unlawful Business Practices - Fradulent marketing and sale of indexed unfversal life insurance policies C T Corporation System, Los Angeles, CA By Process Server on 09/27/2010 at 12:35 Within 30 days after service - File written response // February 25, 2010 at 9:00 a.m. - Case Management Conference // no later than 15 days bfore the Case Management Conference - file and serve a Case Management Statement Brian P. Brosnhan Kasowitz, Benson, Torres & Friedman LLP 101 California Street Suite 2300 San Francisco, CA 94111 415-421-6140 Please Note: Page(s) 2 of 2 of the Civil Case Cover Sheet(s) not received with process at time of service. SOP Papers with Transmittal, via Fed Ex Standard Overnight , 790359276501 C T Corporation System Nan ores 818 West Seventh Street Los Angeles, CA 90017 213-337-4615 Page 1 of 1/DH information displayed on this transmittal is for CT Corporation's record keeping purposes only and fs provided to the recipient for quick reference. This information does not constitute a legal opinion as to the nature of action, the amount of damages, the answer date, or any information contained in the documents themselves. Recipient is responsible for interpreting seid documents and for taking appropriate action. Signatures on certified mail receipts confirm receipt of package only, not contents, eat ee ee ee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 ..Page 10 of 67 Page ID #:10 GoPpy ee T i hd vu re SUMMONS FOR COURT USE ONLY (CITACION JUDICIAL) geen ene (AVISO AL DEMANDADO): 2 | AW DEPARTMENT Life Insurance Company of the Southwest , 4 ledar Go A “|. 0 SEP 24 All: 08 YOU ARE BEING SUED BY PLAINTIFF; (LO ESTA DEMANDANDO EL DEMANDANTE): SE ETE Joyce Walker, Kim Bruce Howlett and Muriel Spooner, on behalf of themselves and others similarly situated NOTICE! You have been sued. The court may decile agains! you without your being heard unless you respond within 30 days. Read the information below. You have 30 CALENDAR DAYS after this summons and legal papers are served on you to file a written response at this court end have a copy served on the piainiff. A letter or phone call will not protect you. Your written response muat be in proper legal form if you want the court to heer your case. There may be a court form that you can Use for your response. You can find these court forms and more information at ihe Califomia Courts Online Self-Help Center (www.courtinfo.ce.gov/sethelp). your county law library, or the courthouse nearest you: If you cannot pey the Gling fee, ask the court clerk for a fee walver form. if you do not fle your response on time, you may lose the case by defeull, and your wages, money, and property may be taken without further warning from the court There are other legal requirements. You may want fo call en attomey right away. If you do not know sn atiomey, you may want to call an etiomey referral sarvice. If you cannot afford an attomey, you may be eligible for free legal services from a nonprofit legal services program. You cen locate these nonproftt groups at the Caliiomla Legal Services Web site (www.lawhelpoeifomia. org), the Califomia Courts Oniine Self-Help Center (www. courtinio.ca.gov/selfheip), or by contacting your local court or county bar association. NOTE: The court has a ststutory lien for waived fees and costs on any settlement or arbitration award of $10,000 or more in a civil case. The court's hen must be paid before the court wid demise thecase. JAVISO! Lo han demandado. Si no responde dentro de 30 dias, ja corte puede decidir en su conira sin escucher su version. Lee fa informacion a continuacion. Tiene 30 DIAS DE CALENDARIO deapués de que fe entreguen esta cilacién y papeles legales pare presenter une respuesta por escrito en esta corte y hacer que se entregue una copia af demandante. Una certe 0 una lemada telefénida no fo protegen. Su respuesta por escrito tiene que estar en formato legal correcto si desea que procesen su caso en ia corte. Es posible que haya un forrnulario que usted pueda user pare su respuesta, Puede encontrar estos formularios de fe corte y més informacidn en al Centro de Ayude de jas Cortes de Caiiformia (www.sucorie.ca.gov), an ia biblioteca de layes de su condade o en ja corte que le queda més cerca. Si no puede pager ja cuote de presentacion, pida el secreterto da ja corte que le dé un formulario de exencion de pago de cuotaa. Si no presente su respuesta a tiempo, puede perder el caso por incumplimiento y fa corte le podra quiter su sueido, dinero y bienes sin més advertencia. Hay oiros requisios legaies. Es recomendabie que tame @ un abogado inmedialamente. Sino conoce a un abogado, puede Jamar a un servicio de remision a abogados. Si no puede pagar a un abogado, es posible que cumpia con ios requisitoa para obtener servicios legaies gratuitos de un programa de servicios fegales sin fines de hucro. Puede encontrar estos grupos sin fines de lucro en af sitio web de Cei/fomia Legal Services, (www .lawheipcaiifomia.org), en ef Centro de Ayuda ce fas Cortes de Caifomia, fwww.sucorte.ca.gov) o poni¢ndose en contacto con la corte o ef colegio de abogados focalas. AVISO: Por ley, 'a corte lene derecho a reclamar las cuotas y los costes exentos por imponer un gravemen sobre cueiquier recuperacién de $10,000 6 més de valor recibida mediante un acuerdo o una eoncesién de arbitraje en un caso de derecho civil. Tiene que pager e/ gravernen de fa corte antes de que /a corte pueda dasechar ei caso. The name and address of the court is: CASE NUMBER: (El nombre y direccién de /a corte es): Superior Court of San Francisco Sk oe 1 0 5 0 h 0 5 Civic Center Courthouse 0 400 McAllister Street, San Francisco, CA 94102 The name, address, and telephone number of plaintiff's attomey, or plaintiff without an attomey, is: (E! nombre, fa direccion y el numero de teléfono del abogado de! demandante, o dei damandanie que no tiene abogedo, as): Brian P, Brosnahan, KASOWITZ, " SEED E BOURKE & FRIEDMAN LLP,(€415) 421-6140 1 California Street, Suite alt isco, CA 94111 Deputy (Fecha) D 2 4 2010 = (Seoretaro pager meet (Adjiunio) or proof of service of this summons, use Proof of Service of Summons (form POS-010),) (Para prueba de entrega de este cilatién use ef formulario Proof of Service of Summons, (POS-070)). NOTICE TO THE PERSON SERVED: You are served 1. (] a8 an individual defendant. 2. ["_] as the person sued under the fictitious name of (speciy): LIFE INSURANCE COMPANY OF THE 3. [25] on behalt of spec’ SOUTHWEST, a Texas Corporation under: = CCP 416.10 (corporation) CCP 416,60 (minor) CCP 416.20 (defunct carporation) CCP 416.70 (conservatea) [] CCP 416.40 {association or partnership) [—_] CCP 416,90 (authorized person) [Co] other (specify): 4. [1 by personal delivery on (dale): Peon 7 of Fi set aebet eral onm u SUMMONS Cove of Ci Procecure §9 412.9, «a8 SUM-100 ther. rh 2008} a Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page1ilof67 Page ID #:11 | 4 t i | | ‘ | ' | i | Alternative Dispute Resolution (ADR) _ aw DEPARTMEOgram Information Package ong SEP 29 A Mi 08 as y Pes : “ ease wh as = = Alternatives to Trial There are other ways to resolve a civil dispute. The plaintiff must serve a copy ofthe ADR information package on each defendant along with the complaint. (CRC 3.221(c)) Superior Court of California County of San Francisco ADR-1 09/08 (ja) Page ! Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 12 o0f67 Page ID #:12 — nll et ann Introduction Did you know that most civil lawsuits settle without a trial? And did you know that there are a number of ways to resolve civil disputes without having to sue somebody? These alternatives to a lawsuit are known as alternative dispute resolutions (ADR). | The most common forms of ADR are mediation, arbitration and case evaluation. There are a number of other kinds of ADR as well. In ADR, trained, impartial persons decide disputes or a parties decide disputes themselves. These persons are called neutrals. For example, in mediation, the neutral is the mediator. Neutrals normally are chosen by the disputing parties or by the court. Neutrals can heip parties resolve disputes without having to go to court. ADR is not new. ADR is available in many communities through dispute resolution programs and private neutrals. Advantages of ADR ADR can have a number of advantages over a lawsuit. e ADR can save time. A dispute often can be resolved in a matter of months, even weeks, through ADR, while a lawsult can take years. e ADR can save money. Court costs, attorneys fees, and expert fees can be saved. e ADR can be cooperative. This means that the parties having a dispute may work together with the neutral to resolve the dispute and agree to a remedy that makes sense to them, rather than work against each other. e ADR can reduce stress. There are fewer, if any, court appearances. And because ADR can be speedier, and save money, and because the parties are normally cooperative, ADR is easier on the nerves. The parties don't have a lawsuit hanging over their heads for years. e ADR encourages participation. The parties may have more chances to teil thelr side of the story than In court and may have more control over the outcome. e ADRs flexible. The parties can choose the ADR process that Is best for them. For example, in mediation the parties may decide how to resolve their dispute. e ADR can be more satisfying. For all the above reasons, many people have reported a high degree of satisfaction with ADR. ADR-1 09/08 (a) Page 2 Page 13 of 6/7 Page ID #:13 Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 Because of these advantages, many parties choose ADR to resolve a dispute, instead of filing a lawsuit. Even when a lawsuit has been filed, the court can refer the dispute to a neutral before the parties’ position harden and the lawsuit becomes costly. ADR has been used to resolve disputes even after a trial, when the result fs appeaied. i a an ee em - Disadvantages of ADR ADR may not be suitable for every dispute. e If ADR is binding, the parties normally give up most court protections, including a decision by a judge or jury under formal rules of evidence and procedure, and review for legal error by an appellate court. There generally is less opportunity to find out about the other side's case with ADR than with litigation. ADR may not be effective if it takes place before the parties have sufficient information to resolve the dispute. The neutrai may charge a fee for his or her services. if a dispute Is not resolved through ADR, the parties may have to put time and money Into both ADR and a lawsuit. Lawsults must be brought within specified periods of time, known as statutes of limitation. Parties must be careful not to let a statute of limitations run out while a dispute Is in an ADR process. ADR-1 09/08 (ja) Page 3 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 14 of 67 Page ID #:14 ALTERNATIVE DISPUTE RESOLUTION PROGRAMS Of the San Francisco Superior Court “It is the policy of the Superior Court that every noncriminal, nonjuvenile case participate either in an early settlement conference, mediation, arbitration, early neutral evaluation or some other alternative dispute resolution process prior to a mandatory settlement conference or trial.” (Superior Court Local Rule 4) This guide is designed to assist attorneys, their clients and self-represented litigants in complying with San Francisco Superior Court’s alternative dispute resolution (“ADR”) policy. Attorneys are encouraged to share this guide with clients. By making informed choices about dispute resolution alternatives, attorneys, their clients and self-represented litigants may achieve a more satisfying resolution of civil disputes. The San Francisco Superior Court currently offers three ADR programs for general civil matters; each program is described below: 1) Judicial Arbitration 2) Mediation 3) The Early Settlement Program (ESP) in conjunction with the San Francisco Bar Association. JUDICIAL ARBITRATION Description in arbitration, a neutral “arbitrator” presides at a hearing where the parties present evidence through exhibits and testimony. The arbitrator applies the law to the facts of the case and makes an award based upon the merits of the case. When the Court orders a case to arbitration it is called judicial arbitration. The goal of arbitration is to provide parties with an adjudication that is earlier, faster, less formal, and usually less expensive than a trial. Upon stipulation of all parties, other civil matters may be submitted to judicial arbitration. Although not currently a part of the Court's ADR program, civil disputes may also be resolved through private arbitration. Here, the parties ADR-1 09/08 (ja) Page 4 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 1s5of6/7 Page ID#:15 v J voluntarily consent to arbitration. If all parties agree, private arbitration may be binding and the parties give up the right to judicial review of the ! arbitrator's decision. In private arbitration, the parties select a private | arbitrator and are responsible for paying the arbitrator's fees. | Operation Pursuant to CCP 1141.11 and Local Rule 4, all civil actions in which the amount in controversy is $50,000 or less, and no party seeks equitable relief, shall be ordered to arbitration. A case is ordered to arbitration after the Case Management Conference. An arbitrator is chosen from the Court's Arbitration Panel. Most cases ordered to arbitration are also ordered to a pre-arbitration settlement conference. Arbitrations are generally held between 7 and 9 months after a complaint has-been filed. Judicial arbitration is not binding uniess all parties agree to be bound by the arbitrator's decision. Any party may request a court trial within 30 days after the arbitrator's award has been filed. Cost There is no cost to the parties for judicial arbitration or for the pre- arbitration settlement conference. MEDIATION Description Mediation is a voluntary, flexible, and confidential process in which a neutral third party “mediator” facilitates negotiations. The goal of mediation Is to reach a mutually satisfactory agreement that resolves all or part of the dispute after exploring the significant interests, needs, and priorities of the parties in light of relevant evidence and the law. | Although there are different styles and approaches to mediation, most mediations begin with presentations of each side’s view of the case. The mediator’s role is to assist the parties In communicating with each other, expressing their interests, understanding the interests of opposing parties, recognizing areas of agreement and generating options for resolution. Through questions, the mediator aids each party in assessing the strengths and weaknesses of their position. ADR-1 09/08 (ja) Page 5 ee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 16 of 67 Page ID #:16 v J A mediator does not propose a judgment or provide an evaluation of the merits and value of the case. Many attorneys and litigants find that mediation’s emphasis on cooperative dispute resolution produces more satisfactory and enduring resolutions. Mediation’s non-adversarial i approach is particularly effective in disputes in which the parties have a , continuing relationship, where there are multiple parties, where equitable relief is sought, or where strong personal feelings exist. Operation San Francisco Superior Court Local Court Rule 4 provides three different voluntary mediation programs for civil disputes. An appropriate program ‘Is available for all civil cases, regardless of the type of action or type of relief sought. To help litigants and attorneys identify qualified mediators, the Superior Court maintains a list of mediation providers whose training and experience have been reviewed and approved by the Court. The list of court approved mediation providers can be found at www.sfgov.ora/courts. Litigants are not limited to mediators on the court list and may select any mediator agreed upon by all parties. A mediation provider need not be an attorney. Local Rule 4.2 D allows for mediation in lieu of judicial arbitration, so long as the parties file a stipulation to mediate within 240 days from the date the complaint is filed. If settlement is not reached through mediation, a case proceeds to trial as scheduled. Private Mediation The Private Mediation program accommodates cases that wish to participate in private mediation to fulfill the court's alternative dispute resolution requirement. The parties select a mediator, panel of mediators or mediation program of their choice to conduct the mediation. The cost of mediation is borne by the parties equally unless the parties ee otherwise. Parties in civil cases that have not been ordered to arbitration may consent to private mediation at any point before trial. Parties willing to submit a matter to private mediation should indicate this preference on the Stipulation to Alternative Dispute Resoiution form or the Case Management Statement (CM-110). Both forms are attached to this packet. ADR-1 09/08 Ga) Page 6 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page17 of 67 Page ID #:17 Mediation Services of the Bar Association of San Francisco The Mediation Services is a coordinated effort of the San Francisco Superior Court and The Bar Association of San Francisco (BASF) in which a court approved mediator provides three hours of mediation at no charge to the parties. It is designed to afford civil litigants the opportunity to engage in early mediation of a case shortly after filing the complaint, in an effort to resolve the matter before substantial funds are expended on the litigation process. Although the goal of the program {is to provide the service at the outset of the litigation, the program may be utilized at anytime throughout the litigation process. The mediators participating in the program have been pre-approved by BASF pursuant to strict educational and experience requirements. After the filing of the signed Stipulation to Alternative Dispute Resolution form included in this ADR package the parties will be contacted by BASF. Upon payment of the $250 per party administration fee, parties select a specific mediator from the list of approved mediation providers or BASF will help them select an appropriate mediator for the matter. The hourly mediator fee beyond the first three hours will vary depending on the mediator selected. Waiver of the administrative fee based on financial hardship is available. | A copy of the Mediation Services rules can be found on the BASF website at www.sfbar.org/mediation or you may call BASF at 415-982-1600. Judiclai Mediation The Judicial Mediation program is designed to provide early mediation of complex cases by volunteer judges of the San Francisco Superior Court. Cases considered for the program include construction defect, employment discrimination, professional malpractice, Insurance coverage, toxic torts and industrial accidents. Parties interested in judicial mediation should file the Stipulation to Alternative Dispute Resolution form attached to this packet indicating a joint request for inclusion in the program. A preference for a specific judge may be indicated. The court Alternative Dispute Resolution Coordinator will coordinate assignment of cases that qualify for the program. ADR:1 09/ 08 (ja) Page 7 eg ee ; $$ Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 18 of 67 Page ID #:18 i | | | | | | | Cost Generally, the cost of Private Mediation ranges from $100 per hour to $800 per hour and is shared equally by the parties. Many mediators are willing to adjust their fees depending upon the income and resources of the parties. Any party who meets certain eligibility requirements may ask the court to appoint a mediator to serve at no cost to the parties. The Mediation Services of the Bar Association of San Francisco provides three hours of mediation time at no cost with a $250 per party administrative fee. There is no charge for participation in the Judicial Mediation program. EARLY SETTLEMENT PROGRAM Description The Bar Association of San Francisco, in cooperation with the Court, offers an Early Settlement Program ("ESP") as part of the Court's settlement conference calendar. The goal of early settlement is to provide participants an opportunity to reach a mutually acceptable settiement that resolves all or part of the dispute. The two-member volunteer attorney panel reflects a balance between piaintiff and defense attorneys with at least 10 years of trial experience. As in mediation, there is no set format for the settiement conference. A conference typically begins with a brief meeting with all parties and counsel, in which.each is given an opportunity to make an initial statement. The panelists then.assist the parties in'understanding and candidly discussing the strengths and weaknesses of the case. The Early Settiement Conference is considered a “quasi-judicial” proceeding and, therefore, is not entitied to the statutory confidentiality a afforded to mediation. Operation Civil cases enter the ESP either voluntarily or through assignment by the Court. Parties who wish to choose the early settlement process should indicate this preference on the status and setting conference statement. ADR-1 09/08 (ja) ; Page 8 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 oh 19 of 67 Page ID #:19 If the Court assigns a matter to the ESP, parties may consult the ESP program materials accompanying the “Notice of the Early Settiement Conference” for information regarding removal from the program. _ Participants are notified of their ESP conference date approximately 4 months prior fo trial. The settlement conference is typically held 2 to 3 months prior to the trial date. The Bar Association's ESP Coordinator informs the participants of names of the panel members and location of the settlement conference approximately 2 weeks prior to the conference date. Local Rule 4.3 sets out the requirements of the ESP. All parties to a case assigned to the ESP are required to submit a settlement conference statement prior to the conference. All parties, attorneys who will try the case, and insurance representatives with settlement authority are required to attend the settlement conference. If settlement is not reached through the conference, the case proceeds fo trial as scheduled. Cost All parties must submit a $250 generally non-refundable administrative fee to the Bar Association of San Francisco. Parties who meet certain eligibility requirements may request a fee waiver. For more information, please contact the ESP Coordinator at (415) 782-9000 ext. 8717. RRRRAKKREHKEEKEANARHREARERK For further information about San Francisco Superior Court ADR programs or dispute resolution alternatives, please contact: Superior Court Alternative Dispute Resolution, 400 McAllister Street, Room 103 San Francisco, CA 94102 (415) 551-3876 or visit the Superior Court Website at http://sfgov.org/site/courts_page.asp?id=3672 _ADR-1 09/08 (ja) Page 9 ee cern ee Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 ai SUPERIOR COURT OF CALIFORNIA COUNTY OF SAN FRANCISCO 400 McAllister Street, San Francisco, CA 94102-4514 Gase No. Plaintiff v, STIPULATION TO ALTERNATIVE DISPUTE RESOLUTION Defendant DEPARTMENT 212 The parties hereby stipulate that this action shall be aubmitted to the following alternative dispute resolution process: Oo Private Mediation a Mediation Services of BASF [) Judicial Mediation 0 Binding arbitration Judge DO Non-binding judicial arbitration Judge 0 BASF Early Settlement Program 0 Other ADR process (describe) Plaintiff(s) and Defendant(s) further agree as follows: — Name of Party Slipulating Name of Parly or Aflorney Execuiing Stipulation Sig nature of Parly or Attorney CG Plaintiff CO Defendan O Cross... ICSC SAN CnC KASOWITZ, BENSON, TORRES & FRIEDMAN LLP SRIAN? BROSNAHAN GBM 2 gunser 2s WH 108 BR ( ; EN JACOB N. FOSTER (SBN 250785) Caw DEPARTM Chri OF Fee COURT 10L California Street, Suite 2300 San Francisco, Califomia 94111 ono SEP 29 A TE 0 °— Te | Telephone: (415) 421-6140 : Facsimile; (415) 398-5030 1 LEVINE & MILLER | CRAIG A. MILLER (SBN 116030) | JOYCE WALKER, KIM BRUCE ear et LETRAS "©. CRASH MANAGEMENT CONERRENCE SEI HARVEY R. LEVINE (SBN 61879) om 550 West C Street, Suite 1810 FEB 2 5 2011 -9 AM Se eis) se ennna Telephone: (619) 231- . Facsimile: (619) 231-8638 at Attorneys for Plaintiffs, JOYCE WALKER, KIM BRUCE HOWLETT, and MURIEL SPOONER, on behalf of themselves and all others similarly situated SUPERIOR COURT OF THE STATE OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO GBR~10-504 020 CLASS ACTION HOWLETT, and MURIEL SPOONER, on behalf of themselves and all others similarly CASE NO.: situated, CLASS ACTION COMPLAINT DEMAND FOR JURY TRIAL Plaintiffs, Vv. | LIFE INSURANCE COMPANY OFTHE | ‘ction Filed: SOUTHWEST, a Texas corporation, and Does 1-50, Defendant. Complaint Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 yy 30 of 67 Page ID #:30 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauironnsa STREET, SUITE 2300 SAN FRANCISCO, CALIFORNIA 04111 j ) Plaintiffs Joyce Ann Walker, Kim Bruce Howlett, and Muriel Lynn Spooner (together, 1 “Plaintiffs”), on behalf of themselves and all others similarly situated, by and through their | undersigned attorneys, allege, upon knowledge as to their own acts and otherwise upon ! information and belief, as follows: OVE Ww l. This class action seeks to redress the unfair, unlawful, and fraudulent business | acts and practices of defendant Life Insurance Company of the Southwest (“LSW” or | “Defendant”) with respect to its indexed universal life insurance policies. LSW sells indexed | universal life insurance policies, including the SecurePlus Provider policy and the SecurePlus | Paragon policy, to individuals throughout California. LSW represents that the policies are i retirement or investment vehicles and deceptively presents projected investment gains that will purportedly provide the policyholder with significant yearly income for life. LSW does not i specifically disclose and identify the cost of buying and maintaining the policies but instead ! conceals these very substantial costs within the projected earnings of the policies. LSW also does not disclose material risks that the policies will not perform as illustrated. As a result of these misrepresentations and nondisclosures, policyholders are induced to invest substantial | assets in the policies, in many cases by cashing out their retirement accounts or selling their i homes. Once policyholders realize that the policies are not what LSW represented, they are | unable to take their money out of the policies without paying enormous surrender charges. 2. SecurePlus Provider and SecurePlus Paragon are equity-indexed universal life | insurance policies that have a fixed interest rate component as well as an indexed account option. Life insurance is designed to provide a death benefit to a designated beneficiary upon the death | of the insured person. Indexed universal life insurance policies allow a policyholder also to accumulate cash value based on the performance of certain stock indices, The indexed account option accumulates cash value in the policy based on the performance of the Standard & Poor's , (S&P) 500. The actual interest credited to the policy’s cash value is determined by changes in the S&P 500, the “participation rate,” (i.e., the percentage at which the policyholder is given Complaint l ee ca a SV OS me Case 2:10-cv-09198-JVS KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronna STREET, Suste 2300 SAN FRANCISCO, CALIFORNIA 041 11 | credit for gains in the S&P 500), and any cap that may be imposed on the policyholder's gain in | a single year, 3. LSW engaged in unlawful, unfair, and fraudulent business acts and practices by developing, encouraging, and implementing a scheme to sell the policies, LSW’s unlawful # scheme involves marketing the policies as retirement or investment vehicles, concealing the true | cost of the policies from policyholders, concealing the risks that the policies will not perform as | represented, and misrepresenting the safety and security of the policies as investment or 1 retirement vehicles. The centerpiece of LSW’s deceptive scheme is the use of policy i illustrations that were created by LSW. The illustrations are distributed to prospective : policyholders through agents or brokers who rely on LSW'’s illustrations to sell the policies. 4. In perpetuating its unlawful scheme, LSW disregards and violates the express, detailed provisions of the California Insurance Code that govern the use of life insurance | illustrations. Insurance Code Section 10509.9535(b\L) states, “When using an illustration in the | sale of a life insurance policy, an insurer or its producers or other authorized representatives shall | | not do any of the following: . . . (1) Represent the policy as anything other than a life insurance | policy.” LSW’s marketing scheme and its policy illustrations violate the statute by touting the | policies as retirement or investment vehicles. 5. The “Life Insurance I[lustration” (“Illustration”) is copyrighted by LSW. A cover | page used by LSW describes the policies as follows: LSW Life Insurance Company of the Southwest A Revolutionary Concept in Financial Independence Revolutionary Life Life Insurance You Don't Have to Die to Use Since the insured person must die in order to use the main feature of all life insurance, LSW is | necessarily marketing the policies as something other than a life insurance policy, i.e., a retirement or investment plan. Interior pages of the Illustration focus on “Retirement Income” Complaint -JDE Document1 Filed 10/26/10 Page 31 o0f67 Page ID #:31 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 32 of 67 Page ID #:32 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 CAUFORNIA STREET, SulTE 2300 | and the purportedly superior investment features of the policies. LSW represents that the : policies will provide “[c|ash accumulation for additional retirement income, college expenses or 1 to meet emergencies.” LSW also uniformly represents that the policies are retirement or SAN FRANCISCO, CALIFORNIA 94111 1 investment plans that provide policyholders with financial independence through streams of income, and this, rather than any life insurance benefits, is the primary basis on which the | policies are sold. LSW markets the policies as retirement or investment vehicles without regard to whether the policyholder actually wants or needs life insurance. 6. The Illustration includes deceptive presentations of two sets of projected policy | values (labeled the “guaranteed basis values” and “current basis values”), and these presentations are virtually the sole focus of the illustrations. Indeed, the specific and significant expenses that j wil] be incurred by the policyholder because the policies are life insurance policies are almost i entirely omitted from the Illustration. Instead, these charges are deceptively embedded in the | policy value illustrations, effectively hiding the costs from policyholders. The result is that the disclosures focus almost entirely on the eamings or income generation capabilities of the policies and not on the cost of the insurance features of the policies. LSW fails to separately identify and ! disclose, among other things, the following expenses that are charged annually or monthly by : LSW: the monthly cost of insurance charge; premium expense charge; the monthly percent of | accumulated value charge (for the SecurePlus Paragon policy); and the monthly policy fee. LSW’s failure to separately identify and disclose these expenses is particularly misleading in : light of its disclosure of a “Monthly Administrative Charge” and its statement that the policies are subject to only “One Policy Fee.” While a reasonable policyholder would believe that the ! “Monthly Administrative Charge” includes all expenses that will be charged by LSV, in fact the | “Monthly Administrative Charge” does not include any of the expenses described above. 7. Projected index crediting from gains in the S&P 500 is highly dependent on | nonguaranteed variables, including market performance, participation rates, index earnings caps, ) and allocation of policy premiums among different crediting strategies. Policy expenses can render illusory any projected gains from indexing, and LSW’s illustrations, by concealing these | expenses, makes the policies appear to be much more favorable investments than they are in Complaint 3 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 33 of 67 Page ID #:33 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Caurornea STREET, Surre 2300 SAN FRANCISCO, CALIFORNIA 94111 | reality. Unless credited index gains exceed administrative and insurance costs, the cash values of | the policies are depleted. While LSW deceptively represents that the policies will remain in | force indefinitely, and universal life insurance is touted to provide policyholders with permanent life insurance, depletion of cash value will ultimately cause the policies to lapse. Though LSW | markets the policies as providing retirement income through policy loans, the Hlustration does not disclose that policy lapse exposes the policyholder to liability for ordinary income taxes on j any policy loans outstanding at the time of lapse. Such liability could be enormous and in many | or most cases would be realized and incwred only after the loan proceeds needed to pay the tax | had already been spent. 8. Although the policies are marketed under the “SecurePlus” brand name as safe : and secure investment or retirement vehicles, LSW conceals material risks that the policies will not perform as illustrated but will, instead, lapse unless additional money is paid into the | policies. LSW conceals these risks by concealing the substantial policy expenses discussed | above and by projecting non-guaranteed values based only upon index crediting scenarios that assume essentially constant rates of return derived from the S&P 500. Although LSW knows | that the rates of return from index crediting tied to the S&P 500 will be highly variable, it conceals the substantial risks of policy failure that such variability introduces given LSW’s | deduction of substantial cost of insurance and administrative expenses, which occur whether or : not the S&P 500 experiences positive or negative returns. Cost of insurance deductions increase : if the accumulated value of the policy decreases, so the expenses that LSW charges to the policy : tend to increase if the S&P 500 performs poorly, which in turn reduces the accumulated value of | the policy, thus reducing the principal amount available to generate eamings should there be an improvement in the performance of the S&P 500. 9, LSW also markets and sells the policies on the basis that they will provide | guaranteed returns to policyholders, even if the projected retums are not realized. However, the ! guaranteed values used in the Illustration are misrepresented as annual guarantees when in fact j they are calculated upon policy termination (or in five-year intervals in the case of the 1 SecurePlus Provider) on the basis of average annual guarantees, and they are further deceptive Complaint 4 i ne eat i ee Page 34 of 67 Page ID #:34 : ~ ) ) Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 . and misleading because the guaranteed values are calculated based on net premiums (i.e., after : 1 deduction of all of the costs described above, which are not specifically identified and disclosed), | Though LSW knows that policyholders will not receive an annual guarantee, it fails to disclose : | this material information to policyholders in the IJlustration. This is particularly misleading , because policyholder gains in certain indexed account options are subject to an annual cap (e.g,, | a limit of 10% even if the S&P 500 rose 20%), but the minimum floor provided by the : guaranteed values is not provided annually. The llustration also fails to disclose that even the i “guaranteed” values are not actually guaranteed but are dependent on LSW’s claims-paying ability. 10. The Ilustration created by LSW obfuscates the nature and economic terms of the | policies. The terms of the policies and their projected performance are incomprehensible to a ! typical policyholder because of the misleading and insufficient information provided in the | iilustrations. ) 11. LSW’s misrepresentations and omissions induce policyholders to purchase the | policies. Policyholders reasonably rely on LSW’s representations and nondisclosures and on the | expert and superior knowledge of LSW. LSW deliberately misrepresents the nature and SAN FRANCISCO, CALIFORNIA 94111 j economic terms of the transaction through the {llustrations. For example, Plaintiff Joyce Walker , paid $224,000 in premiums before she discovered that her policy was not the reasonably safe and KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronna STREET, Surve 2300 | secure retirement or investment vehicle that had been represented to her. Plaintiff Kim Howlett 1 paid $105,750 and Plaintiff Muriel Spooner paid $59,500, before they made that discovery. 12, Any policyholder who purchases one of the policies is in a precarious situation. : The projected gains are contingent upon numerous nonguaranteed variables, but the costs of the policies are invariably significant. These costs significantly diminish the accumulation of value | in the policies, regardless of whether the projected gains are realized. In the event that a ) policyholder discovers LSW’s misrepresentations and omissions, she must pay a huge “surrender : charge” if she wishes to terminate the policies. 13. As detailed below, LSW’s unlawful scheme violates the detailed legal | requirements of the California Insurance Code that govern the regulation of life insurance. LSW Complaint 5 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 35o0f67 Page ID #:35 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronwa Srrcer, Sure 2300 SAN FRANCISCO, CALIFORNIA 94111 wy . + violates Insurance Code Section 10509.955(b){1) by selling the policies as retirement or 4 investment plans rather than on the basis of their life insurance benefits, The Illustrations | provided by LSW also violate the express requirements of Insurance Code Sections 4 10509.955(b}(6), 10509.955(b)(2), 10509.955(b)(3), 10509.950; 10509,955; 10509.971; | 10509.972, 10509,956(a){ 13), and 10509.956(b)(4) by, among other things, misrepresenting the | costs of the policies, misrepresenting the risks, safety, and security of the policies, treating policy | lapse in a misleading manner, deceptively presenting the guaranteed values, failing to define key terms, and implying that nonguaranteed elements are annual guarantees. 14, LSW’s conduct in marketing and selling the policies also violates California’s | common law of fraudulent concealment and California’s Unfair Competition Law (Cal, Bus, & | Prof. Code Section 17200, et seq.), As a result of LSW’s unlawful, unfair, and fraudulent business acts and practices, Plaintiffs and the class have incurred damages and have suffered | injury in fact and lost money or property and are entitled to compensatory and punitive damages : as well as declaratory, injunctive, and restitutionary relief as set forth below. VENUE 15. | Venue in this county is proper under California Code of Civil Procedure | Section 395(a) because the Defendant does not reside in Califomia, has not designated a principal business office in California, and Plaintiffs designated this county in their Complaint. THE PARTIES 6. Plaintiff Joyce Walker (formerly, Joyce Schmidtbauer) is a resident of San Diego, — 1 California. 7. Plaintiff Kim Brice Howlett is a resident of San Diego, California. —_—=—=- i «ma 8. Plaintiff Muriel Lynn Spooner is a resident of San Diego, California. 19. Defendant Life Insurance Company of the Southwest is, and at all relevant times : was, a corporation organized and existing under the laws of the State of Texas with its principal ! place of business in Dallas, Texas. 20. Plaintiffs are currently unaware of the identities of Does 1 through 50, who were the agents of LSW or who conspired with LSW to commit the misconduct described herein. Complaint 6 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 36 of 67 Page ID #:36 ) ‘5 LSW’S UNFAIR, UNLAWFUL AND FRADULENT MARKETING AND SALE OF L POLI 21. Plaintiffs are informed and believe and based thereon allege that, at al! relevant | ae pe pe ee Rm a : times, LSW was an issuer of life insurance policies, including so-called indexed or “equity- 1 indexed” universal life insurance policies. | 22. Life insurance generally refers to a form of insurance that pays on the death of the } insured person, who is typically the policyholder, The purpose of life insurance is to provide a | | death benefit to a designated beneficiary upon the death of the insured, Equity-indexed universal life insurance policies allow a policyholder to allocate premium payments towards the | investment or cash value of the policy and accumulate cash value based on the performance of : | certain stock indices. : 23. The California Insurance Code imposes detailed requirements on the use of life | insurance illustrations, including prescribing minimum standards to be followed when ilJustrations are used, and specifying disclosures that are required in connection with : illustrations. Insurance Code Section 10509.955(b)(1) states, “When using an illustration in the 1 sale of a life insurance policy, an insurer or its producers or other authorized representatives shall 907 Causrornma STREET, Sure 2300 SAN FRANCISCO, CALIFORNIA 04111 | not do any of the following: . . . (1) Represent the policy as anything other than a life insurance | policy.” LSW’s marketing scheme, which uses the policy illustrations as its centerpiece, violates | Section 10509,955(b)(1). | 24. Plaintiffs are informed and believe and based thereon allege that LSW developed, | marketed, and sold equity-indexed universal life insurance policies, including SecurePlus } Provider and SecurePlus Paragon. SecurePlus Provider and SecurePlus Paragon provide | policyholders with an indexed account option that is used to allocate premium payments to | accounts whose performance is tied to the S&P 500, The actual interest credited to the policies’ cash value is determined by changes in the S&P 500, the “participation rate,” (i.e., the percentage ’ at which the policyholder is given credit for gains in the S&P 500), and any cap that may be imposed on the policyholder’s gain in a single year. 25. Plaintiffs are informed and believe and based thereon allege that, at all relevant Complaint 7 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 37 of 67 Page ID #:37 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronna S1Reer, Suite 2300 SAN FRANCISCO. CALIFORNIA 94111 i times, LSW developed, marketed, and sold the policies in the State of California. 26. LSW markets and sells the policies through agents or brokers who rely upon an j [llustration format that is provided by LSW. Through its unlawful, unfair, and fraudulent | business acts and practices, LSW induces policyholders to purchase the policies by marketing | therm as an investment or retirement plan and misrepresenting their material costs and risks. | Specifically, LSW, through its standardized Illustration, misrepresents to policyholders that their policies will provide them with retirement income and financial independence. The Illustration | markets the policies primarily as an investment or retirement vehicle and not primarily as an | insurance policy. For example, a cover page used on the Illustration states: A Revolutionary Concept in Financial Independence Revolutionary Life Life Insurance You Don’t Have to Die to Use i Interior pages of the Mlustration emphasize how the policies will generate “Retirement Income,” } “Cash accumulation,” and “financial peace of mind.” These references tout the policies as | retirement or investment plans. 27. LSW conceals and fails to disclose that a substantial part of the premiums paid by | the policyholder will not be invested in the indexing option and instead will be used to pay an | array of administrative or insurance charges. LSW further conceals and fails to disclose that the | premiums used to pay these costs will not return any investment income. The Ilustration does : not disclose the cost of insurance charges of the plan or most administrative costs of the plan; | these are embedded in the projected policy values but are not separately identified or disclosed. | LSW conceals and fails to disclose, among others, the following costs that are charged annually : or monthly by LSW: a. Monthly cost of insurance charge (this cost varies with the policyholder, the policyholder’s age, and the accumulated value of the policy. By way of example, in Mr. Howlett’s case, the costs deducted were approximately $480 per month); b. Premium expense charge (6% of the premiums paid by Mr. Howlett and Ms. Spooner, and 5% of the premiums paid by Ms, Walker); Complaint 8 Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 Page 38 of 67 Page ID #:38 Aw | ; 5 4 { 1 l i ' i c. The monthly percent of accumulated value charge (This charge of .04% applies to the SecurePlus Paragon policy); and a d. Monthly policy fee of $5 per month. | 28. LSW also made misleading partial disclosures by disclosing a “Monthly Administrative Charge” and by stating that the policy is subject to only “One Policy Fee.” Since : the “Monthly Administrative Charge” is the only charge disclosed in the Illustration and the : policy is stated to be subject to only “One Policy Fee,” a reasonable policyholder would assume i that the “Monthly Administrative Charge” includes all costs that will be deducted from the policy values. In fact, the Monthly Administrative Charge does not include any of the expenses | listed above, all of which are charged by LSW in addition to the Monthly Administrative Charge. 29. LSW’s misrepresentations and omissions regarding the cost of the policies also | make the policies appear to be more attractive investments than they are in reality. For example, | the premium expense charge is comparable to a front-end mutual fund load because such loads | are deducted at the outset and reduce, often by approximately 5%, the amount invested. Whereas | mutual fund loads are disclosed to buyers, LSW does not disclose the premium expense charge. 101 Cauronma STREET, SurTé 2300 SAN FRANCISCO, CALIFORNIA 841 11 | As a result, policyholders are unable to evaluate the relative costs of the policies vis a vis other ! investments such as mutual funds. KASOWIT2Z, BENSON, TORRES & FRIEDMAN LLP 30. In addition to failing to disclose the expenses of the policies, the Dlustrations also | conceal materia] risks that the policies will not perform as illustrated and misrepresent the safety : and security of the policies as retirement or investment vehicles. Such concealment and | misrepresentation is effected in several ways in addition to concealment of policy expenses. | First, the Dlustrations are extremely complex and are incomprehensible to the typical | policyholder. Second, key terms essential to the projections of non-guaranteed values (i.e., : “Current Basis A” and “Current Basis B”) are‘not defined. Third, the Illustrations project non- ; guaranteed values using an essentially constant rate of return, without year-to-year variability. | The Illustrations suggest that it is reasonable to project non-guaranteed values this way because | the projected rates of return are less than the historical average returns of the S&P 500. But Complaint 9 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 39 of 67 Page ID #:39 101 Cauronna STREET, SUITE 2900 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP SAN FRANCISCO, CALIFORNIA 94111 LSW conceals from policyholders the fact — of which it is well aware — that policy performance | is highly dependent on the variability of rates of return. Because policy expenses such as cost of | Insurance charges and administrative costs are being deducted from the accumulated value of the policy each year, variability in annual rates of return can have a very substantial impact on policy j value regardless of the average rate of return. This effect is aggravated by the fact that cost of | insurance deductions increase with the “net amount at risk,” which is the difference between the death benefit and the accumulated value of the policy. This means that as the accumulated value | of a policy decreases, cost of insurance deductions increase, which further drives down the i accumulated value of the policy. This in turn drives up cost of insurance deductions. 31. Policy expenses, including cost of insurance charges, are deducted from ; accumulated policy values even if the policy eams low or no returns in a particular year. A | succession of low return years can produce a downward spiral in policy value from which the | policy cannot recover - leading to policy lapse and the loss of the policyholder's entire | investment in the policy. This risk is especially great as the policyholder ages because 1) the cost of insurance charge also increases with age (because mortality risk increases with age); and 2) policy withdrawals taken to provide living expenses after retirement reduce accumulated | policy value and thus reduce the amount that can generate policy earings. A policy that is | sufficiently well funded to provide retirement income in a scenario with constant rates of return | may lapse or “crater” if rates of return are variable — even if the average rate of return is the | same in the two scenarios. The Iustration also does not disclose that the risk of policy failure | increases if the policyholder takes advantage of the “flexible premium” option under the policy | to reduce the amount paid in. 32. LSW is aware that annual rates of return will not resemble the constant, average | rates of return depicted in its Dlustrations but will instead be highly variable. But LSW does not disclose the risks that variable rates of return pose for the safety and security of the policies as retirement or investment vehicles. Instead, LSW conceals those risks by depicting only constant rate of return scenarios, which are inherently misleading. A policy may have a substantial risk of Complaint 10 Case SS Document 1 Filed 10/26/10 We 40 of 67 Page ID #:40 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 107 Cauronmia STREET, Sue 2300 BAN FRANCISCO, CALIFORNIA 94271 + 1 failure, but still appear to be reasonably safe and secure based on LSW’s misleading Illustrations depicting only constant return scenarios. Thus, ulthough the policies are called “SecurePlus” | policies and marketed as safe and secure investment or retirement vehicles, the riskiness of the | policies is concealed from policyholders, 33. The Illustrations also treat the question of policy lapse in a deceptive manner by failing to use an asterisk, as required by California Insurance Code Section 10509.956(a)( 13), to draw attention to the fact that the policies will lapse if further premiums are not paid. Instead, | the Illustration indicates that policyholders would still be charged $0 in premiums. As a result of | these misrepresentations and omissions, policyholders are deceived to believe that the planned periodic premium payments are sufficient to allow policyholders to continue the policies in force, and withdraw money from the cash value of the policies, without paying any further | premiums, even after the policies have lapsed due to nonpayment of premiums. 34, In addition to misrepresenting and concealing the risk of policy lapse, the i Jllustrations also conceal the consequences of policy lapse for policyholders who have taken out loans against the cash value of their policies. The Illustrations do not disclose that if the 1 policyholder borrows against any cash value built up in the policy, and then the policy lapses, the policyholder will owe income taxes - at tax rates charged on ordinary income rather than capital | gains ~ on policy earnings borrowed from the policy. 35. The Hlustrations also misrepresent the guaranteed rate of return under the policies, | The Illustrations falsely represent that policyholders will be entitled to a guaranteed annual rate | of return. The representation is false and misleading because the “guaranteed” rate of return is | presented as a guaranteed annual rate of return but is in fact calculated upon policy termination (or in five-year intervals in the case of the SecurePlus provider) on the basis of an average rate | over the lifetime of the policy. The misrepresentation of the guaranteed values as annual : guarantees is particularly misleading because the cap on gains in certain indexed account options | applies annually. A reasonable policyholder would believe that if the policy guarantees, by way Complaint i} a rr a Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 i a 41 of6/ Page |ID#:41 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP | of example 2.5%, that the policy will in fact provide him with a 2.5% gain even in a year where the S&P 500 is flat. Not so. If the policy was in effect for four years in which the S&P 500 had | zero gains for the first three years and a 10% gain in the fourth year, the policyholder would not receive her guarantee of 2.5% for years one, two, and three, and a 10% gain in year four, for a total gain of 17.5%. Instead, the policyholder would only receive a 10% gain because the : average gain of 2.5% equals or exceeds the guaranteed rate of return over the four year lifetime | of the policy.’ The guaranteed values are further deceptive and misleading because the i guaranteed values are calculated based on net premiums (i.¢., after deduction of all of the costs | described above, which are undisclosed), and because they are dependent on the claims-paying | ability of LSW. 36. The Hlustrations also make the policies appear to be more attractive than they actually are because the participation rates and cap rates used to project policy performance can be reduced by LSW at any time. Thus, if the S&P 500 has a succession of good years, | policyholders may not reap all of the anticipated benefits of that success because LSW can reduce participation and/or cap rates, resulting in lower eamings being credited to the policies. 37. | LSW developed, encouraged, and implemented its scheme with disregard for, and in violation of, the Califomia Insurance Code. The provisions of the California Insurance Code | violated by LSW are designed to prevent the deceptive and misleading use of life insurance 4 illustrations and include: a. Insurance Code Section 10509.955(b)1), which states, “When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized j tepresentatives shall not do any of the following: . . . (1) Represent the policy as anything other | than a life insurance policy.” LSW violates this provision by developing, encouraging, and ' This example uses simple interest instead of compound interest for ease of presentation. Plaintiffs make no contention at this time concerning whether LSW would augment the 10% gain to account for compounding of an average annual rate of return. Complaint 12 ea ten ape ce a en er en ee Ag et ay Pa NT I ENG Ly ase A ARIPO UI TIE ASE OSA Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 42 o0f67 Page ID #:42 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronnia STREET, SUITE 2300 SAN FRANCISCO, CALIFORNIA 94111 | implementing an unlawful and fraudulent scheme to market and sell the policies as a retirement or investment vehicle, using policy illustrations as the centerpiece of that scheme. For example, J the Illustrations used in the sale of the LSW policies purchased by Ms. Walker, Mr. Howlett, and Ms. Spooner represented the policies as retirement or investment plans that would give them financial independence through streams of income and this, rather than any life insurance benefit, was the basis on which these policies were sold. b. Insurance Code Section 10509.955(bX(6), which prohibits an insurer from 1 providing “an applicant with an incomplete illustration.” LSW violates this provision by: i. Failing to disclose the economic costs of the insurance aspects of the policies, including the premium expense charge, deductions for the cost of insurance, the monthly percent of accumulated value charge (for the SecurePlus Paragon policy), and the monthly policy fee; ii. Using the term “guaranteed values” without disclosing that the values are not annual suaraniees: are calculated based on net premiums (i.¢., only after deduction of costs which are undisclosed), and are not truly guaranteed because they are dependent on the claims-paying ability of LSW. iii, Failing to disclose the material risks of policy failure that arise due to the fact that rates of return in the S&P 500 will not be experienced at a constant level, as depicted in the Illustrations, but will instead be highly variable. c. Insurance Code Section 10509.955(b)(2), which states that an insurer shall | not “[u]se or describe nonguaranteed elements in a manner that is misleading or has the capacity or tendency to mislead.” LSW violates this provision by using the earnings projections to conceal the costs of the policies, which are embedded in the earnings projections, and by providing illustrations which falsely portray that the annual income will be paid even if the policies have lapsed because they earned only the guaranteed values. LSW also violates this Complaint 13 ————— Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 a 43 of 67 Page ID #:43 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP provision by failing to disclose the impact that variability in the rates of return experienced by the S&P 500 may have on the risks of policy failure, including but not limited to the fact that l cost of insurance charges will be higher if the accumulated value of the Policy does not increase | as depicted in the Ilustrations. d. Insurance Code Section 10509.950, which requires insurers to “define : terms used in the illustration in language that is understandable by a typical person within the : segment of the public to which the illustration is directed.” LSW violates this provision by: i. Defining the “Monthly Administrative Charge” as “fan administrative charge which is deducted from the accumulated value of the policy each month” but excluding most administrative charges from the amount disclosed as the “Monthly Administrative Charge”: ii. Designing the Illustration to obfuscate the nature and economic terms of the policies by providing misleading and insufficient information; tii, Failing to define the terms “Current Basis A" and “Current Basis B.” ¢, Insurance Code Section 10509.956(b)(4), which requires that al] key terms be defined. LSW violates this provision by failing to provide in the Illustration an explanation of 1 how the cost indexes are to be used and failing to define “Account Value Enhancement,” “Basic Strategy,” “Current Basis A,” and “Current Basis B.” f. Insurance Code Section 10509.955(6)(3), which states that an insurer may | not “[s]tate or imply that the payment or amount of nonguaranteed elements is guaranteed.” | LSW violates this provision by misrepresenting the guaranteed values as annual rates of return. | In fact, they are calculated upon policy termination (or in five-year intervals in the case of the | SecurePlus provider) on the basis of average annual guarantees, and are further deceptive and misleading because the guaranteed values are caiculated based on net premiums, but many of the : costs deducted from the premiums are not disclosed. The Illustration also fails to disclose that Complaint 14 _— ———— a oe ee $< OO Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 oe 44 of 67 Page ID #:44 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP ) . | the “guaranteed” values are not really guaranteed because they are dependent on the claims- paying ability of the insurer. | g. Insurance Code Section 10509,956(a)(13), which requires that “Ifa | contract premium is due, the premium outlay display shall not be left blank or show zero unless 1 accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.” LSW violates this provision by showing a zero for the premium outlay display instead of showing an asterisk or similar mark to draw attention to the fact that the policies will lapse | without further payment of premiums. 38. LSW's unlawful scheme to market the policies as investment or retirement vehicles, and its unlawful and material misrepresentations, concealment, and omissions described above led Plaintiffs and the class members to submit applications to purchase the policies. As part of the application process, LSW solicited confidential and private information 1 from Plaintiffs and class members, including medical history information and the results of ! health examinations. Only after Plaintiffs and the class applied to purchase the policies, and 1 submitted confidential medical information, did LSW deliver the policies and certain other 1 information concerning the terms of the policies, To the extent that the policies themselves, or a : Life Insurance Buyer's Guide or other information delivered along with the policies, clarified or contradicted the Illustration, Plaintiffs and the class did not receive these additional disclosures 1 until after Plaintiffs and the class had incurred the effort and inconvenience of the application | Process and had decided to purchase the policies. Further, delivery of the policies and other 3 information cannot cure the failure of the Hlustration to conform to the Insurance Code's | requirements for policy illustrations. 39. Asaresult of LSW's unlawful, unfair, and fraudulent business acts and practices, | Plaintiffs and the class have suffered injury in fact and lost money or property. In reliance on i LSW’s material misrepresentations and omissions, Plaintiffs and the class purchased the policies, paid the undisclosed cost of insurance and other administrative charges, and were required to pay | surrender charges if they learned the truth and terminated the policies. Complaint 15 — — SS ee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 45 o0f67 Page ID #:45 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronma STREET, Sure 2300 SAN FRANCISCO, CALIFORNIA 64111 PLAINTIFFS’ P E AND RE F LSW POLICIE | Plaintiff Jovce Walker 40. Plaintiff Joyce Walker purchased SecurePlus Provider policy no. LSO156670 i from LSW, with a policy date of December 27, 2007. This policy accumulates interest or cash : value based in part on the performance of the S&P 500. In connection with Ms. Walker’s | purchase of her policy, she was presented with several policy Illustrations, Her initial premium 1 was to be $112,637, with a total of five planned periodic premium payments of $112,637 3 annually," 41, LSW marketed the policy to Ms. Walker by engaging in numerous unlawful, unfair, and fraudulent business acts and practices, as described more fully in paragraphs 21-38, | above. 42, Ms. Walker is not an insurance or investment expert and was therefore unfamiliar | with the insurance and investment terminology, actuarial assumptions, and other technical j investment and insurance terms used in the Illustration and the policy. Ms. Walker trusted in | LSW’s expert and superior knowledge, as well as its long-standing experience, in accepting the | representations of the Illustration and purchasing the policy. 43. After making two periodic payments of $112,000 each, Ms, Walker discovered, | inter alia, that the policy was not the reasonably safe and secure retirement vehicle that it had | been represented to be. After LSW denied Ms. Walker's request for a refund of premiums, her : only options were to surrender the policy and incur a very high “surrender charge,” or to forfeit her entire $224,000. Ms, Walker ultimately decided to surrender her policy, incurring a | surrender penalty of $55,013.42, which was taken out of the purported “accumulated cash value” | of $197,647.21. Ms, Walker received $142,633.79 from LSW for a net loss in excess of | $81,366.21. 44, Absent LSW'’s misrepresentations and failure to disclose the material information | 2 Although Ms. Walker’s policy listed a planned annual premium of $112,637, the annual | premium actually charged by LSW was $112,000. Complaint 16 Cp FT Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Fg 46 of 67 Page ID #:46 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Causronma STREET, SUITE 2300 SAN FRANCISCO, CALIFORNIA 94111 sag , } | described in paragraphs 21-38, above, Ms. Walker would not have purchased the policy. Kim Bruce Howlet 45, Plaintiff Kim Bruce Howlett purchased SecurePlus Paragon policy no. | LS0149017 from LSW, with a policy date of September 26, 2007. This policy accumulates interest or cash value based in part on the performance of the S&P 500. In connection with 1 Mr. Howlett’s purchase of his policy, he was presented with several policy IlJustrations. His j initial premium was $105,750, with a total of five planned periodic premium payments of | $105,750 annually. 46. |LSW marketed the policy to Mr. Howlett by engaging in numerous unlawful, unfair, and fraudulent business acts and practices, as described more fully in paragraphs 21-38, 7 above. 47. Mr, Howlett is not an insurance or investment expert and was therefore unfamiliar | with the insurance and investment terminology, actuarial assumptions, and other technical 1 investment and insurance terms used in the I/lustration and the policy. Mr. Howlett trusted in LSW’s expert and superior knowledge, as wel] as its long-standing experience, in accepting the : representations of the illustration and purchasing the policy. 48. After making one initial periodic payment of $105,750, Mr. Howlett discovered, i inter alia, that the policy was not the reasonably safe and secure retirement vehicle that it had | been represented to be. After LSW denied Mr. Howlett’s request for a refund of premiums, his only options were to surrender the policy and Incur a very high “surrender charge,” or to forfeit | his entire $105,750. Since the surrender charge exceeded the cash value of Mr. Howlett’s policy, : he has not surrendered his policy. Mr. Howlett’s loss exceeds $105,750. 49. Absent LSW’s misrepresentations and failure to disclose the material information described in paragraphs 21-38, above, Mr. Howlett would not have purchased the policy. | Plaintiff Muriel Lyan Spooner 50. Plaintiff Muriel Lynn Spooner purchased SecurePlus Provider policy no. | LS0149018 from LSW, with a policy date of October 5, 2007. This policy accumulates interest | or cash value based in part on the performance of the S&P 500. In connection with Complaint 17 ee eee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 MS 47 of 67 Page ID #:47 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Caurornma STREET, SuTE 2300 SAN FRANCISCO, CALIFOANIA 04111 } ) | Ms. Spooner’s purchase of her policy, she was presented with several policy Illustrations. Her , initial premium was $59,500, with a total of five planned periodic premium payments of $59,500 } annually. 51. LSW marketed the policy to Ms. Spooner by engaging in numerous unlawful, | unfair, and fraudulent business acts and practices, as described more fully in paragraphs 21-38, | above. 52. Ms. Spooner is not an insurance or investment expert and was therefore 1 unfamiliar with the insurance or investment terminology, actuarial assumptions, and other | technical investment and insurance terms used in the Illustration and the policy. Ms, Spooner | trusted in LSW's expert and superior knowledge, as well as its long-standing experience in the business, in accepting the representations of the iJlustration and purchasing the policy. 53. After making one initial periodic payment of $59,500, Ms. Spooner discovered that the policy was not the reasonably safe and secure retirement vehicle that it had been represented to be. After LSW denied Ms. Spooner’s request for a refund of premiums, her only ] Options were to surrender the policy and incur a very high “surrender charge,” or to forfeit her entire $59,500, Ms. Spooner ultimately decided to surrender her policy. She incurred a : surrender penalty of $31,981.82, which was taken out of the purported “accumulated cash value” 1 of $36,794.45. Ms. Spooner received $4,813.17 from LSW for a net loss in excess of 1 $54,686.83. 54. Absent LSW’s misrepresentations and failure to disclose the material information | described in paragraphs 21-38, above, Ms. Spooner would not have purchased the policy. CLASS ACTION ALLEGATIONS 55. Plaintiffs bring this action on behalf of themselves and all others similarly situated | as a class action pursuant to California Code of Civil Procedure Section 382. 56. Theclass that Ms. Walker, Mr. Howlett, and Ms. Spooner seek to represent is | composed of and defined as follows: All persons who purchased an indexed universal life insurance policy, including but not limited to persons who purchased a SecurePlus Provider policy or SecurePlus Paragon policy, from Complaint 18 ek ee ee ee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 48 of 67 Page ID #:48 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Life Insurance Company of the Southwest on or after September 24, 2006 and who resided in California at the time the policy was initially issued. 57. Specifically excluded from the class are past or present officers, directors, agents, | brokers, or employees of the Defendant, or its parents or subsidiaries; any agents, brokers, or 1 others who sold policies for the Defendant, or its parents or subsidiaries; any entity in which the : Defendant has a controlling interest; the affiliates, legal representatives, attorneys or assigns of the Defendant, or its parents or subsidiaries; any judge, justice or judicial officer presiding over this matter and the staff and immediate family of any such judge, justice or judicial officer. 58. As more fully set forth below, this action is appropriately brought as a class action | pursuant to California Code of Civil Procedure Section 382 because: there is a sufficiently numerous, ascertainable class; a well-defined community of interest; and certification will | provide substantial benefits to litigants and the courts. 59. Theclass members are so numerous that the individual joinder of all class ) members is impracticable under the circumstances of this case, Plaintiffs are informed and i believe that the class has hundreds or thousands of members, whose identities can be determined from the records of LSW. | Community of Interest 60. There is a well defined community of interest in the questions of law and fact i involved because there are (A) predominant common questions of law or fact; (B) the class | representatives have claims typical of the class; and (C) the class representatives can adequately | represent the class. A. 61. Common questions of law and fact exist as to all class members and predominate over any possible questions that might affect only individual class members. These common i questions of law and fact include, among others: a. Whether LSW marketed the policies as retirement or investment plans; b. Whether LSW failed to separately identify and disclose in the Illustrations Complaint 19 cece em me me a a inane On rer == Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Ny | the costs of the policies (including cost of insurance charges, the monthly percent of accumulated value charge (for the SecurePlus Paragon policy), and the monthly policy fee); C. Whether LSW failed to disclose in the Illustrations that the guaranteed I values would not provide policyholders with annual guarantees, were calculated based on net | premiums, and were not really guaranteed because they were dependent on the company's claims-paying ability. d. Whether LSW concealed the material risks and consequences of policy | failure and misrepresented the safety and security of the policies as investment or retirement | vehicles. e, Whether LSW violated the California Insurance Code; f. Whether LSW's practices, as alleged herein, violate California's common | law of fraudulent concealment. g. Whether LSW’s practices, as alleged herein, violate California's Unfair ; Competition Law. B. Typicality 62. Plaintiffs Joyce Walker, Kim Bruce Howlett, and Muriel Lynn Spooner’s claims are typical of those of the class members, Plaintiffs’ claims are based on the same legal theories as the claims of the other class members and are based on the same acts of fraudulent concealment and the same unlawful, unfair or fraudulent business acts or practices. Plaintiffs | and class members suffered injury in fact and lost money or property as a result of LSW's | common course of conduct as complained of herein. C. Adequacy 63. Plaintiffs will fairly and adequately protect the interests of the class members. Plaintiffs and the other class members were injured by the same acts of fraudulent concealment | and the same unlawful, unfair or fraudulent business acts or practices, and Plaintiffs have no interests that are adverse to the interests of absent class members. Plaintiffs have retained i counsel with substantial experience and success in the prosecution of complex class actions, consumer protection litigation and litigation challenging the practices of insurance companies. Complaint 20 Page 49 of 6/7 Page ID #:49 aes ms Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 50 of 67 Page ID #:50 101 Cauronma Stace, Suste 2300 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP SAN FRANCISCO, CALIFORNIA 94111 5 4 ertificati ill Pro ubsta Benefits to Lit ts the Cou 64. This action is appropriate as a class action under California Code of Civil | Procedure Section 382. Questions of law and fact common to the class members predominate I ond aclass action is superior to any other possible method for the fair and efficient adjudication 1 of the controversy, a. Common questions of law and fact predominate, and individual joinder of 1 all class members is impracticable. Class action treatment will permit a large number of | similarly situated persons to prosecute their common claims in a single forum simultaneously, | efficiently, and without the unnecessary duplication of effort and expense that numerous | individual actions would engender. b. Class members have little interest in individually controlling the | prosecution of separate actions, The substantial fees and costs required to challenge LSW’s j wrongful conduct greatly exceed the damages suffered by any individual class member and it ! would not be feasible or desirable for individual class members to prosecute separate actions against the Defendant. C. There are no difficulties that are likely to be encountered in the | management of this action that would preclude its maintenance as a class action. Rather, the | expense and burden of litigation would make it difficult or impossible for individual class | members to maintain individual actions. Moreover, even if such individual litigation were 3 practicable, the cost to the court system of adjudication of individualized litigation would be | substantial. This action will result in an orderly and expeditious administration of class claims. Economies of time, effort and expense will be fostered, and uniformity of decisions will be } ensured, FIRST CAUSE OF ACTION (For Fraudulent Concealment) 65. Plaintiffs Joyce Walker, Kim Bruce Howlett, and Muriel Lynn Spooner reallege 1 paragraphs 1-64, above, and incorporate them as if fully set forth herein. 66. LSW has a duty to disclose to Plaintiffs the truth about the policies for the Complaint 21 eK Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 51 o0f67 Page ID #:51 SAN FRANCISCO, CALIFORNIA 94111 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Causrornma STREET, Sune 2300 1 following reasons, without limitation: a. LSW has a duty to disclose based on its statutory obligations under | Insurance Code Sections 330, 332, and 10509, et seq. Section 330 states that “[nleglect to f communicate that which a party knows, and ought to communicate, is concealment.” Section : 332 requires that “{elach party to a contract of insurance shall communicate to the other, in good i faith, all facts within his knowledge which are or which he believes to be material to the contract | and as to which he makes no warranty, and which the other has not the means of ascertaining.” | Section 10509, et seq., as alleged in paragraph 37, above, imposes duties on LSW not to use deceptive, misleading, or incomplete life insurance illustrations. b. LSW also has a duty to disclose as a result of its partial disclosures, which i contained only half-truths or were otherwise false or misleading, as alleged in this Complaint, | including specifically, but without limitation: i. Since LSW discloses a “Monthly Administrative Charge” and states that the policy is subject to only “One Policy Fee,” a reasonable policyholder would assume that the “Monthly Administrative Charge” includes all charges that will be deducted from the policy values. Because LSW also charged policyholders premium expense charges, monthly percent of accumulated value charge (for the SecurePlus Paragon policy), monthly cost of insurance charges, and a monthly policy fee, its representations were misleading and gave rise to a duty to disclose all the costs to policyholders. li, LSW represents to policyholders that they will receive a guaranteed retum, but this representation is false and misleading because the guaranteed values used in the illustrations are calculated upon policy termination (or in five year intervals in the case of the SecurePlus Provider) on the basis of average annual rates of return, are calculated based on net premiums, and are not Complaint 22 PEE Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 52 of 67 Page ID #:52 in fact guaranteed because they are dependent on the claims- paying ability of the insurer, Because LSW’s representations were false and misleading, they gave rise to a duty to disclose to policyholders the truth about the guaranteed values. iii, LSW represents that the policies are reasonably safe and secure investment or retirement vehicles, but conceals the risks that the policies will not perform as illustrated by (1) concealing the true costs of the policy in the eamings projections; (2) using {llustrations that are extremely complex and incomprehensible to the typical policyholder; (3) not defining key terms that are essential to the projections of non-guaranteed values; and (4) projecting non-guaranteed values based upon index crediting scenarios that assume constant rates of return derived from the S&P 500. These representations are misleading, inter alia, because the rates of retumm from index crediting tied to the S&P 500 are highly variable and the variability of annual rates of return can have a very substantial impact on policy value and cost of insurance deductions, and can lead to a downward spiral in policy KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronnia STREET, Suste 2300 SAN FRANCISCO, CALIFORNIA 94111 value from which the policy cannot recover. Because LSW’s representations were misleading, they gave rise to a duty to disclose to policyholders the likelihood of year-to-year variability in rates of return and the associated risks of policy failure, as further discussed in paragraphs 6-10; 27-38, above. iv. LSW markets the policies as investment or retirement vehicles, from which loans can be taken to provide retirement or other income, but LSW’s Illustrations do not disclose the tax consequences of this arrangement if the Policy lapses, i.c., that the policyholder would owe taxes, at ordinary income tax rates, on any Complaint 23 Be eee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 iw 53 of 67 Page ID #:53 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 CaLiFOANIA STREET, Suite 2300 SAN FRANCISCO, CALIFORNIA 94111 . . part of the loan that was taken from policy earnings. Because LSW's marketing of the policies as vehicles from which to draw retirement income through policy loans was misleading, this gave rise to a duty to disclose the potentially devastating consequences of that practice if the policy lapses. c, LSW additionally has a duty to disclose because it had superior knowledge about its fraudulent and unlawful marketing of the policies as investment or 1 retirement vehicles and concealment of the material costs and risks. As between LSW and its | policyholders, information regarding the costs and material risks of the policies were known or | accessible only to LSW, LSW knew that policyholders were purchasing their policies based on their unawareness of the costs and material risks of the policies, and LSW knew that | policyholders were unaware of these facts or could not reasonably discover these facts. 67. LSW fraudulently conceals the following material facts, without limitation: a. LSW conceals the economic costs of the insurance aspects of the policies, ) including the premium expense charge, deductions for the cost of insurance, the monthly percent | of accumulated value charge (for the SecurePlus Paragon policy), and the monthly policy fee. In | failing to disclose such information, LSW intends that policyholders rely on such nondisclosures i in deciding whether to purchase the policies. b. LSW conceals that the “guaranteed values” are calculated based on net | premiums (i.e., only after deduction of undisclosed costs), are not calculated based on annual : rates of return, and that they are not in fact guaranteed but are dependent on the claims-paying 1 ability of LSW. In failing to disclose such information, LSW intends that policyholders rely on i such nondisclosures in deciding whether to purchase the policies. Cc. LSW conceals material risks that the policies will not perform as | illustrated but will, instead, fail (i.e., lapse) unless additional money is paid into the policies, In 1 failing to disclose such information, LSW intends that policyholders rely on such nondisclosures | in deciding whether to purchase the policies. d. LSW's Illustrations conceal the adverse tax consequences of policy lapse Complaint 24 eee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 54 o0f67 Page ID #:54 101 CALIFORNIA STREET, Suite 2300 SAN FRANCIBCO, CALIFORNIA 04111 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP . , | if the policyholder has outstanding policy loans. In failing to disclose such information, LSW | intends that policyholders rely on such nondisclosures in deciding whether to purchase the | policies. 68. LSW’s omissions were material in that there was a substantial likelihood that a | reasonable prospective purchaser of the policies would have considered them important when | deciding whether or not to purchase the policies. 69. Plaintiffs relied on these fraudulent omissions in purchasing their policies and are | informed and believe that the class members likewise relied on these omissions in deciding to purchase their policies. LSW’s fraudulent omissions were a direct and proximate cause of | Plaintiffs’ injury in fact and loss of money or property. If not for LSW’s fraudulent omissions, | Plaintiffs and, on information and belief, the class members would not have purchased their | policies, As a result of these omissions, Plaintiffs and the class members have incurred damages, including cost of insurance charges and other administrative charges, the reduction in policy | value as a result of the undisclosed material risks and consequences of policy lapse, and the | surrender charges that Plaintiffs and class members were required to pay if they learned the truth and terminated their policies. 70, Theconduct of LSW as alleged above was despicable conduct that was carried on : by LSW with a willful and conscious disregard of the rights or safety of Plaintiffs and the class, | that has subjected Plaintiffs and the class to cruel and unjust hardship in conscious disregard of their rights, and that involved deceit or concealment of one or more material facts known to | LSW with the intention on the part of LSW of thereby depriving Plaintiffs and the class of property or legal rights or otherwise causing injury. Plaintiffs are informed and believe that ) LSW authorized or ratified the wrongful conduct of its agents or employees alleged above and that such authorization or ratification was done on the part of an officer, director, or managing | agent of LSW. Plaintiffs and the class are accordingly entitled to an award of punitive or exemplary damages. Complaint 25 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 55 of 67 Page ID #:55 ND CAUSE OF ACTIO (For Violation of California’s Unfair Competition Law) 71. Plaintiffs Joyce Walker, Kim Bruce Howlett, and Muriel Lynn Spooner reallege 1 paragraphs 1-70, above, and incorporate them as if fully set forth herein. 72. California Business & Professions Code Section 17200, et seq., prohibits unfair deceptive, untrue or misleading advertising. 8] 73. | LSW used and continues to use unlawful, unfair or fraudulent acts or practices in i connection with the marketing and sale of the policies, Such acts and practices have continued : and will continue unabated unless enjoined. 74. LSW's unlawful acts or practices are described in paragraphs 1-54 & 66-70, i above, and include LSW’s violation of the following California laws: a. Insurance Code Section 10509.955(b)(1), which states, “When using an ) illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not do any of the following: .. . (1) Represent the policy as anything other | than a life insurance policy.” LSW violates this provision by developing, encouraging, and implementing an unlawful and fraudulent scheme to market and sell the policies as retirement or SAN FRANCISCO, CALIFORNIA 94111 ba ta i investment vehicles, using policy Illustrations as the centerpiece of that scheme. For example, KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Caurorma Simeer, Surté 2300 the Illustrations used in the sale of the LSW policies purchased by Ms, Walker, Mr. Howlett, and Ms, Spooner represented the policies as retirement or investment plans that would give them financial independence through streams of income and this, rather than any life insurance benefit, was the primary basis on which these policies were sold. b. Insurance Code Section 10509.955(b)(6), which prohibits an insurer from providing “an applicant with an incomplete illustration.” LSW violates this provision by: i. Failing to disclose the economic costs of the insurance aspects of the policies, including the premium expense charge, deductions for the cost of insurance, the monthly percent of accumulated value charge (for the SecurePlus Paragon policy), and the monthly policy Complaint 26 ee eee eee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 56 of 67 Page ID #:56 KASOWTT Z, BENSON, TORRES & FRIEDMAN LLP 101 Catfoneua Street, Surre 2300 SAN FRANCISCO, CALIFORNIA 94111 } 5 fee; ii. Using the term “Monthly Administrative Charge,” which does not include any of the costs listed above, all of which are charged in addition to the monthly administrative fee; iii. Using the term “guaranteed values” without disclosing that the values are not annual guarantees, are calculated based on net premiums (i.e., only after deduction of undisclosed costs), and are not truly guaranteed but are dependent on the claims-paying ability of LSW. iv. Failing to disclose the material risks and consequences of policy lapse. C. Insurance Code Section 10509.955(b)(2), which states that an insurer shall not “[u]se or describe nonguaranteed elements in a manner that is misleading or has the capacity | or tendency to mislead.” LSW violates this provision by failing to disclose separately and | comprehensibly the costs that are charged, by embedding such charges in the earnings : projections, and by providing Illustrations which falsely portray that the annual income will be | paid even if the policies lapsed because they earned only the guaranteed values. LSW also : violates this provision by failing to disclose the impact that variability in the rates of return | experienced by the S&P 500 may have on the risks of policy failure, including but not limited to | the fact that cost of insurance deductions will be higher if the accumulated value of the policy | does not increase as depicted in the Illustrations. d, Insurance Code Section 10509.950, which requires insurers to “define : terms used in the illustration in language that is understandable by a typical person within the | segment of the public to which the illustration is directed.” LSW violates this provision by: i. Defining the “Monthly Administrative Charge” as ‘tan administrative charge which is deducted from the accumulated value of the policy each month” but excluding most administrative charges from the amount disclosed as the “Monthly Administrative Complaint 27 ee Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 57 of 67 Page ID #:57 ‘ } Charge”; ii, Designing the Mlustration to obfuscate the nature and economic terms of the policies by providing misleading and insufficient information. iii, Failing to define the terms “Account Value Enhancement,” “Basic Strategy,” “Current Basis A,” and “Current Basis B.” e, Insurance Code Section 10509.956(b)(4), which requires that all key terms | be defined, LSW violates this provision by failing to provide an explanation of how the cost indexes are to be used and failing to define “Account Value Enhancement,” “Basic Strategy,” | “Current Basis A,” and “Current Basis B.” f. Insurance Code Section 10509.955(b)(3), which states that an insurer may . not “[s]tate or imply that the payment or amount of nonguaranteed elements is guaranteed.” | LSW violates this provision by misrepresenting the guaranteed values as annual rates of return. : In fact, they are calculated upon policy termination (or in five-year intervals in the case of the | SecurePlus Provider) on the basis of average annual guarantees, and are further deceptive and ) misleading because the guaranteed values are calculated based on net premiums, but many of the 101 Cauronma STREET, SUTE 2300 SAN FRANCISCO, CALIFORNIA 941114 | costs deducted from the premiums are not disclosed. The Illustration also fails to disclose that | the “guaranteed” values are not really guaranteed because they are dependent on the claims- KASOWITZ, BENSON, TORRES & FRIEDMAN LLP | paying ability of the insurer. | g. _ Insurance Code Section 10509,956(a)(13), which requires that “If a | contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not | paid up.” LSW violates this provision by showing a zero for the premium outlay display instead } of showing an asterisk or similar mark to draw attention to the fact that the policies will lapse | without further payment of premiums. h. Insurance Code Section 330, which provides, “Neglect to communicate | that which a party knows, and ought to communicate, is concealment,” and Insurance Code | Section 332, which provides, “Each party to a contract of insurance shall communicate to the Complaint 28 Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 ie 58 of 67 Page ID #:58 101 Cauronma STREET, SUTTE 2300 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP SAN FRANCISCO, CALIFORNIA 04111 1 other, in good faith, all facts within his knowledge which are or which he believes to be material | to the contract and as to which he makes no warranty, and which the other has not the means of j ascertaining.” LSW violated these provisions by failing to disclose material facts conceming the policies, including but not limited to the policy expenses, the material risks of policy failure, and | the tax consequences of policy lapse, as described in Paragraphs {-14 & 24-54, above. i. Insurance Code Section 780, which provides “An insurer or officer or 7 agent thereof, or an insurance broker or solicitor, shall not cause or permit to be issued, t circulated or used, any misrepresentation of the following: (a) The terms of a policy... (b) the benefits or privileges promised thereunder... ." LSW violates this provision by its use of : misleading policy Illustrations as described in Paragraph 1-14 & 24-54, above. j. Civil Code Section 1572 and California's common law of fraudulent , concealment. LSW violated these provisions as described in Paragraphs 66-69, above, 75. LSW’s fraudulent acts or practices are described in paragraphs 1—50 & 66-70, | above, and include the following, without limitation: a. LSW does not inform, disclose to, or advise policyholders of the costs of | the policies as life insurance policies; these costs are deceptively embedded in the policy value i illustrations, effectively hiding the costs from policyholders, LSW makes misleading partial disclosures by disclosing a “Monthly Administrative Charge” and stating that the policy is subject to only “One Policy Fee,” when in fact the “Monthly Administrative Charge” does not | include all the costs that are charged, including the premium expense charge; cost of insurance | charges; the monthly percent of accumulated value charge (for the SecurePlus Paragon policy); | and the monthly policy fee. The misrepresentation and nondisclosure of this information is | material to a reasonable policyholder’s decision to purchase the policy and is likely to mislead policyholders. b. LSW does not inform, disclose to, or advise policyholders that the | guaranteed values used in the illustrations are calculated upon policy termination (or in five-year i intervals in the case of the SecurePlus Provider) on the basis of average annual rates of return, j are calculated based on net premiums, and are not really guaranteed because they are dependent Complaint 29 Case 2:10-cv-09198-JVS-JDE Document 1 Filed 10/26/10 Page 59 of 67 Page ID #:59 on the claims-paying ability of the insurer. This is particularly likely to deceive policyholders ! because ony caps on interest credited to the policies are applied annually. The misrepresentation ] and nondisclosure of this information is material to a reasonable poticyholder’s decision to purchase the policy and is likely to mislead policyholders. Cc, LSW conceals the material risks that the policy will not perform as | illustrated and misrepresents the safety and the security of the policies as retirement or investment vehicles. The misrepresentation and nondisclosure of this information is material to a 7 reasonable policyholder’s decision to purchase the policy and is likely to mislead policyholders. d. LSW conceals the adverse tax consequences that can occur if the policy | lapses while a policy loan is outstanding, The nondisclosure of this information is material to a | reasonable policyholder’s decision to purchase the policy and is likely to mislead policyholders. e. LSW misrepresents that a policyholder will be able to make cash : withdrawals for the rest of his or her life without having the policy lapse, The illustrations | provided by LSW show a zero for the premium outlay display instead of showing an asterisk or | similar mark to draw attention to the fact that the policies will lapse without further payment of | premiums. The misrepresentation and nondisclosure of this information is material to a | reasonable policyholder’s decision to purchase the policy and is likely to mislead policyholders. f. LSW provides policyholders with illustrations that contain numerous other KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Caufonma STREET, SUTE 2300 SAN FRANCISCO, CALIFORNIA 94111 : incomplete and misleading features, as described more fully in paragraph 37, above. The | misrepresentation and nondisclosure of this information is material to a reasonable | policyholder’s decision to purchase the policy and Is likely to mislead policyholders, g. LSW provides policyholders with illustrations that obfuscate the nature ! and economic terms of the policies, Through its use of illustrations that violate the California Insurance Code, through the use of illustrations that are deceptive and misleading, and through : the sheer complexity of presentation, LSW markets the policies in a manner that makes material . terms incomprehensible to a typical person within the segment of the public to which the | illustration is directed. The misrepresentation and nondisclosure of this information is material | to a reasonable policyholder’s decision to purchase the policy and is likely to mislead Complaint 30 Case 2:10-cv-09198-JVS-JDE Document1 Filed 10/26/10 Page 60 of 67 Page ID #:60 KASOWITZ, BENSON, TORRES & FRIEDMAN LLP 101 Cauronma STREET, SutTE 2300 SAN FRANCISCO, CALIFORNIA 94111 | policyholders. 76. LSW’s unfair acts or practices are described in paragraphs 1-50 & 66-70, above, and include the following, without limitation: a, LSW developed, encourages, and implements an unlawful and fraudulent | scheme to market and sell the policies as retirement or investment vehicles, using policy | Illustrations as the centerpiece of that scheme. For example, the Illustrations used in the sale of i the LSW policies purchased by Ms. Walker, Mr. Howlett, and Ms. Spooner represented the | policies as retirement or investment plans that would give them financial independence through | streams of income and this, rather than any life insurance benefit, was the primary basis on 2 which these policies were sold. b. LSW does not inform, disclose to, or advise policyholders that the cost of | the policies as life insurance policies is almost entirely omitted from the Illustration. LSW | makes misleading partial disclosures by disclosing a “Monthly Administrative Charge” and . stating that the policy is subject to only “One Policy Fee,” when in fact the “Monthly | Administrative Charge” does not include all the costs that are charged, including premium | expense charges; cost of insurance deductions; the monthly percent of accumulated value charge : (for the SecurePlus Paragon policy); and the monthly policy fee. c. LSWdoes not inform, disclose to, or advise policyholders that the | guaranteed values used in the [lustrations are calculated upon policy termination (or in five-year : intervals in the case of the SecurePlus Provider) on the basis of average annual rates of return, : are calculated based on net premiums, and are not guaranteed because they are dependent on the | claims-paying ability of the insurer. d. LSW conceals the material risks that the policy will not perform as illustrated and misrepresents the safety and the security of the policies as retirement or 1 investment vehicles. e, LSW conceals the adverse tax consequences that can occur if the policy 1 lapses while a policy loan is outstanding. f, LSW misrepresents that a policyholder will be able to make cash Complaint 31 crea wens SOR