Variable Life Insurance Policy Is Held To Be A "Security" Under CAFA
LINCOLN NATIONAL LIFE INSURANCE CO. V. BEZICH (June 25, 2010)
Peter Bezich is a Lincoln National Life Insurance Company policyholder. He has a variable life policy, under which he can allocate funds to either a General Account or a Separate Account. The General Account accumulates premium payments while the Separate Account is an investment account registered with the SEC. Each month, Lincoln National deducts cost-of-insurance charges from a policyholder's account proportionately to the amounts invested in each of the two accounts. Bezich brought a class action in Indiana state court, alleging that Lincoln National breached the terms of the policy in the way it calculated the cost-of-insurance charges. Lincoln National removed the case to federal court under the Class Action Fairness Act (CAFA). Judge Van Bokkelen (N.D. Ind.) remanded the case to state court, relying on the CAFA exception for cases that solely involve claims relating to rights and obligations created by any “security.” Lincoln National petitioned for leave to appeal.
In their opinion, Judges Bauer, Posner, and Wood dismissed the petition for want of jurisdiction. Although the Court was first obliged to look at its appellate jurisdiction, it noted that the language governing its appellate jurisdiction was identical to the language creating the removal exception relied on by the district court. The core question for both is whether the policy is a "security" as defined by the Securities Act of 1933. Although the Court conceded there was authority in different contexts supporting Lincoln National's desire to look at the two component parts of the policy (and find one a security and one not), the Court rejected the applicability of those cases. It cited its agreement with the Eleventh Circuit's decision in Herndon that treated a variable life policy as a "security" under the Securities Litigation Uniformed Standards Act of 1998. Here, the claims of the class concern a promise made by Lincoln National that applied whether a policyholder's funds were in the General or Separate Account. The policy treated as a whole meets the definition of "security" -- the Court therefore lacks jurisdiction to consider the petition.
