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Superior Court Approves Class Certification in Lawsuit Against CalPERS
Class action lawsuit was filed on behalf of over 100,000 retirees alleged to have been misled over rate hike by CalPERS
February 8, 2016 – Los Angeles, CA – On Friday, February 5, the Hon. Jane L. Johnson, a Los Angeles Superior Court judge in the complex litigation department, approved class certification in a class action lawsuit against CalPERS, accusing the state agency of intentionally misleading more than 100,000 retirees about their premiums and the cost of insurance when CalPERS sold them long term care insurance that was underfunded, poorly managed, and under duress for a decade. As a result of this mismanagement, CalPERS raised premium rates despite repeated promises to the contrary—some policyholders saw their rates go up by as much as 1000% over the life of the policy.
“We are pleased with the court’s ruling granting class certification in this case,” said attorney Michael J. Bidart. “It is an important step forward to hold CalPERS accountable for the promises it made to thousands of state employees regarding the affordability of long term care insurance, which later proved to be false.”
CalPERS first offered long term care (LTC) insurance in 1995 with roughly 119,000 people initially signing up. As of May 2012, there were over 150,000 people enrolled in the program. CalPERS continually promised the LTC enrollees that their premium rates would be fixed, “reasonably priced,” and would not rise based on age or health. Yet in 2013, CalPERS announced that it was increasing most policyholders’ premiums by 85%. As a result, approximately 140,000 class members (many of whom are elderly and on fixed incomes) will be placed in untenable positions—either accept unaffordable rate increases or drop insurance they have been paying into for years.
“We believe the evidence will show that CalPERS knew 20 years ago that it would be required to substantially increase rates in the future but withheld this information from policyholders who were told that rates were ‘designed to remain level’” said Sacramento plaintiff’s attorney Stuart Talley.
The lawsuit alleges the following:
- CalPERS claimed that it had the requisite experience to properly underwrite the LTC policies so as to insure that the funds were carefully and prudently managed.
- In uniform promotional materials, CalPERS repeatedly touted the financial stability and strength of its LTC program.
- CalPERS suddenly and unexpectedly advised its policyholders that its LTC insurance program was grossly underfunded and that CalPERS, unbeknownst to Plaintiffs and the other members of the Class, had stopped enrolling new members in 2009.
- CalPERS admitted that it had engaged in an improper investment strategy. For years CalPERS had been pursuing an aggressive 65% equity investment strategy, until, in 2013 it abruptly shifted to a more stable and conservative 15% investment strategy. The net result was that the LTC policy fund had been, and would remain, grossly underfunded.
- CalPERS was expressly warned by an outside consultant in 1996 that its decision to invest such a large percentage of the LTC fund in equities was not prudent and created a substantial likelihood that rates would have to be increased in the future.
- CalPERS failed to warn policyholders of the program’s financial problems and, in fact, told policyholders the opposite; that the program was strong and financially sound.
The case is Elma Sanchez v. California Public Employees Retirement System et al, Los Angeles Superior Court, Case No. BC517444.
The plaintiffs are represented by Michael Bidart of Shernoff Bidart Echeverria LLP, Stuart Talley of Kershaw, Cook & Talley, PC, and Gretchen Nelsen of Nelson & Fraenkel LLP.
See the Sacramento Bee‘s coverage of the ruling here.