Life insurance giant Transamerica has had its share of legal troubles over the past few years after getting hit with class action lawsuits for sharply raising premiums on tens of thousands of policyholders. Now, Transamerica will have to lawyer up in Dallas since its major general agency, Summit Alliance Financial, has just filed suit against the Iowa-based insurer.
In a 28-page lawsuit filed Wednesday, Dallas-based Summit claims Transamerica “deprived the agency of millions of dollars in future commissions under false pretenses, and then sought to cover its tracks.”
Transamerica did so, Summit alleges, by fraudulently inducing the agent to convert Transamerica’s $10.5 million preferred equity investment in Summit to a commercial loan and then give up its future renewal commissions to pay off the loan.
“Transamerica is trying to have their cake and eat it too,” one of Summit’s lead lawyers, Michael Gardner, told The Texas Lawbook. “On one hand, they’re jacking up their premiums. To add a new twist, they don’t disclose that… when they’re exerting pressure on our client to convert this investment into a loan.”
The Lawbook has reached out to Transamerica seeking comment on the lawsuit.
Summit is led by businessman Larry Anders, who also served on Texas Tech University’s Board of Regents for 16 years. Summit originally got into business with Transamerica, Anders’ former employer, in the 1990s. For 15 consecutive years, Summit served as the top producer for Transamerica “by a huge margin, selling Transamerica’s term life, universal life and other products to customers across the country,” the lawsuit says. The agent earned $350 million in first-year policy premiums alone for Transamerica.
As a result of the substantial profits Summit generated for Transamerica – and the fact that Summit was being courted by other insurance carriers – Ron Wagely, Transamerica’s president at the time, floated the idea of making an investment in Summit, Gardner said.
Transamerica decided to make a $10.5 million equity purchase of Summit’s Series B stock in 2004, and, according to the complaint, over the next eight years, Transamerica received preferred distributions from its investment that totaled nearly $9 million.
The dynamic between Summit and Transamerica changed after then-president Ron Wagley departed Transamerica in 2007, the lawsuit says. His successors, Ken Kilbane, and later, Michael Babikian and Marty Flewellen, began putting pressure on Summit to refinance the Series B investment into a commercial loan. Summit reluctantly agreed to do so, despite the $9 million in returns Transamerica had already received from its investment.
Because the “conversion of Transamerica’s equity into debt weighed heavily on Summit and its financial performance,” Summit eventually agreed to repay the loan on an “accelerated basis” with the renewal commissions it was entitled to, the lawsuit says.
Summit claims it agreed to forfeit the future commissions based on projections by Transamerica that the value of its renewal commissions would decline dramatically in coming years. Those projections greatly undervalued the commissions Summit would receive, the lawsuit claims.
According to the lawsuit, “given the limited information Transamerica made available to Summit, it had no basis to question or challenge Transamerica’s representations,” so Anders agreed to give up Summit’s future commissions.
Transamerica’s representations ended up being far from the truth, Summit’s lawyers said, since management decided – without telling Summit – to impose a dramatic increase on its universal life policies, nearly doubling the cost.
“It is a material fact that our client would have needed to know to understand whether the information being provided by Transamerica’s best estimate was realistic,” said Jeremy Camp, Summit’s other lead lawyer.
Because the value of Summit’s renewal commissions directly correlated with premium costs, the commissions ended up far exceeding the projected value that Transamerica represented, the lawsuit alleges.
Even worse, Summit claims Transamerica did everything it could to cover up the fraud.
Gardner said the series of events reflect the fact that senior leadership at Transamerica “gave little heed” to the relationships their predecessors, namely Mr. Wagely, built over the past decades, instead only caring about improving “Transamerica’s bottom line in the short term.
“To achieve that end, as alleged in Summit’s petition, Transamerica wielded (if not abused) all the power and leverage that it had, with no regard to the impact on its long-term relationships,” Gardner said. “That decision has consequences that are now becoming apparent. Not only did Transamerica alienate and cheat one of their most successful and loyal agencies, but the insurer also provoked the ire of tens of thousands of policyholders who now feel like Transamerica sold them a bill of goods.”
Gardner and Camp, who practice at Gardner Haas, got involved in the case due to Camp’s significant work for Anders in a previous piece of high-profile litigation against T. Boone Pickens and Oklahoma State University’s athletic department. In that case, Camp successfully defended Anders against claims that Anders and the life insurance company he was an agent for defrauded Pickens and OSU’s fundraising arm, Cowboy Athletics, into buying large life insurance policies for elderly alumni who never died during their policy term.