Office of the Attorney General News Release Archive
Tuesday, July 31, 2001
CORNYN SUES LEADING LONG-TERM CARE INSURER
Conseco Senior Health Insurance Co. Cited for Practices Against 10,000 Texans
AUSTIN - Texas Attorney General John Cornyn filed suit today in Travis County District Court to stop Conseco Senior Health Insurance Co. from conducting allegedly deceptive insurance rate schemes against more than 10,000 Texans who have purchased long-term care coverage. The lawsuit would also prevent future misrepresentations by the company about rate increases.
Conseco is a leading provider of this coverage in the United States. Long-term care policies of this type are designed to cover care when people become disabled and require assistance for daily living or nursing home care.
"Thousands of Texans spent their hard-earned money with Conseco and its predecessor, ATL Life Insurance Co.," said Attorney General Cornyn. "They paid their premiums in good faith, hoping to establish improved security for themselves in anticipation of a serious need later on in life. We contend these companies betrayed their trust and put them in financial jeopardy."
Cornyn's suit seeks injunctive relief and restitution to policyholders, as well as enhanced civil penalties of $100,000 under the Deceptive Trade Practices Act because the alleged misconduct affected many aged 65 and older. The Attorney General also seeks penalties under the Insurance Code that allow for fines of $10,000 per violation.
The lawsuit alleges that Conseco of Carmel, Ind., systematically misled policyholders about rate stability for long-term care insurance from 1992-99. (In August 1996, Conseco acquired ATL Life Insurance Co., which primarily sold long-term care policies. Conseco continued offering this line of insurance products.) The policyholders purchased the coverage as a hedge against the future financial expense of long-term care. The company stated that rates would not be increased due to changes in policyholders' age or health conditions.
Although the company's statements about these rates suggested price stability, Conseco swiftly imposed substantial rate increases on two of its base policies that affected the largest number of Texas consumers. Average increases in policies in 1997 were 14 and 16 percent, followed by a 25 percent jump in 1999. These substantial rate increases caused many policyholders to cancel their policies, thus losing their long-term care coverage and all the premium dollars they had spent. Through 1999, the company had collected nearly $60 million in these premiums from Texas consumers.
The Attorney General's investigation revealed that the company knew that these substantial rate increases would cause some fixed-income policyholders to lapse in paying their premiums. The forfeiting of the policies would then release the company from payment of any claims filed by these policyholders, thus releasing that portion of premiums set aside for payment of their claims back into the company's hands.
The company also allegedly stated in written responses to customers that the Texas Department of Insurance gave prior approval to these rate increases, a false statement because TDI has no authority over rates for long-term care policies.
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