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Note: Maria Del Carmen Robainas and others (Insureds) bought life insurance policies from Metropolitan Life Insurance Company (Insurer), a company located in the State of New York. Insureds allege that Insurer participated in shadow insurance transactions to avoid regulatory requirements regarding reinsurance. Specifically, Insurer obtained standby letters of credit totaling USD 1,184,000,000 “backed by contractual parental guarantees, meaning that the agreements did not actually transfer as much risk as it appeared from [their] regulatory filings.” Shadow insurance transactions reduce Insurer’s reserve liabilities, which causes an increase in their risk-based capital ratio, showing greater financial stability.

Insureds brought a class action suit against Insurer for not disclosing that the letters of credit were backed by parental guarantees, violating New York insurance regulations that require an adequate risk-based capital ratio. Additionally, Insureds claim of injury through the possible risk of nonpayment and inflated premiums. The New York statute provides that a penalty for these transactions can be “recovered by any person aggrieved for his own use and benefit.” Insurer filed motion to dismiss, challenging whether Insureds had standing. The Southern District Court of Southern District of New York, Cote, J., dismissed this case.

The Judge ruled that Insureds failed to demonstrate injury in fact. The Judge reasoned that facing a high risk does not constitute an injury in fact. Secondly, she concluded that Insureds failed to prove that they had to pay higher premiums as a result of the shadow insurance transactions. Thirdly, injury in fact cannot be satisfied on the basis that Insurer may not be able to pay for insurance claims in the future as the occurrence of non-payment has yet to occur. Lastly, being “aggrieved,” under the state statute, does not supersede the Constitution’s requirements of standing. Previous courts have defined “aggrieved” as still requiring existence of some injury in fact.

[JSG]

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