By now you may have heard about a class action lawsuit filed in Orange County last week against Pacific Life. The lawsuit addressed their IUL product - PDX. It was filed by a law firm out of Phoenix with a long track record of class action suits in life insurance. The crux of the complaint is both technical as well as addresses the way it was sold, according to Bobby Samuelson, editor at The Life Product Review.

The fact patterns are perfect examples of poor market conduct including inflated commissions, aggressive claims such as 'guaranteed performance' because it is a 'whole life' product, as well as reduced performance even under modest changes to the illustrated rate.

The main issues are not surprising to anyone who has studied the PDX product. The primary issues are as follows:

• The Performance Factor was designed to circumvent AG 49. This issue will be addressed specifically with the upcoming AG 49A.
• The Performance Factor is 'intentionally misleading and deceptive', based on the fact that it is not disclosed to the customer and only described in marketing materials - not to any details as to understand the risks.
• The product is far riskier than perceived due to the increased leverage. The high charges do not provide the client with downside protection.
• The initial cap of 10% was not sustainable based on portfolio yields and option pricing.
• The attraction of the product rested on an assumption of perpetual 50% option profits, which the complaint describes as “an indefensible assumption that is unsupportable, unsustainable and actuarially unreasonable.”
• Agents could adjust their compensation to be significantly higher than the market-rate, which resulted in higher policy charges for clients and greater risk of downside loss.

There is no telling that this complaint will be successful, but it may have a dramatic affect (win or lose) on our industry. Pacific Life will respond aggressively I am sure as there is much at stake. We will be sure to monitor the situation and update you as we find out more.

*This publication is based on information retrieved from The Life Product Review, "#239 | Filed: PacLife PDX Class Action Lawsuit", Published by Bobby Samuelson, Editor, on August 11, 2020