The State Worker

CalPERS loses key court decision in lawsuit over long-term care

Plaintiffs, 1. CalPERS, 0.

A court fight over a massive two-year rate hike on some CalPERS long-term care policies drew a step closer to reality with a recent court ruling that one case can represent 133,000 people who purchased plans.

The decision by Los Angeles Superior Court Judge Jane L. Johnson late last month concludes that those purchasers’ concerns are best handled as a class-action matter that pools legal resources and lumps all the plaintiffs together.

Sacramento attorney Stuart Talley said Monday, “This means we can proceed as one lawsuit for everybody instead of (133,000) separate lawsuits.”

Of course, it’s a huge win for Talley’s legal team. Now one case has the potential to award millions of dollars, so the lawyers’ cut for trying and winning the one case jumps up too.

The California Public Employees’ Retirement System had hoped the judge would go the other way. Since many (most?) people who bought policies are likely older and on fixed incomes, it’s highly unlikely many would have fought on by themselves, significantly lowering the financial stakes for CalPERS.

Fund spokeswoman Rosanna Westmoreland said CalPERS was “disappointed” but noted that the class-action decision merely settles a procedural question, and not whether CalPERS acted illegally when it hiked premiums for high-end policies that cover nursing home care, assisted living and similar long-term care services.

“We will continue to assert our strong defenses to the claims themselves in further briefing to the court, and if necessary, at trial,” Westmoreland said in an email.

Our goal is to move quickly.

Plaintiff attorney Stuart Talley

The case contends that CalPERS breached contracts and violated its fiduciary duty to state and local government employees who, from 1995 and 2004, took out private long-term coverage. Most of the plans guaranteed lifelong coverage, inflation-adjusted coverage or both. Many buyers believed their premiums would never increase.

The program lost money despite incremental rate hikes and other changes over the years. CalPERS eventually announced a total 85 percent premium increase on the Cadillac coverages, phased in over two years starting in 2015. It encouraged policyholders to switch to cheaper coverage.

Enter the lawyers, who claim CalPERS mismanaged and overpromised the program. Talley said the plan was sold with promises that rates would never go up, but with a vague caveat that under a specific circumstance that, well, CalPERS could raise the rates. Meanwhile, he said, the fund underpriced policies and took on too much investment risk.

With the class-action question settled, class members will be notified and given an opportunity to opt out. A trial looms at a unspecified date if the sides don’t settle first.

“Our goal is to move quickly,” Talley said. He suspects CalPERS will delay because the longer the case goes, the more of his clients will either die or adjust to their circumstances.

Westmoreland’s response: “Any accusation that CalPERS wants to drag out this case is really baseless, irresponsible and false.”