Insurance Firms Sued Over Policy Cutoffs : Servicemen, Veterans Left Without Coverage Upon Reaching Age 60

A class-action lawsuit was filed Wednesday on behalf of hundreds of servicemen and veterans whose life insurance provider allegedly altered terms of their policies and terminated coverage at age 60--leaving many without benefits and facing the difficult task of obtaining new policies at affordable rates.

The suit, filed in San Diego Superior Court, charges that Nationwide Life Insurance Co. and the nonprofit Armed Forces Benefit & Aid Assn. violated their contract with the servicemen and veterans by deciding in 1975 to eliminate coverage for policyholders on their 60th birthday.

It alleges that the organization failed to inform policyholders of that change 13 years ago, meaning plaintiffs continued to pay a monthly premium in the belief that the terms of their initial contract--which they believed promised lifelong coverage--were intact. Indeed, plaintiffs in the suit say they only learned of the cutoff recently, upon turning 60.

Falsity Alleged

The complaint also alleges that the San Diego-based AFBAA falsely promoted itself as an armed services-affiliated insurance vendor, persuading many who purchased policies beginning in the early 1960s that their contracts were backed by the federal government.

Jim Babcock, a spokesman for the AFBAA, said he had not seen the lawsuit and would have no comment.

But officials at the Columbus, Ohio-based Nationwide Life Insurance denied the allegations, with spokesman Louis Fabro calling the lawsuit “a very serious misunderstanding.”

Fabro said that, for 26 years, Nationwide has served as underwriter of the insurance offered to active and retired military personnel by the AFBAA. He said the AFBAA, founded in 1960, provides the group life insurance to servicemen, veterans and their families at a discount in return for a membership fee and dues.

Terry Barnett, an attorney for Nationwide, said termination of benefits at age 60 has been a part of the life insurance policy “ever since we began issuing them through the Armed Forces group.”

Barnett conceded that policies issued in the 1960s--when many servicemen headed for combat duty in Vietnam purchased them--did not specify the age 60 cutoff. But he added that the contracts did specify that benefits would end with termination of membership in the AFBAA. That, he said, automatically occurs at age 60.

“In later policies, they did spell out (the age 60 deadline) clearly,” Barnett said. “And even initially, all the brochures and other literature published by the AFBAA made it clear that eligibility for membership ended at age 60.”

Barnett noted that policyholders were offered a “conversion option” under which they could purchase individual insurance policies from Nationwide once they reached age 60. The rates for such coverage, however, would be substantially higher given the “advanced age” of the customer, he said.

The 19-page lawsuit accuses the two organizations of fraud, breach of contract and good faith, negligent misrepresentation and unfair business practices. It seeks unspecified compensatory and punitive damages and an order reinstating benefits for those who lost them at 60 and removing the age cutoff facing younger policyholders.

“AFBAA and Nationwide combined and conspired illegally and unfairly to . . . change the terms of the term life insurance program such that all insurance coverage terminated at age 60 unless the insured was willing to purchase new insurance from Nationwide at greatly increased premiums,” the suit states.

In addition, the defendants “deliberately and intentionally failed to give adequate and timely written notice” of the policy changes, ensuring that AFBAA members continued to pay their monthly premiums until notification of termination on their 60th birthday.

U.S. Link ‘Suggested’

The suit also claims the AFBAA’s name “strongly suggested” a connection to the federal government. The group insurance was advertised through military publications and promotional literature that “gave the false impression that the insurance was sanctioned, issued, approved and/or guaranteed by the United States government and/or its Armed Forces,” the lawsuit states.

Such marketing techniques “induced a high level of trust” in the policy and its vendor and persuaded buyers that--as long as they continued to pay their monthly premiums--they would have coverage for the rest of their lives, the complaint says.

David Patterson, a Pittsburgh attorney representing the three Vietnam veterans named as plaintiffs in the class-action suit, said his clients were “shocked when they turned 60 recently and received word that they no longer had insurance coverage.” He said the schedule of benefits listed in their initial contracts assured them of at least $10,000 in coverage for a period defined as “age 40 and over.”

‘Impossible to Replace’

“We’re not just talking about the financial loss of the $9 a month or whatever it is these people have been paying all these years,” Patterson said. “It is in fact all but impossible for them to replace this insurance at affordable terms.”

Patterson said one of his clients, John William Pierce of Stockton, was diagnosed with cancer two months before his 60th birthday.

“Then he gets a letter telling him his (life insurance) benefits have been terminated,” Patterson said. “That was the only coverage he had. You can imagine his reaction.”

Another serviceman who is a plaintiff in the suit is Billy Hicks of Spring Hill, Fla., who retired as a Marine first sergeant in 1971.

“When I got that termination letter, I was very upset,” Hicks said in an interview Wednesday. Hicks said he promptly pulled his March, 1964, AFBAA policy out of his strongbox and verified his initial recollection--there was no warning that benefits would end when he turned 60.

“If they’d let me know originally, I wouldn’t have been paying that monthly premium all this time,” Hicks said.