Allianz Life Insurance Co. was hit with a lawsuit Monday for "assessing a surrender charge on the surrender charge" on its variable annuity contracts.
The plaintiffs, who are seeking class-action status, assert that Allianz improperly charged all variable annuity contract holders with respect to "surrender charges" in connection with administration of variable annuity contracts issued by Allianz.
According to the suit, filed in the U.S. District Court for the Eastern District of Texas, Allianz performed an improper extra-contractual application of "grossing and netting."
Allianz "will 'gross up' the requested withdrawal by formulae and simply charge the respective withdrawal charge on the larger 'grossed up' withdrawal amount instead of the actual amount requested," the plaintiffs contend. "By modifying the requested withdrawal amount internally, the contract owner receives the expected amount in cash as per the service form."
Allianz "breaches its contract language by then dividing the excess withdrawal amount by the formulae (amount of withdrawal subject to penalty divided by 1 — the applicable penalty percentage) resulting in the contract owner suffering a larger surrender charge than contractually owed," according to the complaint.
In this way, Allianz "is able to use the sum-of-an-infinite series calculation to charge surrender charges on surrender charges themselves," the plaintiffs state.
Alternatively, according to the plaintiffs, Allianz will "net down" the requested withdrawal by formulae after calculating the withdrawal charge on the entire requested withdrawal amount.
