A federal judge in Seattle has refused to dismiss a proposed class action accusing Farmers New World Life Insurance Company of overcharging universal life insurance policyholders and failing to provide higher interest rates when circumstances allegedly justified them. In an order dated October 13, 2026, U.S. District Judge Jamal N. Whitehead concluded that policyholder Sheila Marino had presented plausible contractual and consumer protection claims. The decision allows the lawsuit to move forward but does not establish that the insurer violated the law or owes compensation to policyholders.
Marino filed the proposed class action in Washington state court in October 2025, and the insurer subsequently transferred the case to federal court. She is an Illinois resident, while Farmers New World Life Insurance Company is based in Washington and operates as a subsidiary of Farmers Group Inc., which is owned by Zurich Insurance Group. The dispute focuses on how the insurer allegedly calculated insurance charges and determined the interest credited to policyholders’ accumulation accounts.
Universal life insurance differs from traditional life insurance because it generally allows policyholders to make flexible payments rather than requiring a fixed monthly premium. Deposits accumulate in an account, and the insurer deducts charges to cover the cost of insurance and policy administration. Interest credited to the account can affect its value over time. The amount deducted for insurance and the rate at which the account earns interest can therefore influence how long a policy remains funded and how much value it accumulates.
Marino purchased her policy in 1988, with a stated death benefit of $100,000. According to her complaint, the insurer improperly increased the cost of insurance by incorporating factors unrelated to mortality risk and failed to reduce those charges as mortality rates improved over the years. She contends that policyholders could reasonably understand the policy’s “Risk Charge” to cover the cost associated with the risk of death, rather than a broader range of expenses that might increase the deductions from their accounts.
The insurer disputed that interpretation, arguing that the policy gave it discretion to determine monthly risk charges as long as the rates did not exceed the maximum amounts guaranteed in the contract. The court, however, found that Marino’s interpretation was reasonable at this early stage. Because the policy described the risk charge as paying for the risk of loss without clearly specifying every factor that could be considered, the judge concluded that the allegations were sufficient to support a potential breach of contract claim. Whether the insurer actually used improper factors remains a factual issue for later proceedings.
A second central issue involves the interest credited to policyholders’ accounts. Marino alleges that the policy guaranteed a minimum interest rate of 4.5% but also gave the insurer discretion to set a higher rate. She claims that Farmers New World credited only the guaranteed minimum for the 2023–2024 policy year even though, according to her allegations, the insurer’s interest earnings in 2023 materially exceeded that level. She argues that the insurer’s discretion was subject to an implied obligation to act in good faith rather than simply defaulting to the contractual minimum.
Farmers New World maintained that its policy did not promise interest above the guaranteed minimum and that the company was entitled to earn a profit. The judge acknowledged that the insurer could earn profits but found that the question at this stage was whether Marino had plausibly alleged an abuse of contractual discretion. Because the policy gave the insurer authority to set the current rate subject to a minimum guarantee, the court concluded that the discretion was not necessarily unlimited. The ruling does not require the insurer to pay a higher rate; it permits the dispute over how that discretion was exercised to continue.
The judge also allowed Marino’s claim alleging breach of the implied covenant of good faith and fair dealing to proceed. This legal principle generally requires parties to exercise contractual discretion consistently with the purposes and reasonable expectations of their agreement. The court determined that Washington law applied, rejecting the insurer’s argument that Illinois law should govern the dispute. It found that the policy’s conformity-to-state-laws provision did not constitute an effective choice-of-law clause and that Washington had the more significant relationship to the question of the insurer’s conduct because the company is based there.
Marino additionally asserted a claim under Washington’s Consumer Protection Act, alleging that the insurer’s descriptions of its charges could mislead policyholders. The court found that a reasonable consumer might be misled if a charge described as covering insurance risk included costs unrelated to mortality. It also concluded that questions about whether the insurer’s alleged conduct was unfair or deceptive required factual examination. The judge therefore declined to dismiss the consumer protection claim along with the contractual claims.
The decision reflects the limited role of a motion to dismiss. At this stage, courts generally assess whether the complaint contains sufficiently plausible allegations, taking the pleaded facts in the light most favorable to the plaintiff rather than deciding which side will ultimately prevail. Marino was not required at this preliminary stage to provide conclusive actuarial evidence proving that mortality improvements should have resulted in lower charges. The court emphasized that the actual mortality trends, the appropriate calculation of risk charges, and the justification for the interest credited to the account remain questions for further proceedings.
With the dismissal motion denied, the case can proceed toward further litigation, including initial disclosures, a joint status report, and consideration of early settlement. The lawsuit remains a proposed class action, meaning the court has not yet certified a class of policyholders. No final determination has been made about whether Farmers New World breached its contracts, violated consumer protection law, or must pay damages. The case nevertheless highlights how policy language, insurer discretion, interest-crediting practices, and the transparency of insurance charges can become significant issues in long-term life insurance disputes.
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