Gramm-Leach-Biley Act Held to Preclude Discovery of Information about Purchases of "Vanishing Premium" Insurance by Policyholders Other Than Plaintiff

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Equitable Life Assurance Society v. Irving, So.2d, 2003 Miss. LEXIS 408 (Supreme Court of Mississippi--September 11, 2003)

In a case with potentially significant implications for certain types of insurance litigation, the Mississippi Supreme Court, often a friendly forum for policyholder plaintiffs, refused to permit plaintiff to discovery the names of others sold "vanishing premium" life insurance policies by the defendant insurer. The plaintiff sought the information on the grounds of attempting to establish a pattern or practice of deceptive marketing and sales of vanishing premium products, which are popular and attractive when interest rate projections are high but fall from favor in times of reduced interest, frequently leading to policyholders feeling deceived when they must continue to pay the premiums that supposedly would vanish.

Without commenting on the discoverability of the information under ordinary civil rules (such as questions over the reasonableness and burdensomeness of the discovery), the Court held that the requested information was forbidden to be disclosed because of the Gramm--Leach--Biley Act ("GLBA"), which prohibits the release by financial institutions of private information absent an exception to the bar on disclosure. (See id. at * 5; 15 U.S.C. [section] 6802(a).) According to the Court:

   Equitable is considered a financial institution under the Act. The
   information sought by [plaintiff] Irving is clearly the type the
   statute seeks to protect. The GLBA, as a federal statute, will
   preempt any state law which conflicts with it under the Supremacy
   Clause. Similarly, a federal law will bar state courts from issuing
   orders that conflict with the statute.

See id. at *6 (citations omitted).

Plaintiff argued that exceptions in the statute applied to permit the requested disclosure. Specifically, Plaintiff argued that the following exceptions would permit a court to exercise discretion to order discovery notwithstanding the general GLBA prohibition on sharing private data:

(1.) "to protect against or prevent actual or potential fraud";

(2.) "for resolving customer disputes or inquiries";

(3.) "persons that are assessing the licensee's compliance with industry standards";

(4.) "for an investigation on a matter related to public safety."

See id. at *5 (citations omitted).

The Equitable v. Irving Court found none of the exceptions to apply. It gave a particularly narrow construction to the fraud exception, finding that the exception applied only if the customer with protected privacy was perpetrating a fraud. The assertion that the insurer was perpetrating a fraud through the deceptive sales of vanishing premium policies was not considered by the Court to be the type of asserted fraud that would justify invoking the statutory exception. (See id. at *7.)

The Equitable v. Irving Court also found the "customer dispute" exception inapplicable because the lawsuit did not involve a dispute between the customer with protected information and the financial institution. (See id. at *7-*8.) Similarly, the Court found that the claims of fraud in the sale of the vanishing premiums, "while serious, have no relation to public safety" or the regulation of insurers as financial institutions. (See id. at *8.)

The Court also rejected plaintiff's argument that an exception in the statute for compliance with state and local laws or regulation supported disclosure as part of Mississippi's interest in policing the insurer-policyholder relationship. (See id. at *8-*9. …