SHERNOFF BIDART ECHEVERRIA BENTLEY CaN ane on 10 12 13 4 15 16 7 18 19 20 21 22 23 24 25 26 7 28 Michael J. Bidart (State Bar No. 60582) Gregory L. Bentley (State Bar No. 151147) Clare H. Lucich (State Bar No. 287157) SHERNOFF BIDART ECHEVERRIA BENTLEY LLP 600 S. Indian Hill Blvd. Claremont, California 91711 Telephone: (909) 621-4935 Facsimile: (909) 625-6915 Email: mbidart@shemoff.com Email: gbentley@shernoff.com Email: clucich@shernoff.com Stuart C. Talley (State Bar No. 180374) KERSHAW, CUTTER & RATINOFF, LLP. 401 Watt Avenue Sacramento, California 95864 Telephone: (916) 448-9800 Facsimile: (916) 669-4499 Email: stalley@kerlegal.com Gretchen M. Nelson (State Bar No. 112566) KREINDLER & KREINDLER LLP 707 Wilshire Blvd., Suite 3600 Los Angeles, CA 90017 ‘Telephone: (213) 622-6469 Facsimile: (213) 622-6019 Email: gnelson@kreindler.com Aitorneys for Plaintiffs and the Class SUPERIOR COURT FOR THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES HOLLY WEDDING, RICHARD M. CASE NO. BC517444 LODYGA and EILEEN LODYGA, (Hon. Jane L. Johnson] individually and on behalf of all others similarly situated, PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN Plaintiffs, SUPPORT OF MOTION FOR CLASS ve CERTIFICATION CALIFORNIA PUBLIC EMPLOYEES’ Date: November 23, 2015 RETIREMENT SYSTEM, et al Time: 1:45 p.m. Dept. 308 Defendants. Complaint Filed: August 6, 2014 Trial Date: Not Set -1- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPFORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY =e Cauanueon 10 1 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 28 UL ML IV. v. TABLE OF CONTENTS INTRODUCTION AND SUMMARY OF ARGUMENT FACTS wo. ‘A. The marketing/enroliment process B. The CalPERS enrollment packag’ C. CalPERS’ investment strategy and pricing of the original premiums... D. CalPERS is warned that its investment strategy is too aggressive and would likely result in rate increases, . E, In 2012 CalPERS attempts to “stabilize” the LTC Fund after years of repeated rate increases. . PLAINTIFFS’ CLAIMS.. A. Plaintiffs’ breach of contract claim.. B, Plaintiffs’ Breach of Fiduciary Duty Claim... C. Plaintiffs’ negligence claims against Towers Watson. ARGUMENT... ‘A. The proposed class is easily ascertainable and numerous sseee UT B. Common questions of law and fact predominate . C. Plaintiffs’ claims are typical of the claims of the class... D. Plaintiffs will adequately represent the class.. E, Class treatment is superior to individual actions. .. F. This case is manageable. CONCLUSION... vie PLAINTIFIS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART. ECHEVERRIA BENTLEY Cc eNuank one 10 v1 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 TABLE OF AUTHORITIES Cases Brinker Rest. Corp. v, Superior Court (2012) 53 Cal.4th 1004.0... 1S City of Oakland v. Public Employees Retirement System (2002) 95 Cal.App. 4th 29 14 Classen v. Weller (1983)145 Cal. App.3d 27 Collins v. Rocha (1972) 7 Cal.34 232..... Fireside Bank v, Superior Court (2007) 40 Cal.4th 1069... 15,16 Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908 ....... Hittle v, Santa Barbara County Employees Retirement Assoc. (1985) 39 Cal. 3d 374. .nn Johnson v, Couturier, 572 F. 3d 1067 (9th Cir. 2009). 1,14 La Sala v. Am, Sav. & Loan Ass'n 18 (1971) 5 Cal.3d 864. Linder v. Thrifty Oil Co. (2003) 23 Cal. 4th 429., MeGhee v. Bank of America (1976) 60 Cal. App. 34 442... 19 Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.dth 319.. 12,15 Wal-Mart Stores, Inc. v. Dukes 2011) __US._, 131 S.Ct. 2541... ww lT Wershba v. Apple Computer, Ine. (2001) 91 Cal. App.4th 224. PLAINTIFFS" MEMORANDUM OF POINTS AND ALITHORITIBS IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONStatutes California Civil Code section 2228... California Code of Civil Procedure section 382 .... California Government Code section 21664... SHERNOFF BIDART ECHEVERRIA BENTLEY Cc eruaaeon 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY en Cau aaa 10 a 12 13 4 15 16 17 18 19 20 21 24 26 27 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION AND SUMMARY OF ARGUMENT In 1995, CalPERS started a self funded Long Term Care (“LTC”) insurance program that was offered to all CalPERS members and their families. To sell the policies, CalPERS aggressively marketed the program through written materials, seminars, and word of mouth. All of CalPERS’ advertising stated that because it was a trusted, non-profit entity, it would offer rates that were 30% less than commercial carriers. Class Members were also repeatedly told that premiums for the program were “designed to remain level” throughout the life of the program and it was important to enroll at a young age. By 2003, CalPERS” aggressive marketing campaign had resulted in more than 175,000 people enrolling in CalPERS” LTC program. Compared to private insurance, CalPERS” LTC plan ‘was cheaper, provided excellent benefits, and was purportedly managed by CalPERS, an entity the ‘members thought they could trust. ‘That trust was misplaced. After several years advising Class Members that the LTC trust fund was a “great success,” CalPERS suddenly announced in 2003 it was going to raise rates by 30%. CalPERS then raised the premiums again in 2007 and 2010. Finally, on top of all the other rate increases, CalPERS in 2012 announced it was increasing premiums for LTC policyholders by another 85%! As a result of the most recent rate increase, thousands of LTC policyholders ~ the Class ‘Members here —who were promised rates “designed to remain level” are now forced to pay premiums that are almost 400-500% more than they originally signed up for. Many of those individuals are now older, retired and on fixed incomes. They simply cannot afford the excessive 2012 rate increase. Thousands have been forced to drop the coverage they initially purchased and for which they had timely paid premiums for almost 20 years. Others have had to substantially reduce their benefits. The extraordinary rate increases imposed by CalPERS had little to do with changes in the cost of providing benefits. It was not about changes in claims experience for a particular “issue age” group of policyholders. Instead, the rate increases were the result of CalPERS” mismanagement of the policy premiums they collected from Class Members. Specifically, the most recent rate increases were caused almost entirely by a risky investment strategy that CalPERS adopted at the very beginning of a1. "PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Cc eN ane wn 10 aa 12 13 oy 15 16 7 18 19 20 21 22 23 24 25 26 7 28 the program. Unlike commercial LTC insurers, CalPERS invested the majority of its LTC Fund in the stock market rather than less volatile bonds or other low risk investments. As early as 1996, CalPERS was warned that its investment mix was highly unusual and that its conduct would likely lead to “criticism that it had ‘low-balled’ premiums to attract sales, with the intent—or at least willingness—to make future increases.” To make matters worse, CalPERS failed to incorporate any reserves into its pricing model—aggravating its already volatile investment strategy. Yet, CalPERS never informed Class Members about its aggressive investment strategy that was very likely to result in premium increases in the future, Instead, CalPERS continued disseminating, ‘marketing materials promising that “rates were designed to remain level.” As a result of these two management decisions (investing in stocks and failing to create reserves), there were extreme fluctuations in the LTC Funds’ financial condition from year to year that resulted in CalPERS’ constantly raising rates in response to each new stock market decline. In 2012 CalPERS decided to “stabilize” the LTC Fund. To do this, it altered the LTC Funds investment ix from one that was initially invested 65% in stock to one where only 15% of the Fund was in stocks. And, it elected to incorporate reserves into it pricing models, As a result, CalPERS claims itis now required to inerease premiums on thousands of LTC policyholders by 85%. However, under the contract of insurance, rates cannot be raised by reason of CalPERS’ mismanagement of the LTC Fund, Instead, rates can be raised “only if” the “issue age” claims experience justifies the increase. Plaintifis assert claims typical of all Class Members against CalPERS for breach of contract and breach of fidueiary duty. Similarly, Plaintiffs also state a single claim against Towers Watson (“Towers”), the actuarial firm that initially helped set premiums, for negligence. With respect to Plaintiffs" breach of contract claim, they assert three different theories of recovery. First, the insurance contract that applies to every Class Member expressly provides that CalPERS may “only” raise rates for reasons related to the Class Members’ “issue age.” But the primary reason for CalPERS* 2012 rate increase had nothing to do with the claims experience of policyholders in a specific issue age. Rather, the primary reason for the rate increase was due to a change in CalPERS" risky investment strategy and its failure to include reserves in its pricing models. The contract expressly limits, permitted rate increases and does not permit rate increases for these reasons. <2: PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Second, to the extent the recent rate inereases were caused by the purchase of inflation protection by certain Class Members or CalPERS” unilateral decision to increase benefits, these two {justifications are not legitimate reasons for increasing premiums. In fact, the insurance contract expressly prohibits increasing premiums for these reasons. Third, Plaint (which it was not), CalPERS breached its contract with Class Members by raising premiums more fs claim that, even if the 2012 rate increase was permitted under the contract than was justified. Under standard contract interpretation, CalPERS’ discretion to raise rates is not unlimited and must meet the test of reasonableness. Yet CalPERS’ own intemal documents show that its 85% rate increase was far more than needed to meet its own internal reserve goals. Thus, even if CalPERS was permitted to increase premiums as a result of its mismanagement of the LTC fund, which it was not, the 85% increase was unreasonable. With respect to the breach of fiduciary duty claim, CalPERS owed the Class a fidueiary duty imposed by the California Constitution to provide Class Members with “timely and accurate information” about its LTC Program that was “complete and unambiguous.” (City of Oakland v. Public Employees Retirement System (2002) 95 Cal.App. 4th 29.) CalPERS breached this fiduciary duty by failing to advise Class Members that its LTC Fund was invested in highly volatile equities and that such an investment strategy created an unacceptable risk that premiums would rise in the future without regard to any future age basis claims experience or any justification related to an insured’s “issue age.” Not only did CalPERS fail to inform Class Members of this information, but it also made numerous statements implying that the opposite was true, CalPERS told all Class Members that rates were “designed to remain level” and that they should make long-term decisions based on the assumption that rates would not rise ‘The class that Plaintiffs seek to certify is comprised of: "Califomnia citizens who purchased LTC1 and LTC2 policies from CalPERS who were subjected to the 2012 rate increase adopted by CalPERS in October 2012." ‘The claims asserted in this case are ideal for class treatment. They are resolved solely through the interpretation of identical written contracts between CalPERS and Class Members. With respect to Plaintiff's breach of fiduciary duty claim, that claim is also well suited for class treatment since itis 235 PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Ce euank one 10 n 12 13 14 15 16 7 18 19 20 21 22 23 24 25 26 27 based entirely on CalPERS’ uniform conduct. Specifically, it's based on CalPERS' failure to provide vital and necessary information about the LTC Program to Class Members so that they could make an informed decision as to whether to purchase the polices and continue to renew annually, The information that was not disclosed is the same for every Class Member. Finally, the claims against ‘Towers can easily be decided on a class basis. The claims are resolved by reviewing the work performed by Towers and determining whether that work met the appropriate standard of care. I FACTS In 1995 the California legislature enacted Goverment Code section 21664 which allowed CalPERS to establish the LTC Program. The legislature expressly provided that CalPERS is required to “carry out the purposes of [the Program], consistent with its fiduciary duty.” (Jd) Shortly after obtaining the Legislature's approval, CalPERS began offering and promoting the LTC policies to CalPERS’ members and their families. A.’ The marketing/enrollment process “The marketing of the LTC policies was essentially a joint venture between CalPERS and an outside entity known as the Long Term Care Group (“LTCG”).!_ (Talley Dee. Ex. 1 at 234:1-235:2.) LTCG is a private, for-profit enterprise that is in the business of performing administrative services for private long term care insurance companies. (Talley Dec. Ex. 3 at 10:2-10.) LTCG was hired by CalPERS to prepare all application materials, the evidences of coverage, and all flyers, promotional ‘materials, and other educational materials related to the policies. (Talley Dec, Ex. 3 at 20:23-21:17, 26:23-27:13.) ‘To obtain an application package, employees could call a 1-800 number or send in a request for enrollment information, (Talley Dec. Ex. 3 at 37:23-38:13; Declaration of Holly Wedding in ‘Support of Plaintiffs’ Motion for Class Certification “Wedding Dee.”] at $4.) The CalPERS member ‘would then receive an “application package.” The application package included a “Long Term Care Ann Boynton is the Deputy Executive Officer for Benefit Programs, Policy and Planning at CalPERS and is responsible for the LTC Program. (Talley Dec. Ex. | at 232:23-233:6.) Ms, Boynton was CalPERS’ person most knowledgeable on a number of topics, including the marketing of its LTC Program. (Talley Dec. Ex. | at 232:4-12; Ex. 2.) Plaintiffs also deposed Eileen Tell, who was the L'TCG’s person most knowledgeable on the promotional and/or advertising materials developed for the CalPERS LTC Program. (Talley Dec, Ex. 3 at 8:15-9:10.) Ms. Tell has bbeen with LTCG since October 1990 and was directly involved in developing the marketing materials used for the LTC Program starting in 1995. (Talley Dec, Ex. 3 at 11:10-12-16,) 4. PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTTON FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Ce uaae on 10 u 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Letter” describing the policies, a premium chart, an application, and, in some instances, an “Outline of Coverage.” (See, ¢.g,, Talley Dec. Ex. 4 at LTCG 000002-32 [1995-1996]; Ex. 5 at LTCG 000041- 130 [1997],) Members would then fill out the application and return it to LTCG. (Talley Dee, Ex. 3 at 39:10-16 and Ex. 1 at 234:16-23.) Next, LTCG would perform the necessary underwriting and if the individual was accepted, send a congratulatory letter along with an insurance contract, also known as an Evidence of Coverage (“EOC”). (Talley Dec. Ex. 3 at 39:19-40:11; Ex. 6 at PLTF-Wedding 000143-145 (Dep. Ex. 73]; Ex. 7 at PLTF-Wedding 000016-46 [Dep. Ex. 71].) Enrollment in the LITC Program was limited to “open enrollment periods.” At the beginning of the program, the enrollment period spanned the Spring of 1995 through June 1996, (Talley Dee. Ex. 3 at 44:10-14) Thereafter, open enrollment periods typically ran from Spring through June 30 of cach year, (Talley Dec. Ex. 3 at 20:7-22.) For each enrollment period, there were two application packages—one for CalPERS members and one for the relatives of CalPERS members—and the contents of the application packages were substantively identical for each person who enrolled during ) ‘Atall times, LTCG was primarily responsible for drafting the EOC, the application, and all of that period. (Talley Dee. Ex. 1 253:11-255: the marketing materials, (Talley Dec. Ex. 1 at 242:25-243:10, 234:1-235:2; Ex. 3 at 20:23-21:17, 26:23-27:13,) Under its contract with CalPERS, LTCG was compensated for its work based on the number of applicants and enrollees, Because of the success of its marketing efforts, LTCG now makes in excess of $20 million annually managing CalPERS LTC Program. (Talley Dec. Ex. 8 at 27:8-29:1, 85:25-88:19.) B. The CalPERS enrollment packages The enrollment packages sent to Class Members were essentially identical.’ All packages highlighted the importance of purchasing LTC insurance and included information describing different coverage options. (See, e.g., Talley Dec. Ex. 4 at LTCG000003-18, LTCG 000026-27; Ex. 5 at LTCG000042-57.) There were three different types of policies available for purchase. (Talley Dec. 2 In response to Plaintiffs? subpoena, the LTCG produced a box containing original applications packages for each year during the class period. (Talley Dec. at 5.) Exemplar packets for the 1995-1996, 1997, 2001 and 2003 énrotiment periods are attached to the Talley Declaration as follows: Ex. 4 at LTCGO00001-32 (1995-1996), Ex. 5 at LCG 000040-130 (1997), Ex. 9 at LTCG000617-765 (2001), and Ex. 10 at LTCG000849-999 (2003). “5. PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY wer aneon 10 W 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 Ex. 4 at LTCG000018; Ex.5 at LTCG000057; Ex. 10 at LT'CG000854.) Within each, enrollees could select coverage with a cap on expenditures or “lifetime coverage” with no cap. (Id.) Enrollees could also elect automatic “inflation protection” which would result in an automatic 5% inerease in benefits each year the policy was in foree.? {All application packages disseminated during the relevant period informed Class Members that the rates listed on the premium chart were “designed to remain level” and would not increase with age or health, (Talley Dec. Ex. 1 at $23:11-22 [statements in marketing materials “relative to premium are that we expected that they would remain level”],) This message was reinforced with charts showing premiums remaining constant over the life of the plan and was reiterated in commentary conceming the “factors” applicants should consider in choosing a plan. (Talley Dee. Ex. 4 (1995-96) at LTCG000007, LTCG000014-15; Ex. 5 (1997) at LTCG000046, LTCGO00053; Ex. 9 (2001) at LTCG000675; Ex. 10 (2003) at LTCG000860.) Ironically, one of CalPERS’ admonishments to Class Members is that they “carefully evaluate {their] future ability to pay the premium. You do not want to have to drop your coverage before you might need it.” (Talley Dee. Ex. 4 (1995-96) at LTCG000014; Ex. 5 (1997) at LTCG0000S3.) ‘As to CalPERS” ability to change rates, the EOC received by Class Members includes a few sentences indicating rates could change but “only if” the changes are driven by the experience of policyholders in a specific “issue age.” Specifically, the EOC states “Your premiums will never increase due solely to a change in Your age or health, PERS can, however, change Your premiums, but only if We change the premium schedule on an issue age basis forall similar coverage issued in Your state on the same form as this coverage.” (Talley Dee. Ex. 11 at PLTF-Wedding 000017 [Dep. Ex. 71] (bold in original, italics added for emphasis),) 2 ‘The application packages repeatedly stated that premiums on the plans with built-in automatic inflation protection would remain level. (See, e.g., Talley Dec. at Ex. 4 (1995-1996) at LTCGO00018 [*Built-in automatic 5% annual increases with level premiums", LTCG00000S [automatic inflation protection with rates that do not go up as your benefits increase”], LTCG000017 [Do premiums increase as coverage increases? No”, LTCG000006-7 [*The plans ‘with “built-in? annual benefit inereases will cost more on a monthly basis initially, but you lock in a rate now that is designed to remain level over the life ofthe plan and that won't rise simply with age").) “itis worth noting, however, that there is other language in the EOC indicating premiums will not be increase. ‘There is a specific heading inthe “Inflation Protection” section entitled: “Your Premium Will Not Increase." (Talley Dec. Ex. 7 PLTP-Wedding 000033 [Dep. Ex. 71].) PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY In CalPERS’ marketing and training materials, it desoribes how this language is to be interpreted. The CalPERS’ website during the class period included a Frequently Asked Questions section which read: Will the premiums increase after I enroll? ‘A; _ The premium you pay is based on your age when we receive your application. They will not increase just because you get older or experience a change in health. PERS has only a very limited right to change premiums on a class basis (for an entire group of enrollees with similar coverage) and only if our experience with the use of long term care services is significantly different than we estimated in developing our rates, (This is a standard feature of all long term care plans). Any rate change would have to be actuarially justified and approved by the PERS Board, (Talley Dee. {13 and Ex. 12 at p. 13 [Tell Ex. 18] (emphasis added).) This same language is also found in various CalPERS’ training materials and internal documents, (Talley Dec. Ex. 13. [Tell Ex. 20] [“we may adjust rates for a group of covered persons if our experience with the use of long-term care services is significantly different than what we estimated in developing our rates”]; Ex. 14 [Tell Ex. 19] [“If our experience with the use of long term care services is significantly different than what we estimated in developing our rates, PERS may adjust rates for a group of covered persons” ].) The LTCG employee who was responsible for marketing the LTC policies testified that the contractual language in the EOC relating to rate changes is customary in the insurance industry and should be interpreted as being consistent with Califomia law and industry standards.> (Talley Dec. Ex. 3 at 33:14-34:13, 86:15-88:6.) CQ CalPERS? investment strategy and pricing of the original premiums To set premiums for the LTC Program, CalPERS enlisted Towers to perform the necessary actuarial work. (Talley Dec, Ex. 15 at CalPERS006747,) In order to establish its rates, CalPERS. adopted an unusual pricing philosophy. Specifically, it adopted a “no reserve” policy whereby each year its actuary would look at the anticipated future revenues of the program and determine if they 5 This same LTCG employee, Ms. Tell, further testified that she understood there were certain conditions under which rates could be modified, But she did not understand that one such condition was a drop in the stock market, and she was not told by CalPERS that it may raise rates if this occurred. (Talley Dee. Bx. 3 at $8:20-59:20) -7- FLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION POR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Roe N eC euau 10 ul 12 13 4 15 16 7 18 19 20 21 22 24 25 26 27 28 ‘were equal to the anticipated future expenditures.® To the extent the difference in these values (the ‘margin) exceeded 5% in either direction, only then would the Board consider rate increases or decreases, (Talley Dec. Ex. | at 542:4-$43:21; Ex. 17 [Boynton Ex. 35] at CalPERS00S791, CalPERS005818,) Nowhere is this policy found in the contract of insurance or was it disclosed to policyholders in CalPERS’ marketing materials. For purposes of determining the expected income of the LTC Fund, Towers assumed a rate of return on the fund's investments, This is known as the “discount rate.” (See, Talley Dee. Ex. 17 [Boynton Ex. 35] at CalPERS005818.) At the outset of the program, CalPERS developed an investment strategy for the LTC Fund that needed an expected rate of return on investments of 8%. (Talley Dec. Ex. 15 at CalPERS006763; Ex. 18 [Boynton Ex. 36] at CalPERS016426-27.) In order to achieve this rate of return, CalPERS” Investment Board determined it should invest 62% of the LTC Fund in the stock market. (Talley Deo. Ex. 15 at CalPERS_006764.) This was substantially different than the manner in which commercial insurance carriers invested LTC funds. (Talley Dee. Ex. 18 at CalPERS016427 [Towers 2002 Valuation Report, “8% rate is higher than what commercial insurers are currently using for pricing and valuation, due primarily to the CalPERS investment strategy including a significant portion (near 65%) of assets in equities”]; see also, Talley Dee. Ex. 15 at CalPERS006763-65.) Among other things, by law, commercial cartiers are limited to investing no more than 10% of LTC funds in equities. (Talley Dec. Ex. 19 at CalPERS_0020652.) With respect to assumptions used in setting the premiums, Towers made estimates of the expected claims rates, mortality rates, and lapse rates. In a 2002 actuary report, Towers admitted the “‘nitial pricing and valuation assumptions” used to set premiums at the beginning of the program were “near guesses.” (Talley Dec. Ex. 18 at CalPERS-016424.) Of couse, policyholders were not advised of the extreme uncertainty—near guesses—built into their rates. (Talley Dee. Ex. 1 at 386:6-387:5.) Instead, they were told that their premiums were designed to remain level and that in “consultation with industry expert actuarial consultants, Towers Perrin, the premiums have been very carefully set.” © ‘As described by Towers, the pricing philosophy was such that a “perfect outcome” for the program “would be that over its lifetime, income and outgo (benefits and expenses) would be equal so thatthe last claim would exactly equal the remaining balance in the trust fund," (Talley Dec. Ex. 16 [Boynton Ex. 37] at TOWERSO14402.) “8. PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY CeornNaank one 10 1 12 13 14 15 16 7 18 19 20 21 24 25 26 7 28 (Talley Dec. Ex. 14 [Tell Ex. 19] at p. 2.) D. CalPERS is warned that its investment strategy is too aggressive and would likely result in rate increases. ‘A year after launching the LTC Program, CalPERS hired actuaries at Coopers & Lybrand (“Coopers”) to examine the LTC Program and provide a “second opinion” concerning the structure and management of the fund, Coopers issued its findings in July 1996, (Talley Ex. 15 at CalPERS006721-769.) Coopers was highly critical of CalPERS’ failure to include reserves into its pricing models. It noted this was substantially different than the manner in which commercial carriers priced long term care policies and wamed the strategy greatly increased the risk of rate increases in the future Specifically, Coopers noted that the LTC Program was, {Fully and solely funded under a separate LTC Trust Fund. There is nowhere else to go to get money to make up for shortfalls in premium and investment income (the two income sources you have). Commercial insurers have surplus and capital in addition to reserve liabilities, generated from other lines of business, as well as such funds explicitly earmarked for LTC Insurance. This provides them earmarked ‘buffers’ for possible future LTC pricing inadequacies and which can be used to buttress the enterprise that guarantees the future LTC benefits. (id. at CalPERS006735.) ‘Coopers also criticized CalPERS investment strategy, Rather than invest the Fund in long, term bonds or other cash equivalents, as commercial carriers did, CalPERS elected to invest more than 60% of the Fund in the stock market, It did this to generate an expected rate of return of at least 8% and meet its goal. Coopers noted this investment strategy was highly unusual due to stock market volatility, and would likely cause the LTC fund to become underfunded. (Id. at 006763-65.) In fact, Coopers wamed CalPERS" that its strategy would likely result in “criticism that you ‘low-balled” premiums to attract sales, with the intent—or at least willingness—to make future increases.” (Id. at CalPERS006735.) The Report notes: We believe the order in which [the pricing] process was pursued is a bit unusual. Investment analysis should help determine what the assumed interest rate should be: the interest rate chosen should not drive the asset mix needed, and then only to achieve a 50% chance it will be realized. The resulting rate used for pricing, along with other assumptions, should produce premiums that are on the reasonably conservative side, LTC is not sold with a 50/50 chance premiums will be raised or -9- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Ce Nane on 10 un 12 13 14 15 16 7 18 19 20 21 22 24 25 26 7 28 lowered, nor should it be, especially for a member-oriented organication such as CalPERS. (Id. at CalPERS006763 (emphasis added).) Coopers also commented on how unusual this investment strategy was compared to commercial carriers. “The recommendation [of the CalPERS Investment Board] is to be much heavier into equities (62%) than bonds or cash equivalents (38%). This is much more than even the reverse of your competitors mix.” (Id. at CalPERS006764.) Coopers warned that “the assumed 8% interest rate is abit too aggressive. ... This assumption is likely to be the first to cause reconsideration of pricing.” (Id. at CalPERS006675.) Coopers concluded that: CalPERS has been more aggressive in its competitive position than may seem prudent, Premiums are very competitive, as best that can be measured, and they are lower than they need to be and still be competitive. That brings with it the challenge, both administratively and politically, of more likely premium increases in the future than otherwise should be the case. In our view, somewhat higher premiums still would have been competitive, would be based on assumptions more likely to be achieved, and would be more likely to be maintained without future premium increases. (ld, at CalPERSO06747.) CalPERS flat out ignored Coopers. It did not immediately raise rates for future enrollees nor did it take any action to correct its prior mistakes. And to make matters worse, CalPERS never told policyholders that the LTC Fund was heavily invested in the stock market, had no reserves, and, that as a result, premiums would likely rise in the future for reasons that are not permitted under the contract. Instead, policyholders were assured repeatedly that “rates were designed to remain level.”” But this is not surprising. The LTCG employee responsible for drafting the marketing ‘materials was never told about CalPERS” unusual investment strategy or the findings in the report. Q Did anyone ever tell you that in 1996 CalPERS had done an analysis indicating that there was at least a 50 percent chance they would have to change rates at some point in time? A. No. 7 policyholders were also assured that because “the rates have been carefully and conservatively set, we are confident that they ate adequate to support the program.” (Talley Dec. Ex. 14 [Tell Ex, 19] at p. 2.) The rates set by CalPERS ‘were anything but careful and conservative. Based on CalPERS’ own actuaries, they were imprudently aggressive and based on pricing assumptions that were near guesses, -10- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Cc euwaae on 10 1 12 13 4 15 16 7 18 19 20 21 22 23 24 25 26 27 28 Q. Would that - had you known that, would that be consistent with the language [in the marketing materials that rates were designed to remain level]? A; [mean it would raise opportunities to rethink whether it was priced properly. If someone told me that, I would say then let's go back and price it differently. Q: Ifyou had known that there was a 50 percent chance that CalPERS may have to change the rates, would the marketing materials have been drafted differently? ‘A; [can't imagine the program would have gone forward if somebody knew that was going to be the case because nobody wants a rate increase. It benefits no one. (Talley Dec. Ex. 3 at $9:21-61:3.) E, _ In 2012 CalPERS attempts to “stabil rate increases, ize” the LTC Fund after years of repeated Asa direct result of stock market fluctuations, the value of the LTC Fund has varied widely from year to year and resulted in rate increases in 2003, 2007, and 2010.* ‘The rate increases were, for the most part, not based on “issue age” experience. Eventually, CalPERS recognized that constant rate increases were problematic and decided to “stabilize” the Fund to avoid further volatility. In 2009 it stopped new enrollments in the program and initiated a “Stabilization Project.” (Talley Dec. Ex. 1 at $50:9-20.) As part of this Project, in 201 lected to change the investment mix and limited stock market investments to 15% of the Fund, (Talley Dec. Ex. 25 [Boynton Ex. 46] at p. 2; Ex. 1 at 612:7-613:9.) This was a substantial departure from its initial decision to invest nearly 65% of the Fund in stocks. Also, CalPERS finally decided to create the reserves that Coopers advised were necessary nearly 20 years earlier. Instead of having no margin for error, the Board elected to price premiums (for both new enrollees and long time x, 1 at 688:25- policyholders) with the goal of achieving a reserve (or “buffer”) of 10%. (Talley Dec. 689:6, 543:22-544:24,) As a direct result of these two actions, in 2012 CalPERS announced it was * Ina September 11, 2012 report to the Board, the CalPERS Pension & Health Benefits Committee advised that “The CalPERS LTC Fund is invested in a much larger share of equities than is insurance industry standard which may lead to less stable, consistent and predictive portfolio returns.” ‘The report also says that “CalPERS LTC Fund uses a higher discount rate assumption than is typically seen in the insurance industry due to the more aggressive investment strategy and expected return.” (Talley Dec. Ex. 25 [Boynton Ex. 46] at p. 2.) -- PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITI IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY oR on Ceo 10 ane 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 7 28 increasing rates by 85% for virtually all individuals who enrolled in the LTC program from 1995 through 2004. (Talley Dec. Ex, 20 at PLTF-Wedding 000013-14; Ex. 1 at 466:3-22; Ex. 21 [Boynton Ex, 51] at p. 1-3.) For many, the premiums are now 4-5 times higher than when they originally signed up. (Wedding Dec. at ff 13-14; Talley Dee. Ex. 21 [Boynton Ex. 51] at p. 4.) However, this increase was far more than CalPERS actually needed to stabilize the Fund, ‘When the Board selected the 85% rate increase, for unknown reasons, it raised rates far more than needed to achieve its 10% reserve goal. In fact, its actuaries, immediately before the increase, projected that an 85% rate increase would create a 17% reserve. (Talley Dec. Ex. | at 680:2-681:14.) ‘And, two years after the rate increase, the reserve had actually grown to 23%. (Talley Dee. Ex. 1 at 709: 15-710: as to why it raised premiums far more than needed to achieve its 10% reserve goal. ‘x. 22 [Boynton Ex. 56] at p. 6.) CalPERS has been unable to provide any explanation Ml. PLAINTIFFS’ CLAIMS In deciding whether certification of a class is appropriate, the critical decision is whether the theory of recovery advanced by the proponent is, as an analytical matter, likely to prove amenable to class treatment. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327-328.) As explained below, each of Plaintifis’ legal theories is readily amenable to class treatment. A. Plaintiffs’ breach of contract claim Plaintiffs’ breach of contract claim is based on three theories of recovery. First, Plaintiffs assert that the language in the EOC only permits CalPERS to raise rates for reasons that are based on the insured’s “issue age.” Specifically, the policy states “your premiums will never inerease due solely to a change in your age or health. PERS can, however, change your premiums but only ifwe change the premium schedule on an issue age basis for all similar coverage issued in your state on the same form on as this coverage.” (Talley Dee. Ex. 11 at PLTF-Wedding 000017 (emphasis added).) CalPERS breached its obligations under this contractual language by raising rates in 2012 for reasons totally unrelated to Class Members’ issue age. (Declaration of Brian D. Rankin in Support of Plaintiffs’ Motion for Class Certification [“Rankin Dee”] at { 9-10.) Rather, the primary reason for the 2012 rate increase was CalPERS decision to change to a more conservative investment strategy (and reduce its expected rate of return) and add a 10% reserve into its pricing model. (Id.) Under the terms -12- PLAINTIFFS MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONCe N ane wn SHERNOFF BIDART ECHEVERRIA BENTLEY of the EOC, CalPERS cannot increase premiums for its admitted reasons since they are totally unrelated to “issue age.” (Id.) This interpretation of the EOC is consistent with CalPERS’ own internal training materials and marketing documents, Specifically, CalPERS internal documents confirm that it “has only a very limited right to change premiums on a class basis (for an entire group of enrollees with similar coverage) and only if our experience with the use of long term care services is significantly different than we estimated in developing our rates, (This is a standard feature of all long term care plans).” (Talley Dec. Ex. 12 at p. 13.) CalPERS’ internal interpretation is consistent with California law and the custom and practice in the commercial LTC industry. (Rankin Dee. at 10.) Second, the EOC expressly prohibits rate increases to the extent they are caused by inflation Wedding protection or CalPERS" unilateral decision to increase benefits. (Talley Dee. Ex. 7 at PL’ (000033, PLTF-Wedding 000041.) Specifically, the EOC expressly prohibits rate increases that are caused by policyholders purchasing inflation protection. (Id. at PLTF-Wedding 000033.) Plaintifis contend that the inflation protection included in more than 40% of the policies sold by CalPERS had an enormous impact on the LTC Fund’s problems in 2012 and without this benefit, no rate increases would have been required in 2012. Additionally, the EOC expressly prohibits rate increases to the extent they are caused by CalPERS’ unilateral decision to increase benefits under the plan. (Jd. at PLTF-Wedding 000041.) In 1999, CalPERS increased benefits for the plan that had an actuarial cost to the LTC Fund of approximately $30,000,000. (Talley Dee. Ex. 23 at TOWERS013603.) Plaintfis contend that to the extent the 85% rate increase in 2012 was driven by this new fund expense, it must be rolled back. ‘Third, plaintiffS contend that even if CalPERS was permitted to raise rates for reasons unrelated to issue age (and it was not), it was obligated to limit rate increases to the extent they are necessary and reasonable. Here, Plaintiffs contend that the 85% rate increase was far in excess of that needed to meet its goal of achieving a 10% reserve. B. Plaintiffs’ Breach of Fiduciary Duty Claim Under the California Constitution, CalPERS owes Plaintiffs and the Class a fiduciary duty. This duty has been described as “the highest known to the law" and is modeled after the federal law -1B- PLAINTIFFS: MEMORANDUM OF POINTS AND AUTITORITIES IN SUPPORT OF MOTION FORCLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY Ce Vane one 10 12 13 14 15 16 7 18 19 20 21 22 23 24 26 a7 regulating ERISA plan administration.” (Garofolo Dec. at § 13.) See also Johnson v. Couturier, (th Cir, 2009) 572 F. 3d 1067. Our Supreme Court has held that public pension fiduciaries such as CalPERS are like trustees and “in all matters connected with his trust, a trustee is bound to act in the highest good faith toward his beneficiary, and may not obtain any advantage therein over the latter by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind.” (Hitle v. Santa Barbara County Employees Retirement Assoc. (1985) 39 Cal.3d 374 (citing Civil Code section 2228).) In City of Oakland v, Public Employees Retirement System (2002) 95 Cal.App.4th 29, the court applied this principle to CalPERS finding that its fiduciary duties include the “duty to provide timely and accurate information to its members ... [and] that the information conveyed be complete and unambiguous.” (Id. at 40 (quoting In re Application of Smith (Mar. 31, 1999) PERS Prec. Dec. No. 99-01).) Plaintiffs assert that CalPERS breached its fiduciary duty by failing to provide complete and accurate information about the unusual nature of its LTC Program and the virtual certainty that rates ‘would rise in the future. (See Garafalo Dec. at 13.) CalPERS” omissions include: © Failing to advise Class Members that the LTC Fund was inves -d heavily in the stock ‘market, that this was a highly unusual practice in the context of commercial LTC policies, and that the projected volatility of the fund was almost certain to result in premium increases; + Failing to advise Class Members that rates for the LTC Policies were not, in fact, “designed to remain level”; ing to advise Class Members that CalPERS had a adopted a “no reserve” policy in its pricing model which greatly increased the risk of rate increases; ‘+ Failing to advise Class Members that the actuarial assumptions used to initially set premiums were “near guesses”; and + Failing to advise Class Members that the entities used to set premiums and develop advertising for the program had a strong economic incentive to under-price premiums and oversell the program since their fees were based almost entirely on the number of individuals who enrolled in the program, (/d.) -14- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY on ON wera 10 i 12 13 14 16 17 18 19 20 21 22 23 24 25 26 7 28 CalPERS? obligation to fully disclose the foregoing information is an ongoing duty since Class Members were paying premiums each month up through the date of the 2012 rate increase. (Id. at 69-70) Ata minimum, if despite the contract limitations on permissible rate increases, policyholders’ premiums were going to be tied almost entirely to the performance of the stock market, they should have received regular updates concerning the types of investments being made by the LTC Fund and how those investments were performing, (Id) Instead, the first that Class Members Jeamed of the problems leading to the 2012 rate increase was when the rate increases were announced, C. Plaintiffs’ negligence claims against Towers Watson Plait fs allege that Towers was negligent in connection with its initial actuarial work on the program. (See Rankin Dec. at § 11.) This is based on Towers’ own admission thatthe initial assumptions used to set premiums were “near guesses,” CalPERS’ own admission that the Fund was not “sustainable from the beginning,” and its failure to provide CalPERS with appropriate advice conceming its unorthodox investment strategy and no reserve policy. (See, infra, at pg.7-11.) Plaintiffs contend that Towers’ failure to meet the professional standard of care substantially contributed to the rate increases that occurred in 2012, IV. ARGUMENT Plaintiffs bring this action on behalf of all LTC policyholders who have been subjected to the 85% rate increase that was adopted in 2012, California Code of Civil Procedure, section 382 authorizes class actions “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and itis impracticable to bring them all before the court.” (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well- defined community of interest, and substantial benefits from certification that render proceeding as & class superior to the alternatives.” (Brinker Rest. Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021; Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089; Sav-On, 34 Cal.4th at 326.) “[T]he community of interest requirement embodies three factors: (1) predominant common ‘questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) -15- PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART. ECHEVERRIA BENTLEY Cc ewane on 10 ul 12 13 14 15 16 7 18 19 20 21 22 23 24 26 27 28 class representatives who ean adequately represent the class.” (Brinker Rest,, 53 Cal.4th at 1021; Fireside Bank, 40 Cal.4th at 1089; Sav-On, 34 Cal.Ath at 326.) California has a long-standing publie policy favoring class actions as a means of efficiently adjudicating the claims of many individuals who are similarly situated. (Linder v, Thrifty Oil Co. (2000) 23 Cal. 4th 429, 434-435.) As our Supreme Court has repeatedly held, “[tJhe certification question is ‘essentially a procedural one that does not ask whether an action is legally or factually ‘meritorious.’ (citation omitted).” (Sav-On, 34 Cal.4th at 326.) Class certification merely requires that the court determine “whether... the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action ‘would be advantageous to the judicial process and to the litigants.” (Collins v. Rocha (1972) 7 Cal.34 232, 238.) Here, the facts present a paradigm for class certification. Plaintiffs and every Class Member are identically situated: they are all individuals who purchased LTC policies from CalPERS. The insurance contracts issued by CalPERS are the same for all Class Members, all Class Members were subjected to the same non-disclosures, and all Class Members have been hit with a “class wide” uniform rate increase. Also, the legal questions raised and their answers are applicable to the entire Class. For example, a central question is whether the CalPERS LTC contract permits CalPERS to increases rates because of stock market losses, changes in its reserve policy, changes in its portfolio management, or changes in its enrollment policies. This question, and its answer, is the same for every member of the Class, Additionally, whether CalPERS” breached its fiduciary duties by failing to advise Class Members that rates were likely to rise in the future because of the management of the LTC Fund assets is a question that is common to the Class. Similarly, whether Towers’ conduct was negligent is determined through evidence common to the Class since itis based on Towers’ work, not on any action by Class Members. Under Plaintiffs’ liability theories, there are no facts or legal questions that require individual adjudication, A. The proposed class is easily ascertainable and numerous. ‘The proposed Class is readily ascertainable from Defendant’s records and is sufficiently -16- PCAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY 20 21 22 23 24 25 26 a7 numerous (o warrant class treatment, CalPERS’ own documents indicate that more than 133,000 policyholders were subjected to the 2012 rate increase and fall within the Class definition, (Talley Dec, Ex. 24.) B. Common questions of law and fact predominate, With respect to the elements of commonality and predominance, the U.S. Supreme Court held, “[w]hat matters to class certification . .. is not the raising of common ‘questions’ — even in droves — but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” (Wal-Mart Stores, Inc. v. Dukes (2011) __U.S._, 1318. Ct. 2541, 2551.) The class certification inquiry focuses “on what type of questions—common or individual— are likely to arise in the action ....” (Sav-On, 34 Cal. 4th at 327.) As the court in Hicks v. Kaufinan & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916 held, to assess predominance, a court “must examine the issues framed by the pleadings and the law applicable to the causes of action alleged.” It must determine whether the elements necessaty to establish liability are susceptible of common proof or, if not, whether there are ways to manage effectively proof of any elements that may require individualized evidence. (Sav-On, 34 Cal.4th at p. 334.) "In tum, whether an element may be established colle ly or only individually, plaintiff by plaintiff, can turn on the precise nature of the element and require resolution of disputed legal or factual issues affecting the merits." (Brinker Restaurant Corp., 53 Cal-4th at 1024.) The pertinent question is whether, in light of the complaint’s allegations and plaintiff's underlying theory of liability, the common issues are so numerous or substantial, when compared to the individual issues, that trying them in one proceeding would be advantageous to the judicial process and the litigants, (Sav-On, 34 Cal. 4th at 326.) Here, Plaintiffs” legal theories raise common legal and factual issues which predominate over any individual issues, Plaintiffs’ contract claim is resolved solely through an interpretation of the EOC which is identical for every Class Member. The core legal question is whether the CalPERS’ LTC contract permits rate increases to the extent those rate increases are caused by CalPERS" decisions to change the way it manages fund assets rather than the “claims experience” of a specific issue age. The answer to this question will be decided by reference to common proof (the contracts), CalPERS" -17- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART ECHEVERRIA BENTLEY CON nae ene 10 1 12 13, 14 15 16 17 18 19 20 2 22 23 24 25 26 7 28 intemal documents, and expert testimony. And the answer to the question will resolve the issue for all Class Members. Likewise, whether CalPERS made sufficient disclosures conceming its LTC insurance policies to comply with its fiduciary duty is a common question for the Class. It is undisputed that no Class Member was given information about CalPERS” unorthodox investment strategy, its “no reserve” policy, the fact that the initial assumptions used to set premiums were “guesses,” or the substantial risk that rates would rise in the future. Whether CalPERS had a duty to provide such disclosures presents a common legal question with a common answer for the Class. Finally, the question of whether Towers negligently performed its actuarial duties when the program was established and whether this contributed to the 2012 rate increase is a question that is resolved by evidence that is common to the Class. Towers’ liability will be determined through a simple review of the work performed by Towers and expert testimony as to whether that work satisfied the standard of care. There is no individualized proof necessary to resolve Towers’ liability. This is a case that is ideally suited for class action treatment, The evidence to support Plaintiffs" claims is the same for all Class Members, the complained of conduct in raising rates was implemented on a “class-wide basis,” and the impact of the defendants’ conduct affected all Class Members in the same way. It cannot be credibly argued that individual issues predominate over the common issues in this case. C. Plaintiffs’ claims are typical of the claims of the Class. “Typicality requires that class representatives be members of the class they seek to represent. (La Sala v, Am. Say, & Loan Ass'n, (1971) 5 Cal.3d 864, 875.) A representative plaintiff's claims are typical if they arise from the same event, practice, or course of conduct that gives rise to the claims of the other Class Members and if her claims are based on the same legal theory. (Classen v. Weller (1983)145 Cal.App.3d 27, 46-47.) The typicality requirement is not onerous and does not require that the claims be identical. (id) Typieality does not require that Plaintifis’ claims be identical. Rather they need only be similarly situated so that they have a reason to continue the suit on behalf of all Class Members. (Jd. at 46 [We note that it has never been the law in California that the class representative must have -18- PLAINTIFFS” MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONSHERNOFF BIDART. ECHEVERRIA BENTLEY oe ene Ce uo 10 12 13 14 16 17 18 19 20 21 24 26 27 28 identical interests with the Class Members. The only requirements are that common questions of law and fact predominate and that the class representative be similarly situated.”].) Nor is it necessary that the class representatives have personally suffered all of the damages of Class Members. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.Ath 224, 238.) Here, Plaintifis’ claims arise from the same set of factual and legal questions as the members of the Class. Plaintififs purchased LTC policies from CalPERS during the relevant period. (See Declaration of Eileen Lodyga in Support of Plaintiffs’ Motion for Class Certification [“Lodyga Dec” and Wedding Dec.) The insurance contracts for the Class Members are substantially identical to those purchased by the Plaintiffs. (Talley Dec Ex. 1 at 253:11-255:4.) Also, neither Plaintiffs nor anyone else in the Class received the appropriate disclosures that would allow them to make an informed decision concerning the LTC insurance. (Garofolo Dec. at $¥ 69-74; Prater Dee. at §¥ 31 and 32.) ‘And, it cannot be disputed that Plaintiffs’ and all Class Members’ premiums were increased in 2012. Accordingly, Plaintiffs’ claims are typical, D. __ Plaintiffs will adequately represent the class. Plaintifis are adequate Class Representatives because their claims are not antagonistic to the claims of the Class, (MeGhee v, Bank of America (1976) 60 Cal.App. 3d 442, 450.) Plaintiffs have prosecuted this case with the interests of the Class in mind. Plaintiffs have responded to all discovery, subjected themselves to lengthy and arduous depositions and stand prepare to pursue this case through trial, (See Lodyga Dec. at $f 13-15 and Wedding Dee. at $9] 20-22.) Further, Plaintiffs have selected counsel with extensive experience in class action litigation. (Declaration of Gregory L. Bentley in Support of Plaintiffs’ Motion for Class Certification [“Bentley Dec."] at $f) 3-9 and Exhibits 1-5.) Plaintiffs have no conflicts with other Class Members. (See Lodyga Dec. at §|15 and Wedding Dec. at 22.) Thus, Plaintiffs meet the adequacy requirement for certification, E. Class treatment is superior to individual actions. Class treatment in the present case is demonstrably superior to a welter of individual actions. ‘The claims turn on the same basic legal question for all members of the Class. Certification of the proposed Class is also appropriate because absent certification it is unlikely that many Class Members -19- PLAINTIFFS" MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONtie Es) zl az: Sue ao: wad iS: Que Zus ese way Ire OOS ry wo eNnue on 10 1 12 13 14 15 16 7 18 19 20 2 22 23 24 26 27 28 will be able to seek redress for their losses. This action, which seeks a single interpretation of the rights and obligations of the parties under an identical contract is far superior to numerous individual lawsuits. F. This case is manageable. ‘Our high court has “urged” tial courts “to be procedurally innovative” and to adopt the ‘numerous flexible procedures which are available to them under the class action device, such as sub- classing and reserving individual issues to subsequent proceedings after adjudication of the class-wide questions. (Sav-On, 34 Cal.4th at pp. 339-40.) “Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification.” (Brinker, 53 Cal.4th 1022.) Here, the Court will have no trouble managing Plaintiffs’ class claims at trial. Resolution of the contract claim merely involves an interpretation of a single contractual provision included in all Class Member contracts and whether CalPERS’ class-wide uniform rate increase violates that provision. Similarly, Plaintiffs" fiduciary duty claim is readily decided ina single trial. The claims are based solely on CalPERS” failure to disclose certain material facts to the Class. Finally, the negligence claims asserted against Towers are also easily decided in a single trial. The claims merely involve an examination of the work performed by Towers, whether that work met the appropriate standard of care, and whether any breach of that standard contributed to the 2012 rate increases. Vv. CONCLUSION For the foregoing reasons, Plaintiffs’ motion should be granted. Dated: September 15, 2015. SHERNOFF BIDART ECHEVERRIA BENTLEY LLP KERSHANN, CUTTER & RATINOFF LLP a E INDLER LLP By: Gregory L. Bentley Counsel for Plaintiffs and the Class -20- PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATIONRe: Sancheev, California Publde Employees Retirement System (Case No BCS17446 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California, Iam over the age of 18 and not a party to the within action; my business address is: 600 South Indian Hill Boulevard, Claremont, California 91711 On September 15, 2015, I served the foregoing documents described as PLAINTIFFS? MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATION on the interested parties in this action by placing __ the original Xa true copy thereof enclosed in sealed envelopes addressed as follows: PLEASE SEE ATTACHED SERVICE LIST [] BY MAIL Lam “readily familiae" with the firm's practice of collection and processing correspondence for mailing, Under that practice it would be deposited with U.S. postal service on that same day with postage thereon fully prepaid at Claremont, California in the ordinary course of business. Lam aware that on motion of party served, service is presumed invalid if postal cancellation date or postage meter date is more than one (1) day after date of deposit for mailing in affidavit. [] BY FACSIMILE ("FAX’) In addition to the manner of service indicated above, a copy was sent by FAX to the patties indicated on the service List. [Xx] VIA ELECTRONIC SERVICE VIA CASE ANYWHERE through electronic transmission to all parties appearing on the electronic service list. {] BY OVERNIGHT MAIL/COURIER To expedite service, copies were sent via FEDERAL EXPRESS. {] VIA EMAIL I caused the document to be served via electronic mail to the email addresses listed on the service list [] BY PERSONAL SERVICE I caused to be delivered such envelope by hand to the individual(s) indicated on the service list. [OX (tate) I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed on September 15, 2015, at Claremont, California. DEBBIE HUNTERRe: Sanches v. Califormia Public Employees Retirement System Case No BCSI7444 SERVICE LIST Sheldon Eisenberg, Esq. Attorneys for Defendant Adam Thurston, Esq. CALIFORNIA PUBLIC EMPLOYEES' Erin E. McCracken, Esq. RETIREMENT SYSTEM DRINKER BIDDLE & REATH 1800 Century Park East, Suite 1400 Los Angeles, CA 90067 (310) 203-4000 AX: (310) 229-1285 Sheldon eisenberg@dbr.com ‘Adam.thurston@dbr.com Erin.mecracken@dbr.com Stuart C. Talley, Esq. Co-Counsel for Plaintiffs KERSHAW, CUTTER & RATINOFF 401 Watt Avenue Sacramento, California 95864 Telephone: (916) 448-9800 Facsimile: (916) 669-4499 Email: stalley@kcrlegal.com Gretchen M, Nelson , Esq. Co-Counsel for Plaintiffs Andrew L. Ciganek, Esq. NELSON & FRAENKEL, LLP 707 Wilshire Blvd., Suite 3600 Los Angeles, CA 90017 Telephone: 213-622-6469 Telecopier: 213-622-6019 Gnelson@nflawfirm.com aciganek@nflawfirm.comSusan Allison, Esq. Attorneys for Defendants Andrew I. Shadoff, Esq. TOWERS WATSON & CO., TOWERS JEFFER MANGELS BUTLER & PERRIN, and TILLINGHAST-TOWERS MITCHELL LLP PERRIN 1900 Avenue of the Stars, Seventh Floor Los Angeles, CA 90067-4308 (810) 203-8080 FAX: (310) 203-0567 AlS@jmbm.com AShadoff@]|MBM.com