On April 19th, a class action lawsuit was brought in the Southern District of New York against PHL Variable Life Insurance Company (Phoenix) for subjecting policyholders “to an unlawful and excessive cost of insurance (“COI”) increase” …“in violation of their insurance policies.” We reported on the cost increase in August of last year.

A 2010-11 COI increase resulted in a 2015 settlement against Phoenix for more than “$130 million in monetary and non-monetary benefits” and the carrier agreed not to increase the COI on those policies until after December 31, 2020.  Some of the policies affected by the 2017 increase were policies that were part of that lawsuit.

Per the current lawsuit, the 2017 increase is occurring in three stages: first, certain Accumulator (I, II, III, and IV) and Estate Legacy Universal Life universal life policies not part of the prior settlement class would have increases occur on their first anniversary date after November 2017, second, those policies part of the settlement would see increases after December 31, 2020 and third, for “other policy owners, Phoenix will impose the 2017 COI Increase on December 31, 2020 but then rebate to those policyholders the amount of the increase.” The suit contends that this last stage represents a “special side deal” with “institutional investors” that violates the “uniformity requirement” of the contract. The suit also alleges the increase discriminates “within a class of insureds based on whether they were subjected to the 2010 and 2011 increases and the terms of various side agreements reached with Phoenix.”

In 2017 we received letters from Phoenix that announced there would be an “overall increase to cost of insurance rates, as well as progressive increases…beginning when an insured reaches age 71 through age 85.”  The lawsuit claims that the increases are “unlawful” since any changes must be “on a uniform basis for all insureds in the same class.” According to the lawsuit, the policies “do not have a distinct age 71 to 85 class, nor do they have separate classes for each of age 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, and 85. The 2017 COI Increase therefore violates the contractual uniformity requirement”…since… “policyholders aged 71 and older are being targeted and treated differently than policyholders younger than 71” and “policyholders aged 72 and older are being progressively targeted each year as they age and discriminated against relative to younger policyholders.”

The lawsuit contends the “2017 COI Increase is not based on the enumerated factors” that are mandated in the policies – “mortality, persistency, investment earnings, and expenses.” For example, mortality rates, “have improved steadily each year” and “people are living longer than when the products were process and issued.” Some of the policies subject to the increase “were issued as recently as 2014,” and the suit contends that “nothing that has changed between 2014 and 2017 that would merit a new COI rate increase.” According to the filing, “the increase was not calculated through an actuarially reasonable methodology, and was designed to induce lapses, all in violation of the policies and the implied covenant of good faith and fair dealing.”

The complaint notes that the increase was not implemented in New York state “because Phoenix NY is regulated by the New York Department of Financial Services (“NYDFS”), which has recently become an active regulator in monitoring unlawful COI increases” and contends that “the only possible explanation” was that the carrier “knew that the COI increase was not legally or actuarially justifiable and that NYDFS would find it to be unlawful.” The fact that the carrier exempted New York policyholders from the increase was “another violation of the prohibition against intra-class discrimination.”

While the increase did not occur in New York, the case was filed in New York. The complaint noted that Phoenix was acquired by Nassau Re in 2016 and though it has a statutory home in Connecticut the senior management works out of New York City, the company address is listed there, and “all major decisions, including the decision to raise COI rates on the Subject Policies, are made from Nassau Re’s New York City headquarters.”

The suit asks the court to declare that the 2017 increase was “unlawful” and “constituted a material anticipatory breach of the Subject Policies.” It requests the court order Phoenix to “reinstate any lapsed or surrendered policies” and provide the plaintiffs with “compensatory damages, consequential damages, restitution, disgorgement, and any other relief permitted by law or equity.”

We will be following the court case and will report back as the proceedings unfold.

For a copy of the 28-page lawsuit, please email mbrohawn@itm21st.com