Plaintiffs lawyers have been challenging cost-of-insurance (COI) charges for years, with mixed results. The following outline reviews the most recent flurry of cases.
The Phoenix Life Decision
In Fleisher v. Phoenix Life (April 2014), the United States District Court for the Southern District of New York rejected in part the policyholders' claims that COI increases were not justified by the terms of the universal life (UL) contracts, but left the door open on two other issues.
Specifically, the policyholders alleged that their UL contracts only permitted an increase in their COI rates based on six enumerated factors in their policies: "expectations of future mortality, persistency, investment earnings, expense experience, capital and reserve requirements and tax assumptions." Phoenix Life allegedly breached those contracts by: (1) increasing COI charges for policyholders who had "low funding rates" and low policy values, (2) applying discriminatory COI increases against only a certain "class" of UL holders and (3) designing the COI increases to recoup prior losses, not address future expectations. These claims were based on similar allegations by the New York Insurance Department that had been settled by Phoenix Life.
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Originally published by Law360
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