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Life insurance agents and companies are fighting legislation in California that would severely limit the use of corporate-owned life insurance.

The legislation, A.B. 226, which is sponsored by Assemblyman Juan Vargas, D-Chula Vista, would effectively bar employers from covering nonexempt employees (that is, rank-and-file employees) with a COLI policy.

COLI would still be permitted for exempt, or key, employees.

Moreover, the prohibition would apply retroactively, thus nullifying contracts already in place.

John Mangan, director of state relations for the Pacific Region with the American Council of Life Insurers, Washington, says that the California legislation would undermine broad-based COLI policies that are used to fund employee benefits, including health care.

While there are concerns in California, he says, that broad-based COLI policies have been used in ways that the benefits flow to executives, that is not the typical use of COLI.

Mangan says he does not think this use of COLI is happening today.

ACLI, Mangan says, wants to preserve the use of COLI in ways that provide benefits for rank-and-file employees.

In addition, he says, applying the legislation to existing policies raises constitutional issues.

(Those issues relate to a constitutional ban on impairing contracts.)

Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va., says AALU is supportive of efforts of a coalition of California insurance professionals and the California affiliate of the National Association of Insurance and Financial Advisors, in working to eliminate the retroactivity of the COLI legislation.

Mangan says that a hearing on the legislation was originally scheduled for June 18, but apparently will be delayed. It is unclear when the hearing will be rescheduled, he says.

California often is viewed as a bellwether state, with other jurisdictions often following Californias lead on legislation.


Reproduced from National Underwriter Edition, June 16, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.