A life settlement provider says a life insurer has used illegal methods to interfere with its ability to buy a convertible term life policy.
Coventry First L.L.C., Fort Washington, Pa., has filed a suit against John Hancock Life Insurance Company (USA), Boston, a unit of Manulife Financial Corp., Toronto (TSX:MFC), in the U.S. District Court in Los Angeles.
In the complaint, Coventry has accused John Hancock of tortious interference with a contract, negligent interference with a contract, violation of the California Business and Professions Code, and violation of the California Life Settlement Act.
The team of lawyers representing Coventry includes Nat Shapo, a former Illinois insurance director.
John Hancock has declined to comment on the suit.
“It is company policy not to comment on specific policyholder matters or matters in litigation,” a John Hancock representative says.
In June 2004, an insurance trust bought a $1 million term life policy insuring the life of a 62-year-old resident of suburban Los Angeles from the company now known as John Hancock. The policy included a provision that let the insured convert the policy into a universal life policy without providing proof of insurability, Coventry First says in its complaint.
In August 2010, the trust entered into a contract to convert the policy and sell the converted policy to Coventry First for $45,000, Coventry First says.
In September 2010, John Hancock sent a letter indicating that it was concerned that the new, converted universal life policy was procured as part of an arrangement in which a party without any insurable interest in the life of the insured would obtain new coverage on the insured, in violation of Minnesota law, Coventry First says.
John Hancock returned the premiums for the universal life conversion, terminated the policy, and negotiated a settlement with the insured calling for John Hancock to pay a settlement equal to what Coventry First had agreed to pay the insured, with John Hancock’s obligation to pay a death benefit deemed null and void, Coventry First says.
Coventry First says it responded by buying the policy back from the institutional investor that was going to become the policy’s new owner.
Coventry First says the term life policy conversion was covered by California law, not Minnesota law.
The fact that the universal life policy was assigned to a party “without any insurable interest” “did not and could not justify ‘terminating’ the policy because the original owner of the term policy had an insurable interest in the life of the insured at the time the term policy was issued and no insurable interest was required at the time of the conversion and subsequent assignment,” Coventry First says. “Hancock’s term policy explicitly prohibited Hancock from ‘requir[ing] evidence of insurability’ (such as insurable interest) upon the policy owner’s conversion of the policy to permanent insurance.”
Coventry First alleges that John Hancock was not licensed as a life settlement provider but entered into an agreement with the policy insured that was a “life settlement contract” as that term is defined by the California Life Settlement Act.
Coventry is seeking compensatory damages, punitive damages, a permanent injunction and restraining order prohibiting John Hancock from blocking term life conversions, and another permanent injunction and restraining order prohibiting John Hancock from “acting as a life settlement provider…without obtaining the necessary license from the Department of Insurance.”