Life Settlement Firm Sues John Hancock Over UL Cost-of-Insurance Increases

An Irish asset manager is suing John Hancock Life Insurance Company of New York over a cost-of-insurance increase on a $15 million universal life insurance policy.

The lead plaintiff, Skellig ICAV, joined with its U.S. securities intermediary, Wilmington Trust, to file a complaint against John Hancock last week, in the U.S. District Court for the Southern District of New York.

John Hancock declined to comment on the case.

What It Means

The outcome of the case could affect any clients who are using cash-value life insurance to protect their families against premature death, as well as any clients who are using cash-value life insurance in retirement income planning, education planning or estate planning arrangements.

The case could also affect the prices clients could get if they chose to sell unwanted life insurance policies to life settlement companies by affecting life settlement companies’ COI spending and overall operating costs.

The Parties

Skellig is a Dublin-based company that runs an Irish collective asset-management vehicle, or ICAV. A Skellig ICAV fund — Gannet Life Settlement Fund I — owns a Performance UL policy issued by John Hancock Life of New York in 2008 with a $15 million death benefit.

John Hancock Life of New York is a subsidiary of Manulife Financial of Toronto.

The History

Life settlement companies, ordinary universal policyholders and insurers have fought many battles in court over the past decade.

John Hancock Life of New York and an affiliate, John Hancock Life Insurance Company (USA), resolved a Performance UL COI class action in May by agreeing to pay a $123 million settlement.

The Suit

Skellig and Wilmington Trust allege in the complaint that John Hancock Life of New York reviewed 4,000 Performance UL policies and told its agents in May 2018 that it would increase cost-of-insurance charges for 1,500 of those policies, without explaining how it had selected the 4,000 policies reviewed, or the 1,500 policies subject to COI charge.

The Skellig Performance UL policy affected was issued in 2008.

The increase letter stated only that the issuer’s “expectation of future experience has changed,” according to the plaintiffs.

The plaintiffs contend that, between 2008 and 2018, there was no evidence that mortality or policy lapse rates had changed enough to justify big COI rate increases. In, fact, the complaint alleges that since John Hancock began issuing such policies in 2003, mortality rates have improved and any adjustments should have resulted in decreased COI rates.

According to the complaint, “Given this consistent trend of improving mortality expectations, John Hancock should have decreased COI rates on Plaintiffs’ Policies. Instead, it raised COI rates dramatically, allegedly based on worse mortality expectations than those at issuance. Even if John Hancock had some decline in its mortality expectations, contrary to the industry, that decline could not be close to warranting the massive COI Increases seen here.”

The plaintiffs are asking the court to declare the COI rate increase to be improper, put any excess premiums the Gannet Life Settlement Fund has paid back in the policy value and set guidelines for any future John Hancock COI rate increases.

The plaintiffs are also asking for compensatory damages.

Pictured: The Daniel Patrick Moynihan U.S. Courthouse in the Southern District of New York. (Photo: Ryland West/ALM)