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Life Health > Life Insurance

Life Insurer Faces Legal Pushback From Its Own Insurers

By Allison Bell

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What You Need to Know

  • PHL Variable has increased universal life cost-of-insurance charges several times.
  • Policyholders have sued over increases imposed in 2010 and 2011, in 2017 and 2021.
  • The liability insurers say a prior litigation exclusion applies to the 2021 litigation because it arises from the contested 2017 increase.

Court filings in California and Connecticut show what happens when a life insurer has problems collecting benefits from its own insurance companies.

PHL Variable Insurance Co., a subsidiary of Nassau Financial, faced class-action lawsuits after it increased universal life policy cost-of-insurance charges.

PHL has been trying to get XL Specialty Insurance and the other companies that provided its errors and omissions coverage and directors and officers coverage to pay claims related to universal life cost-of-insurance charge litigation.

XL and the other insurers say in a complaint filed in a state court in Connecticut that they have no obligation to pay the claims. The insurers also argue, in a memorandum filed in a state court in California, that the proper venue for litigation is a state court in Connecticut, not a state court in California.

Representatives for Nassau and XL declined to comment.

What it means: The filings in the PHL Variable Insurance cases show how a company that’s providing life insurance and annuities for clients handles its own insurance claim disputes.

The cases: Universal life policies are permanent life insurance policies that separate the performance of a savings arrangement with cash value from the expenses related to administering the policy and paying the claims. Issuers list the cost-of-insurance charges separately.

Policyholders angry  about universal life cost-of-insurance increases imposed in 2010 and 2011 negotiated a settlement.

In recent years, plaintiffs have filed additional suits over cost-of-insurance charge increases that PHL imposed in 2017 and 2021. PHL sued its insurers in October in a California state court for help with the cost of defending itself against suits related to the 2021 increase.

XL and the other errors and omission and directors and officers providers declined to comment on the suit at that time.

The providers’ response: XL sold PHL an insurance company professional liability policy that provided PHL with $5 million in errors and omissions coverage and directors and officers coverage for the period from June 13, 2020, to June 13, 2021, according to the Connecticut complaint.

Six other companies sold PHL excess policies related to the coverage, or policies designed to pay off if claims exceeded the benefits limits for the XL coverage.

The companies assert in the memorandum filed in California that ”California’s contacts to this dispute are almost non-existent.”

“PHL filing this action in this court is blatant forum shopping,” XL and the other liability insurance providers say.

In the Connecticut complaint, the insurers assert that the underlying actions involved occurred outside PHL’s policy period; that the defense costs involved would not qualify as a loss under the policies or would be uninsurable as a matter of law; and that the types of matters involved are not the types of events that XL policy and the excess policies cover.

XL and the other insurers cite errors and omissions policy language that the policy does not cover losses resulting from wrongful acts occurring before the coverage started.

The insurers maintain that the litigation resulting from the 2021 cost-of-insurance charge increase are related to the suits related to the 2017 increase.

Because the 2021 litigation is related to the 2017 suits, a provision that excludes coverage for prior or pending litigation bars coverage related to the 2021 litigation, XL and the other insurers say.

Credit: Shutterstock

Allison Bell

Think_Allison

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