The highest court in New York state has ruled in favor of the life insurer in a case involving a universal life policy's cost-of-insurance charges.
All seven judges at the New York Court of Appeals agreed to uphold a lower-court ruling dismissing the plaintiff's claims for damages against Equitable Life.
The court ruled that Richard Hobish, the executor of the estate of his late mother, Toby Hobish, cannot collect compensatory, consequential, actual or restitutional damages from Equitable because the trust that owned the policy gave up the policy in exchange for a large surrender payment.
After Equitable increased the cost of the policy and, according to Richard Hobish, breached the terms of the contract, "plaintiffs did not terminate the insurance policy," Judge Shirley Troutman writes in an opinion for the court. "Rather, they enforced it by opting to receive a defined contractual benefit — the surrender payment — and terminate the policy's coverage. And they did so deliberately, after extensive financial deliberations with various family members."
Three other judges on the court endorsed Troutman's opinion. Three judges agreed with the outcome of the case, but they supported a separate opinion, to emphasize that they disagree with how Troutman interpreted a state general business law provision.
Representatives for Richard Hobish and Equitable were not immediately available to comment on the ruling.
Universal life policies: The issuer of a universal life policy reports separately on the growth of the assets inside the policy and collects a cost-of-insurance charge to cover the cost of death benefits, policy administration and other items.
Life insurers have imposed big increases in cost-of-insurance charges on the owners of many universal life policies in recent years, and policyholders have filed waves of suits over the increases.
The Equitable policy: A trust formed by Toby Hobish bought a flexible-premium universal life policy in 2007 from Equitable Life, which was then known as AXA Equitable.
Toby Hobish was 82. She was in a standard, non-tobacco-user underwriting class. Her policy provided $2 million in coverage and started with a planned periodic premium of $34,560.86 per year.
The company imposed a large cost-of-insurance charge increase in 2015.
The COI increase made the new premium five times the original premium, according to the complaint, which was filed in 2017 by Richard Hobish as the trustee of the trust along with Toby Hobish.
In 2016, the Hobish trust surrendered the policy and received $412,688.01 in cash. Richard Hobish and his mother said in the complaint that the trust surrendered the policy under protest.
The Hobish estate sued for $1.6 million in damages, based on the value of the $2 million policy death benefit minus the policy's surrender value.
The suit: Justice Andrea Masley, a state trial court judge in New York County, ruled in 2022 that questions about whether Equitable had breached its contract with Toby Hobish and whether the company had used deceptive business practices were triable issues of fact.
But Masley found that Hobish's estate had no right to compensatory, consequential, actual or restitutional damages because the Hobish trust had surrendered the policy voluntarily.
Under New York state law, an insured can recover a policy's face value if the insurer wrongfully cancels the policy and the insured has ceased to be insurable, but "here, the record does not support the proposition that AXA wrongfully canceled the Policy," Masley wrote. "Instead, the record shows that the Trust voluntarily surrendered it."
In 2023, a division-level appeals court upheld Masley's ruling.
In the new ruling, the top-level state appeals court endorses the logic of the trial court and the division-level appeals court.
Troutman said the Hobish trust had options other than surrendering the policy that might have preserved the trust's ability to sue for damages.
If the plaintiffs had plaintiffs wanted to keep the policy in force, they could have refused to pay any further premiums and allowed for the increased cost-of-insurance charges to be deducted from the amount remaining in the account, Troutman writes.
The plaintiffs also could have "sued defendant for injunctive relief to prevent the draining of the policy account and subsequent acceleration of the COI charges under the new COI," Troutman adds.
Richard Hobish can still move forward with claims that his mother was affected by a breach of contract and deceptive business practices, according to the new ruling.
The case is now set to go to trial in Masley's court on March 24 in New York. Hobish and Equitable have asked Masley to postpone the trial and give them a new chance to reach a settlement.
A view of the dome in New York's Court of Appeals Hall in Albany, New York. Photo: Ryland West/ALM
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