Skellig ICAV, a collective investment vehicle from Ireland, along with Gannet Funds and its securities intermediary, Wilmington Trust, have reached a settlement with John Hancock Life Insurance Company of New York in a lawsuit accusing the insurer of unlawfully increasing the cost of insurance on a targeted group of universal life insurance policies.
The plaintiffs had filed the lawsuit in the U.S. District Court for the Southern District of New York in Manhattan, citing “sudden and massive COI increases” and seeking compensatory and punitive damages, equitable relief, and attorneys’ fees.
Details of the settlement were not released. The suit was filed in September of 2022.
According to the filing from March 2022, “the parties hereby stipulate to dismiss this action in its entirety with prejudice, with each Party to bear its own attorney’s fees and costs.” The reference to “with prejudice” means that the plaintiff will not be allowed to bring the same claim to the court again.
“The settlement terms are confidential, but we’re pleased with the outcome,” plaintiff attorney Khai LeQuang, a partner in the Orange County of law firm Orrick, told Life Risk News.
Asked if the settlement might influence other existing COI litigation, LeQuang said that would be “unlikely because these agreements tend to be confidential.”
“I think insurance companies will have to consider that not all policy owners will be satisfied with the economics of class action settlements, and that is a good thing,” he said in response to a question from Life Risk News about a possible broader impact on the life settlement market.
Representatives from John Hancock were contacted for this story and responded that they “will be in touch if we have a comment.”
According to the lawsuit, John Hancock increased the cost of insurance on a specific group of its life insurance policies, including policies owned by the plaintiffs.
Skellig runs a fund that owns a Performance UL policy with a $15m death benefit and argued that John Hancock increased cost-of-insurance rates for that policy and 1,500 others in 2018 but without giving a clear explanation.
While John Hancock had not disclosed the criteria used to define the targeted group subject to the rate increase, the plaintiffs said it seems to consist of disproportionate numbers of investor-owned policies. By raising the cost of insurance rates without proper justification and only on this targeted group, John Hancock has breached the terms of the plaintiffs’ policies, according to the lawsuit.
“Notably, in recent years, a handful of life insurance companies have increased cost of insurance rates despite consistent improvements in U.S. mortality over the past several decades,” the lawsuit stated. “These rate increases have prompted numerous lawsuits, all of which, to Plaintiffs’ knowledge, have resulted in the insurance companies paying out millions of dollars in settlements or verdicts. John Hancock itself recently settled a lawsuit concerning its failure to lower cost of insurance rates—despite improved mortality — for over $91 million.”
The most important factor in life insurance is mortality, and it is widely known in the industry that mortality has improved since John Hancock began issuing Performance UL policies in 2003, the lawsuit states. In fact, new mortality tables would support a decrease in COI rates, but John Hancock increased rates on the plaintiffs’ policies anyway, which goes against the express and implied terms and conditions of the policies.
The lawsuit noted that industry analysts confirm that mortality has continued to improve. For instance, a report published by Towers Watson in 2016 recommends that life insurance companies assume positive improvements in mortality for every age over 55. Similarly, the lawsuit states, statistics from the Human Mortality Database show increased life expectancy and lower mortality rates for older individuals in the United States between 2010 and 2015, while a Society of Actuaries report on historical population mortality rates indicates continuing improvements in mortality rates every five years from 2000 to 2014.
Also from the lawsuit: “According to a 2010 report by the Government Accountability Office (GAO), life settlements can be a beneficial option for policyholders with unneeded life insurance, as they can receive more by selling the policy to a third-party investor than surrendering it to the insurer for its cash value. Insurance companies, such as John Hancock, have embraced the life settlement market to sell more insurance, with consumers buying insurance with the comfort of knowing they could sell their policies for fair market value later.
“However, John Hancock has targeted many of these policies for cost of insurance (COI) increases, forcing policyholders and investors to either pay exorbitant rates to keep their policies or lapse/surrender them, thereby destroying the economic benefit of the policies. A weakened life settlement market would be of particular concern to senior insureds, who stand to lose significant value from any obstacles to selling their policies. Reports indicate that a significant number of senior citizens let their policies lapse or surrender them, with many of them indicating they would have considered selling their policies in the life settlement market had they known about it. Therefore, insurance companies like John Hancock that raise COI rates in contravention of contractual terms are not only hurting policyholders but also the entire life settlement market, including hundreds of thousands of senior consumers.”