Friday, November 20, 2020

No. 399: John Hancock Defends a Class Action Lawsuit Over Huge Cost-of-Insurance Increases on Universal Life Policies

On June 5, 2018, Jeffrey Leonard (Leonard) and others filed a class action lawsuit against John Hancock Life Insurance Company of New York (John Hancock) and others relating to huge cost-of-insurance (COI) increases on certain universal life insurance policies. On August 22, 2018, John Hancock answered the complaint. On April 9, 2020, Leonard filed a first amended complaint. On May 4, 2020, John Hancock answered the first amended complaint. (See Leonard v. John Hancock, U.S. District Court, Southern District of New York, Case No. 1:18-cv-4994.)

The case was assigned to Senior U.S. District Judge Alvin K. Hellerstein. President Clinton nominated him in May 1998. The Senate confirmed him in October 1998. He took senior status in January 2011.

Thrust of the Case
The "Nature of the Action" section of the first amended complaint consists of 20 paragraphs, and includes a few redactions. Here are some lightly edited excerpts from that section:
1. Plaintiffs seek to represent a class of policyholders who have been subjected to unlawful and excessive COI increases in violation of their insurance policies.
2. The policies at issue are Performance Universal Life policies issued between 2003 and 2010.
3. In February 2018, John Hancock's parent company, Manulife Financial Corporation, which reports on behalf of John Hancock in consolidated statements, announced that it had suffered a $1.6 billion net loss in the fourth quarter of 2017.
4. In May 2018, John Hancock sent cryptic letters to policyholders informing them of a massive increase in COI rates and charges on certain Performance Universal Life policies.
6. John Hancock did not disclose that, when reviewing the proposed COI increase, the New York Department of Financial Services concluded that the assumptions John Hancock had originally used when pricing the policies were not reasonable.
8. Internally, John Hancock had long recognized that its original assumptions were no longer valid.
10. The COI increase is massive. For example, one plaintiff took out a policy on her life in 2008. After paying ten years of premiums at John Hancock's "projected" rates, John Hancock suddenly increased her COI rates by about 70% per year, causing her to have to pay about $225,000 more in premiums per year to keep her coverage. She is now aged 87.
11. Other policyholders have seen increases ranging from 17% to 75%. John Hancock did not provide policyholders with any reason for the wildly disparate COI increases.
12. The COI increase violated terms of the policies in numerous respects.
17. John Hancock did not implement the COI increase on other products it issued between 2003 and 2010.
19. In violation of the policy provision promising illustrations "upon request," John Hancock refused to provide illustrations for subject policies from January 2017 through May 2018.
20. The COI rate hike and John Hancock's actions preceding it breached the policies in at least five respects.
The "Factual Background" section of the first amended complaint consists of 53 paragraphs. Also, the first amended complaint contains the following seven claims for relief: (1) breach of contract, (2) violation of certain New York laws, (3) violation of certain other New York laws, (4) violation of certain California laws, (5) violation of certain other California laws, (6) violation of certain Texas laws, and (7) violation of certain New Jersey laws. The first amended complaint is in the complimentary package offered at the end of this post.

Future Developments
On July 27, 2020, Judge Hellerstein issued a scheduling order listing several pretrial deadlines. For example, the fact discovery deadline is February 22, 2021, the expert discovery deadline is June 28, 2021, and the briefing for class certification is to be completed by September 27, 2021. The scheduling order does not mention settlement, but includes a deadline for "dispositive motions." The scheduling order is in the complimentary package offered at the end of this post.

General Observations
It appears that the case has a long way to go. I plan to report on significant future developments, such as class certification and the terms of any proposed settlement.

Available Material
I am offering a complimentary 58-page PDF consisting of the plaintiffs' first amended complaint (56 pages) and the judge's recent scheduling order (2 pages). Email jmbelth@gmail.com and ask for the November 2020 package about the case of Leonard v. John Hancock.

===================================

Friday, November 13, 2020

No. 398: Long-Term Care Insurance—Yet Another Update on the Skochin Lawsuit Against Genworth

In No. 384 (July 30, 2020), I posted my most recent update on the Skochin class action lawsuit against Genworth Financial, Inc. (Genworth) and Genworth Life Insurance Company (GLIC) relating to premium increases on long-term care (LTC) insurance policies. In that post, I provided a link to my first post on the case, and links to my first two updates. (See Skochin v. Genworth, U.S. District Court, Eastern District of Virginia, Case No. 3:19-cv-49.)

Background
On January 18, 2019, Pennsylvania residents Jerome and Susan Skochin and Maryland resident Larry Huber filed a class action lawsuit against Genworth and GLIC. The plaintiffs had purchased LTC insurance policies in 2003 and 2004 from General Electric Capital Assurance Company, a predecessor of Genworth and GLIC. On October 30, 2019, the plaintiffs filed a notice of settlement. On January 15, 2020, Senior U.S. District Judge Robert E. Payne held a hearing, granted preliminary approval of the settlement, directed that the class notice be mailed to class members, and set the final fairness hearing for July 10, 2020.

Recent Developments
On July 10 and 14, 2020, the judge heard arguments on the objections, and ordered further briefing. On September 14, he ordered further briefing.

On November 5, the judge issued a memorandum opinion and an accompanying order overruling class members' objections to the plaintiffs' motion to approve the settlement. Also on November 5, he issued a memorandum opinion and an accompanying order granting class counsel's motion for an award of attorney fees and expenses. The four November 5 documents are in the complimentary package offered at the end of this post.

An Invitation
When I posted No. 384, I said I do not intend to express an opinion about the fairness of the settlement from an actuarial standpoint because I am not an actuary and do not feel comfortable expressing such an opinion. However, I would welcome expressions of opinion from actuaries. As an aid to expressing an opinion, note that the complimentary packages offered in my five blog posts on the case are available and would provide a good starting point. If you need further documents, I can send you the current court docket and provide you with any court documents you would like to see. Should you respond to this invitation, please indicate whether you prefer your opinion to be with or without attribution, and I will honor your request.

Available Material
I am offering a complimentary 99-page PDF consisting of the judge's memorandum opinion and accompanying order granting final approval of the settlement (68 pages), and the judge's memorandum opinion and accompanying order granting approval of attorney fees and expenses (31 pages). Email jmbelth@gmail.com and ask for the November 2020 package about the case of Skochin v. Genworth.

===================================

Monday, November 9, 2020

No. 397: The Age 100 Problem—A Further Update on the Lebbin Lawsuit Against Transamerica

I have written extensively about what I call "the age 100 problem" in general, and about the Lebbin lawsuit against Transamerica Life Insurance Company (Transamerica) in particular. The most recent update on the case is in No. 372 (May 18, 2020). That blog post contains a detailed summary of the district court case. For that reason, I am dispensing with a summary of that case and including in this further update only major developments in the appellate case. (See Lebbin v. Transamerica, U.S. Court of Appeals, Eleventh Circuit, Case No. 20-11756-EE.)

The Appellate Filings
On August 31, 2020, Transamerica filed a 78-page brief in the Eleventh Circuit. On September 8, Transamerica filed a 1,517-page, six-volume appendix. On October 30, the Lebbin-Spector Family Trust (Trust) filed a 71-page brief. Transamerica's brief and the Trust's brief are in the complimentary package offered at the end of this post.

Transamerica's brief makes five arguments: (1) plaintiffs' breach of contract claim is barred by the statute of limitations, (2) the district court erred in granting summary judgment to plaintiffs on their claim for breach of contract based on an alleged ambiguity, (3) the district court should not have excluded extrinsic evidence that established the intent of the parties, (4) the district court erred in resolving Transamerica's defenses of waiver, ratification, and estoppel without considering any evidence, and (5) the district court's ruling on damages should be reversed. Transamerica concludes:
For the foregoing reasons, Transamerica respectfully requests that this Court reverse the summary judgment orders of the district court and direct entry of judgment in Transamerica's favor.
The Trust's brief includes detailed responses to each of the five arguments in Transamerica's brief. The Trust concludes:
For the foregoing reasons, [the Trust] respectfully request[s] that this Court affirm the summary judgment orders of the district court.
General Observations
At this writing, there is no timetable for the appellate court case. I plan to report on important developments in the case.

Available Material
I am offering a complimentary 149-page package consisting of Transamerica's brief (78 pages) and the Trust's brief (71 pages). Email jmbelth@gmail.com and ask for the November 2020 package about Lebbin v. Transamerica.

===================================

Monday, November 2, 2020

No. 396: Stranger Originated Life Insurance Is Now Illegal in New Jersey

On October 28, 2020, the law firm of Cozen O'Connor issued a three-page press release entitled "New Jersey Enacts Anti-STOLI Legislation." The press release announced that recent legislation enacted in New Jersey has rendered stranger-originated life insurance (STOLI) illegal in the state. The press release, written by Cozen attorneys Charles J. Vinicombe and Michael J. Miller, is in the complimentary November 2020 package offered at the end of this post.

The new legislation (Assembly Bill 1263) was unanimously approved by the New Jersey Assembly and by the New Jersey Senate. It was signed into law by the governor on October 19, 2020. It supplements the New Jersey Viatical Settlements Act by outlawing STOLI, which is defined as
an act, practice, or arrangement to initiate or procure the issuance of a policy in this State for the benefit of a third party investor who, at the time of policy inception, has no insurable interest under the laws of this State in the life of the insured.
Background
In No. 317 (June 13, 2019), I discussed the developments that led to the recent legislation. It all began with a dispute between Sun Life Assurance Company of Canada and Wells Fargo Bank. A $5 million policy was issued in 2007. Wells Fargo later acquired the policy in a bankruptcy proceeding and thereafter continued to pay the premiums. The insured died in 2014, and Wells Fargo sought to collect the death benefit.

Sun Life investigated and discovered massive fraud in the original application for the policy. The elderly insured's income and assets were vastly overstated, her life insurance in force was vastly understated, and a phony inspection report verified the false information. The application named a trust as owner and beneficiary of the policy, and the insured's grandson signed the application as trustee. Five weeks later, the grandson resigned as trustee and appointed certain investors (I often refer to them as speculators in human life) as successor co-trustees. The trust agreement was amended so that most of the benefits would go to the investors. More than two years later, after the expiration of the two-year contestability period, the trust sold the policy and the investors received nearly all the proceeds.

The Courts
Sun Life refused to pay the death benefit, and sought a declaratory judgment that the policy was void ab initio (from the beginning). Wells Fargo counterclaimed for breach of contract and, if the court voided the policy, sought a refund of the premiums it paid.

The federal district court in New Jersey found that New Jersey law applied, that it was a STOLI transaction lacking insurable interest in violation of the state's public policy, and declared the policy void ab initio. The court granted Wells Fargo a refund of the premiums it paid, on the grounds that Wells Fargo was not responsible for the fraud.

On appeal, the federal Third Circuit found no dispositive New Jersey case law, and certified two questions of law to the New Jersey Supreme Court:
  1. Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio?
  2. If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?
The New Jersey Supreme Court answered yes to both parts of the first question. On the second question, the court ruled that a party may be entitled to a refund of premiums it paid on the policy, "depending on the circumstances." To decide the appropriate remedy, the court ruled that trial courts should develop a record and balance the relevant equitable factors, such as a party's level of culpability, its participation in or knowledge of the fraud, and its failure to notice red flags.

General Observations
My first article about the secondary market for life insurance policies was in the March 1989 issue of The Insurance Forum, the monthly newsletter I published from January 1974 through December 2013. My second article about the secondary market was in the March 1999 issue of the Forum, and was prompted by my first evidence of what later became known as STOLI.

From the beginning, my views about the secondary market for life insurance policies in general, and about STOLI in particular, have been strongly negative. I think life insurance companies have instituted safeguards to prevent significant amounts of new STOLI business from being initiated. The problem now is the handling of the huge volume of STOLI business that was initiated during the heyday of STOLI about 15 years ago. That business continues to move around among a shrinking number of investors. I think the STOLI business will continue to generate litigation for many years.

I am not aware of any state, other than New Jersey, in which STOLI is prohibited by law. However, I am aware of certain legal restrictions in Canada. I would welcome comments from readers about other legal prohibitions relating to STOLI.

Available Material
In the above mentioned No. 317, I offered a complimentary 69-page PDF containing details of the New Jersey Supreme Court ruling, and the articles in the March 1989 and March 1999 issues of the Forum. That June 2019 package remains available.

Now I am offering a three-page PDF containing the Cozen O'Connor press release. Send an email to jmbelth@gmail.com and ask for the June 2019 package and/or the November 2020 package about STOLI.

===================================

Monday, October 26, 2020

No. 395: General Electric and Genworth—A Pair of Updates

Long-term care (LTC) insurance, General Electric Company (GE), and Genworth Financial Inc. (Genworth), which specializes in LTC insurance, have been the subjects of several of my blog posts. Recently both companies disclosed developments that prompt this update.

GE
On January 16, 2018, GE shocked the insurance world when it disclosed it will contribute about $15 billion (spread over seven years) to a reinsurance subsidiary relating to a run-off block of LTC insurance. On January 24, 2018, GE disclosed the existence of an investigation by the Securities and Exchange Commission (SEC). I wrote about these matters in No. 257 (March 12, 2018) and No. 258 (March 19, 2018).

On October 6, 2020, GE filed an 8-K (significant event) report disclosing developments relating to the SEC investigation. Here are two of the three relevant paragraphs in the 8-K (the three paragraphs are in the complimentary package offered at the end of this post):
On September 30, 2020, the SEC staff issued a "Wells notice" advising GE that it is considering recommending to the SEC that it bring a civil injunction action against GE for possible violations of the securities laws. GE has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital's run-off insurance operations, as well as GE's disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the other matters under investigation.
The Wells notice is neither a formal allegation nor a finding of wrongdoing. It allows GE the opportunity to provide its perspective and to address the issues raised by the SEC staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. GE disagrees with the SEC staff with respect to this recommendation and will provide a response through the Wells notice process. If the SEC were to authorize an action against GE, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other relief within the Commission's authority. The result of the Wells notice and any enforcement action are unknown at this time.
On October 7, 2020, the front page of the print edition of The Wall Street Journal carried a 931-word articled entitled "SEC Readies Civil Action in GE Accounting Inquiry." The reporters were Theo Francis and Ted Mann. Here are the first two sentences of the article:
Federal securities regulators have warned General Electric Co. of a civil-enforcement action over its accounting for a legacy insurance business, adding a fresh hurdle to efforts to turn around the once-mighty manufacturer. The industrial giant said in a securities filing Tuesday that it received the so-called Wells notice on Sept. 30 over the company's accounting for reserves related to an insurance business it has been trying to wind down for years.
Genworth
On October 21, 2016, Genworth entered into a merger agreement with China Oceanwide. Since then, the parties have entered into "waiver agreements," under which the parties extended the "end date" in the merger agreement. I wrote about these matters in No. 311 (May 2, 2019), by which time the parties had entered into nine waiver agreements.

On October 1, 2020, Genworth filed an 8-K report disclosing that the parties had entered into a sixteenth waiver agreement on September 30. The end date in the latest waiver agreement appears to be November 30, 2020. The 8-K lists the fifteen previous waiver agreements and a detailed description of the latest waiver agreement. (The 8-K is in the complimentary package offered at the end of this post.)

General Observations
I plan to report on further significant developments relating to the SEC investigation of GE. I also plan to report further on the pending Genworth merger agreement with China Oceanwide.

Available Material
I am offering a complimentary 9-page package that consists of GE's 8-K report dated October 6 (3 pages) and Genworth's 8-K report dated October 1 without exhibits (6 pages). Send an email to jmbelth@gmail.com and ask for the October 2020 package about GE and Genworth.

===================================

Tuesday, October 20, 2020

No. 394: Equitable Financial (f/k/a AXA Equitable)—An Update on the Reinstatement of Universal Life Policies

In No. 391 (September 30, 2020), I wrote about two individual federal court lawsuits against Equitable Financial Life Insurance Company (Equitable), which was formerly known as AXA Equitable Life Insurance Company, relating to the reinstatement of universal life insurance policies. Both lawsuits were filed by the same plaintiff. One of the cases is in New York and the other is in North Carolina. There is nothing new to report on the New York case. Here I provide an update on the North Carolina case and describe an amazing email from one of my readers.

The North Carolina Case
On October 8, 2020, Equitable filed three post-trial documents in the Wiener v. Equitable case in North Carolina: (1) motions to dismiss and for post-trial relief, (2) brief in support of motions to dismiss and for post-trial relief, and (3) consent motion to extend stay of judgment enforcement. It is anticipated that Wiener will oppose the motions, Equitable will reply to the opposition, and the judge will rule on the motions. The three documents are shown in their entirety in the complimentary package offered at the end of this post.

An Amazing Email
In response to No. 391, I received an amazing email from a reader. In it he reported an incident involving an Equitable universal life policy issued many years ago. My reader was not the writing agent, but became an advisor to the insured after the policy was issued. The policy was owned by a trust and had a face amount of more than $1 million. After the estate tax credit was increased, the insured decided he no longer needed the policy. In 2012, the insured transferred the policy to a child who planned to continue paying premiums.

In 2018, the insured called Equitable regarding the status of the policy. The insured was told the policy had lapsed. The insured was not told the lapse date at that time. The insured asked my reader what to do. My reader suggested that the insured (1) request in writing (by FedEx so delivery could be documented) a copy of the 60-day lapse pending letter, (2) copies of any correspondence from the USPS or any other service indicating that mail was returned as undeliverable or improperly addressed, and (3) copies of annual reports for 2017 and prior years. The insured sent the request by FedEx.

The following day, the insured received a letter from Equitable saying the policy lapsed in 2014. The letter said "in the interest of good customer service," Equitable was willing to reinstate the policy. The conditions were payment of a premium to cover two months of cost-of-insurance (COI) charges and the signing of a settlement agreement and release. The deadline for those steps was about 30 days after the communication was sent to the insured.

The communication from Equitable also included a copy of a 60-day lapse pending letter, a lapse notice, and a copy of the policy annual report for the preceding policy anniversary. The communication did not say these copies had previously been mailed to the insured.

Thus Equitable reinstated the policy without any evidence of insurability and without requiring payment of COI charges from the 2014 lapse date up to the 2018 reinstatement date. At the time of the reinstatement, the insured was more than 75 years old and the COIs were substantial.

General Observations
My reader and I surmise that Equitable drastically altered its reinstatement practices in an effort to avoid more individual lawsuits, or class action lawsuits, over its reinstatement practices. If our supposition is correct, universal life policyholders of Equitable, and perhaps universal life policyholders of other companies, owe a debt of gratitude to Wiener for his two lawsuits against Equitable, irrespective of the final results of those cases. My reader and I also realize there may be other explanations for Equitable's generosity in the case described in my reader's email.

Available Material
I am offering a complimentary 27-page package consisting of Equitable's three post-trial documents in the North Carolina case. Email jmbelth@gmail.com and ask for the October 2020 package about Wiener v. Equitable.

===================================

Friday, October 16, 2020

No. 393: Greg Lindberg—Another Update on the Federal Criminal Case against Him and His Associates

No. 388 (August 24, 2020) was the latest of several updates on the federal criminal lawsuit against Greg E. Lindberg and three associates. Here I provide another update to reflect important recent developments in the case. (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5:19-cr-22.)

District Court Judgments
On August 28, U.S. District Judge Max O. Cogburn Jr. issued a judgment against Robert Cannon Hayes, who was the chairman of the state Republican party in North Carolina. He had pleaded guilty to five counts. Counts 1 through 4 were dismissed on the government's motion. On the fifth count, Judge Cogburn sentenced him to one year of probation, a $100 assessment, and a fine of $9,500.

On September 4, Judge Cogburn issued a judgment against Lindberg sentencing him to 87 months in prison on each of two counts to be served concurrently, followed by three years of supervised release on each count to be served concurrently, an assessment of $200, and a fine of $35,000.

Also on September 4, Judge Cogburn issued a judgment against John D. Gray, a Lindberg consultant who had been found guilty by the jury on two counts, sentencing him to 30 months in prison on each count to be served concurrently, followed by two years of supervised release on each count to be served concurrently, and an assessment of $200. The judgments against Hayes, Lindberg, and Gray are in the complimentary package offered at the end of this post.

Notices of Appeal
On August 19, as indicated in No. 388, when Lindberg was sentenced to 87 months in prison, his attorney told Judge Cogburn that Lindberg planned to appeal, and asked the judge to allow Lindberg to remain free pending the appeal. Judge Cogburn denied the request and ordered Lindberg to report to prison when directed by prison officials.

On September 2, Lindberg filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit of Judge Cogburn's August 19 denial. On September 9, John D. Gray, a Lindberg consultant who was found guilty by the jury, filed a notice of appeal to the Fourth Circuit.

On October 7, after Lindberg was instructed to report to prison on October 20, Lindberg filed a motion to extend the self-surrender date for two reasons associated with the COVID-19 pandemic. One reason related to Mr. Lindberg's health, and the other related to interference with the preparation of his appellate brief. On October 13, Judge Cogburn denied the motion. Lindberg's motion to extend and Judge Cogburn's denial of the motion are in the complimentary package offered at the end of this post.

The Appellate Court
On September 10, in the Fourth Circuit, Lindberg filed a motion for release pending appeal. On September 15, the government opposed the motion. On September 18, Lindberg replied to the government's opposition. On September 23, in a one-sentence order, Circuit Judge Diana Gibbon Motz, with the concurrence of Circuit Judges Barbara Milano Keenan and Stephanie D. Thacker, denied Lindberg's motion for release pending appeal. (See U.S.A. v. Lindberg, U.S. Court of Appeals, Fourth Circuit, Case No. 20-4470.)

General Observations
At this writing (October 14), Lindberg's date of October 20 for reporting to prison apparently still stands. I plan to report further developments in this case.

Available Material
I am offering a complimentary 38-page package consisting of the judgment against Hayes (5 pages), the judgment against Lindberg (7 pages), the judgment against Gray (6 pages), Lindberg's motion to extend the self-surrender date (17 pages), and Judge Cogburn's denial of the motion to extend (3pages). Email jmbelth@gmail.com and ask for the October 2020 package about Lindberg.

===================================

Subscribe to: Posts (Atom)