Federal Appeals Court Lets Universal Life Rate Suit Continue
The Worth Johnson policy: Worth Johnson bought his universal life policy in 1988.
The policy cost $900 per year and provided $100,000 in death benefits.
The policy mortality charges increased to $285.90 in 2019, from $124.61 in 2012, and the cost-of-insurance charges doubled, according to a complaint filed at the trial court level, at the U.S. District Court for the Northern District of Alabama.
Life Partners: Johnson eventually sold his policy, and the policy ended up in the portfolio of Life Partners, a Waco, Texas-based company that bought life insurance policies on behalf of investors. Its life expectancy estimates turned out to be too pessimistic, the life insurance investments performed poorly, and the company filed for bankruptcy in 2015.
Advance Trust & Life Escrow Services managed the policies on behalf of Life Partners’ investors for several years.
BroadRiver Asset Management, a New York-based alternative asset manager, bought the policies from the trust in 2022, and the trust shut down. BroadRiver appears to be the current owner of the Worth Johnson policy.
Policy performance: The original trial court complaint, which was filed in 2020, gives a snapshot of how the Protective universal life policies in the life settlement block performed from 2012 through 2020.
The plaintiffs described what happened to cost-of-insurance charges for three policies in addition to the Worth Johnson policy. The COI charges increased by 60% between 2012 and 2017 for one policy; by more than 100% for between 2013 and 2018 for a second policy; and by about 150% between 2012 and 2017 for a third policy.
The arguments: The Worth Johnson plaintiffs contend that the policy COI language required Protective to update the COI rate scale periodically to reflect improvements in U.S. mortality, or at least to include improvements in mortality if and when it did update the COI rate scale.
Protective and representatives for the American Council of Life Insurers argued that the plaintiffs were misreading the policy.
The trial court judge sided with Protective.
Mortality: One obstacle the plaintiffs may face when they return to the trial court is that U.S. mortality improvement stalled around 2015, and death rates soared from 2020 through 2022, when the COVID-19 pandemic was filling intensive care units.
Some insurers say they believe that U.S. mortality is now close to the pre-pandemic normal, but, as recently as January, the total number of U.S. deaths was at least 6.9% higher than the pre-pandemic average.
Credit: Protective
