Court Rejects Suit Alleging Fraud and Negligent Design in the Sale of Universal Life Insurance Policies

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On September 27, 2010, the U.S. District Court for the Western District of Oklahoma granted summary judgment in favor of the insurance company defendant in a putative class action lawsuit alleging that a Universal Life insurance policy and its accompanying illustrations misrepresented the operation of the policy and that the policy was “negligently designed” so as to ensure that policyholders would not enjoy the cash values or death benefit coverage they expected because the policy was designed to lapse. Click here for the opinion.

The putative class representative argued that a Universal Life policy offered by New York Life Insurance and Annuity Corporation (New York Life) should not have expired until the maximum “maturity date,” which was defined as the policy anniversary date nearest the policyholder’s 100th birthday. Plaintiff contended that New York Life had the ability to change the charges and interest crediting rate under the policy, and did so with the intent of causing the policies to lapse after the policyholder had paid in premiums over many years but before the policyholder died. In this way, plaintiff contended, the company retained all the premiums paid while the policyholders would be left with no remaining cash value and no death benefit coverage.

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