States pass life settlement disclosure laws to protect the rights of insurance policy holders

by Jim Orr

State legislatures in Kentucky, Maine, Oregon, Washington, and Wisconsin have passed disclosure laws in order to ensure that life insurance policy holders are properly informed of their rights to sell these policies in the form of life settlements. Several lawsuits have been filed on behalf of insured individuals against life insurance companies that allegedly failed in their duty to notify insurance policy holders about their legal rights regarding life settlements.

The life settlement disclosure laws passed by these five states are based largely on the Life Insurance Consumer Disclosure Model Act, which was adopted by the National Conference of Insurance Legislators (NCOIL) in 2010.  The NCOIL model law requires insurance companies to notify policy holders over the age of 60 or chronically or terminally ill about the alternatives they have to surrendering their insurance policy or allowing it to lapse.  In addition to informing these policy holders using clear, easy to understand language about their right to sell their insurance policies in the form of life settlements, the law also advises insurance policy owners about contacting a financial advisor, insurance agent, broker, or attorney concerning their rights.

Although the life settlement disclosure laws passed in Kentucky, Maine, Oregon, Washington and Wisconsin were based on the NCOIL model law, each state’s law contains slightly different disclosure requirements for insurance companies. In Kentucky, the law requires notification from the insurance company to all insured individuals over the age of 60.  It also requires notification to those who become chronically or terminally ill who have requested surrender of their policy, an accelerated death benefit or who have been sent a lapse notice, as well as under any other circumstances set forth by the state’s commissioner of insurance.  See Ky. Rev. Stat. § 304.15-075(3)(b).

In Oregon, the law requires the disclosure of an insurance policy holder’s rights based on certain triggering events, including cases in which the insured individual is 60 years of age or older and the insurance company receives notice from the policy owner of a request to surrender the policy or to receive an accelerated death benefit, or when the insurance company sends a lapse notice to the insured individual regarding a policy other than a term life insurance policy.  See Or. Rev. Stat. §744.362.  The Washington life settlement disclosure law contains similar provisions to those set forth in the laws of Kentucky and Oregon.  See Wash. Rev. Code §48.102.100(1).

In Maine, the law also requires insurance companies to notify insured individuals over the age of 60 and those who become chronically ill about their right to sell their policy in the form of life settlements. However, the Maine life settlement disclosure law does not provide additional provisions for notification as defined by the state’s insurance commissioner.  See Me. Rev. Stat. tit. 24-A, §6808-A(4)(D).

Unlike the life settlements disclosure laws passed in Oregon, Kentucky, Maine, and Washington, disclosure requirements in Wisconsin are not based on triggering events. Instead, the Wisconsin law requires insurance companies to provide policy holders with information about their alternatives to surrendering their policy or allowing it to lapse at the time that the policy is issued.  See Wis. Admin. Code Ins. §2.18(8).

Other states are also considering legislation based on the NCOIL model law. The state of Georgia recently passed a resolution that created a committee to study disclosure issues related to life insurance policies. The resolution stated that the committee was needed because of the many seniors who surrender their life insurance policies or allow them to lapse because they do not fully understand the options that are available to individuals who hold an unneeded or unwanted life insurance policy.

Lawsuits Filed Over Life Settlement Disclosure Laws

Several lawsuits have been filed by insured individuals against their insurance company over failure to disclose the policy holder’s options to lapse or surrender of a policy.  While some of these claims involve violations of state life settlement disclosure laws, lawsuits have also been filed in states where no such disclosure laws currently exist.

In Washington, a lawsuit filed against John Hancock [Graham-Bingham Irrevocable Trust v. John Hancock Life Ins. Co. USA, 827 F. Supp. 2d 1275, 1287 (W.D. Wash. 2011)] accused the life insurance company of failing to comply with the state’s disclosure law regarding life settlements, as well as violations of the Washington Consumer Protection Act. After John Hancock’s motion for summary judgement was dismissed by the court, the case was settled prior to trial.

In California, a class action lawsuit was filed against Lincoln Financial [Grill v. Lincoln Nat. Life Ins. Co., Case No. 14-cv-00051 (C.D. Cal.)] over the company’s failure to disclose the life settlements option for insured individuals even though no violations of state life settlement disclosure laws were alleged. This lawsuit alleged that Lincoln Financial engaged in a “common and systemic practice” of “failing to inform and/or concealing from its insureds the option of a life settlement in connection with their life insurance policies”. The plaintiff also alleged that Lincoln “purposely omits this information from Plaintiffs and Class members because it knows that other options, such as surrendering the policy (in whole or in part) or letting it lapse, will generate greater profits to Defendant than a life settlement would”. This lawsuit was also settled before it reached the class certification or summary judgment stage.

A similar lawsuit was also filed in California in January 2016 alleging that the “omission or concealment of the option of a life settlement is a common and regular practice employed” [Joseph v. Kaye, et al., Case No. SC125276 (Cal. Super. Ct.)] is a common practice both by the defendant in the case and in the life insurance industry. The lawsuit also alleged that the defendant instructed its agents, as well as independent agents employed by the company, “to omit or conceal the option of a life settlement” from insured individuals in violation of the California Consumer Legal Remedies Act and other state laws.

Life Settlements Lawsuits Filed by Heygood, Orr & Pearson

If you or your company were the victim of wrongful actions related to the life settlement industry, you may be able to file a lawsuit to recover some or all of your losses. The first step to filing a lawsuit is to speak with a law firm that has the knowledge and experience with life settlement litigation to achieve the best possible result in your case.

The law firm of Heygood, Orr & Pearson has represented individuals and companies in many different types of lawsuits related to the life settlement industry.  Some of these cases have involved insurance companies that refused to pay the death benefits on a valid insurance policy because the insurer claimed that it was a STOLI policy.  Heygood, Orr & Pearson has also handled litigation involving investors who were misled by a life settlement provider about the value of their life settlement investments or who were charged excessive amounts based on bogus life expectancy estimates. Our lawyers have also filed cases and defended cases on behalf of brokers who handle life settlements.

For a free legal consultation, contact the lawyers at Heygood, Orr & Pearson by calling our toll-free hotline at 1-877-446-9001. You can also reach us by following the link and filling out our free case evaluation form, and one of our representatives will be in touch with you as soon as possible.

by Jim Orr

Jim Orr is a licensed attorney and a partner at HO&P focusing on business and personal injury litigation. Jim was selected multiple times to the Super Lawyers List and has tried 70+ cases to verdict.