January 2017


Cost of Insurance Litigation – Palumbo v. Nationwide

On January 9, a judge in the United States District Court for the District of Connecticut denied Nationwide Life Insurance Company’s motion to dismiss a complaint brought by an insured (William Palumbo) and the insured’s relative (Laura Palumbo) who served as the trustee of a trust that owned the two life insurance policies at issue. Among other allegations, the plaintiffs allege that Nationwide made false representations and omitted material facts regarding the cost of insurance (COI) charges and COI rates under the variable life insurance policies.

According to the decision, “The policies provide that any changes in the cost of insurance charges deducted from the policies will be based on changes in future expectations for such factors as investment earnings, mortality, persistency, expenses, and taxes. The policies also provide that ‘[c]urrent cost of insurance rates will be determined by [Nationwide] based on our expectations as to future mortality costs and expenses.’” The policyholders allege that Nationwide increased the amount of the COI charges for reasons wholly unrelated to changes in future expectations for such factors as investment earnings, mortality, persistency, expenses, and taxes, contrary to the clear and explicit terms of the policies; namely, that the increases in charges were designed solely to increase Nationwide’s profits.

In surviving the motion to dismiss, the judge determined that the plaintiffs have made allegations sufficient to support their causes of action. It is worth noting that surviving a motion to dismiss does not mean that the claims have any actual merit, but merely that, if the allegations are taken as true, the plaintiffs would be successful.

Docket Number: 3:16-cv-01143-WWE


FNB PA v. Transamerica and Clark Consulting – Update

Last month, we reported that Transamerica and Clark filed a motion for summary judgment in this ongoing litigation in which FNB PA asserts that it was entitled to additional proceeds (related to a Bank Enhancement Amount within a stable value agreement) upon its surrender of SA BOLI policies.

This month, FNB PA filed its opposition to Transamerica’s motion for summary judgment. Among its primary arguments, FNB PA asserts that:

  1. Park View (the community bank that purchased the policies at issue) continues to exist as a matter of law and was never merged out of existence; and
  2. Transamerica had both implicit and explicit contractual obligations requiring it to ensure that the ~$2.6 million at controversy was not withheld from FNB PA.

One such obligation that FNB asserts is that Transamerica should have pursued an Event of Default with the stable value provider in connection with the termination of the SVP agreement and the SVP provider’s determination that it was not obligated to pay the Bank Enhancement Amount. Deposition testimony from a Transamerica representative confirms that Transamerica did not contemplate such an action.



IRS Proposes Updated Mortality Tables

On December 29, the IRS published a notice of proposed rulemaking and notice of public hearing that would update the mortality tables used to determine the present value of a stream of expected future benefit payments under defined benefit pension plans.

A public hearing is scheduled for April 13, 2017 and comments are due by March 29, 2017.

The new mortality tables reflect longer life expectancies; this will increase minimum funding requirements as benefits are expected to be paid over a longer period of time. The proposed rule requires sponsors to use the new tables for valuations beginning with the 2018 plan year.