September 2018


COI Litigation Update – John Hancock Proposed Class Action Settlement

Last month, we covered a proposed class action settlement involving John Hancock in the California Superior Courts (Barbara Larson vs. John Hancock Life Insurance Company). We have since learned of another class action lawsuit against John Hancock (“37 Besen Parkway”) that is pending preliminary court approval of a proposed settlement.

Both cases involve similar subject matter – plaintiffs allege John Hancock overcharged cost of insurance (COI) by using factors other than “expectations of future mortality experience.”

In the 37 Besen Parkway case, the settlement class covers “all universal and variable universal life insurance policies issued by John Hancock Life Insurance Company (U.S.A.)…” that include the specific COI provision, except for the policies subject to the Barbara Larson litigation in California. Under the proposed settlement, John Hancock will pay $91.25 million.

According to the memorandum of law in support of the proposed settlement, the 37 Besen Parkway class covers “tens of thousands of policies.” We have confirmed that some of the policies in this settlement are BOLI/COLI policies. Upon preliminary court approval, John Hancock will mail notices to each owner within 30 days and class members will have 45 days to elect to opt out of the settlement, if desired.

Finally, it is worth noting that the settlement does not require John Hancock to reduce its COI rates going forward. However, all claims relating to any future increase in rates are specifically preserved.

Citation: 37 Besen Parkway, LLC vs. John Hancock Life Insurance Company (U.S.A.) (United States District Court, Southern District of New York, 15-cv-9924)



IRS Form 1099-R and Instructions – Reportable Policy Death Benefits

While the BOLI industry awaits final regulations from the IRS relating to new code section 6050Y, the IRS has issued an updated Form 1099-R and Instructions. A new box has been added to Form 1099-R to report the date of a payment of reportable death benefits.

Additionally, Box 1 should include the amount of any payment of reportable death benefits; Box 5 should include the estimate of the buyer’s investment in the contract; and Box 7 should be marked with the codes “4” and “C.”

As a reminder, for reportable policy sales occurring after December 31, 2017, and before the date final regulations under section 6050Y are published in the Federal Register, the Department of Treasury and the IRS intend to allow additional time after the date final regulations are published to file the returns required by section 6050Y(c).


Tax Reform 2.0 – House Passes Three Bills

On September 13, the House Ways and Means Committee approved three bills that are collectively referred to as Tax Reform 2.0. The bills are H.R. 6760, H.R. 6757, and H.R. 6756.

All three bills were passed by the full House on September 27 or September 28. None of the bills appear to have provisions that would directly affect BOLI/COLI programs.