Monthly LRA Update

JUDICIAL DEVELOPMENTS

NY Premium Refund Litigation

On August 8 the US Court of Appeals (Second Circuit) affirmed a prior District Court ruling in a case alleging that the insurer (Lincoln Life & Annuity of New York) should be obligated to refund part of a planned, annual premium paid into a universal life insurance policy prior to the death of the insured.

The plaintiff paid the last annual planned premium of $54k in May 2018. The insured died in October. The plaintiff asserted that the insurer should be obligated to refund a portion of the premium paid, pursuant to NY Ins. Law § 3203(a)(2). The statute states (emphasis added):

“…if the death of the insured occurs during a period for which the premium has been paid, the insurer shall add to the policy proceeds a refund of any premium actually paid for any period beyond the end of the policy month in which such death occurred.”

The District Court ruled in favor of the insurer, noting that a planned premium into a universal life policy does not apply to any specific coverage period. The plaintiff appealed. Before ruling, the US Appeals Court certified a question to the New York Court of Appeals asking “whether a planned payment into an interest-bearing policy account, as part of a universal life insurance policy, constitutes a ‘premium actually paid for any period’ under the refund provision of NY Insurance Law.” The NY Court of Appeals answered the question in the negative (i.e., agreeing with the District Court ruling). Likewise, the US Court of Appeals affirmed the District Court ruling.

Citation: Nitkewicz as Tr. of Joan C. Lupe Fam. Tr. v. Lincoln Life & Annuity Co. of N.Y., 49 F.4th 721, 730 (2d Cir. 2022)

REGULATORY DEVELOPMENTS

Updated FFIEC IT Examination Handbook

On August 29 the FFIEC issued the Development, Acquisition and Maintenance (DA&M) booklet, which is part of the FFIEC Information Technology Examination Handbook. The DA&M booklet replaces a prior booklet issued in April 2004.

The booklet addresses system and component development, acquisition and maintenance best practices. It includes overviews of IT project management, the system development life cycle (SDLC) and supply chain risk management.

While the new booklet is significantly more detailed, the FDIC press release notes that the booklet does not impose new requirements on examined entities.

We did not observe any content in the booklet that would directly impact BOLI programs.