MH Victories on Emerging Life Insurance Issue
McDowell Hetherington attorneys recently secured a string of victories upholding the legitimacy and enforceability of maturity provisions in life insurance policies. The enforceability and mechanics of maturity provisions—which define the point at which universal life insurance policies “mature,” and no longer provide a payout of the face amount—are an emerging issue in life insurance litigation. In recent years, a growing number of insureds (or their beneficiaries) are challenging the validity of maturity provisions in universal life insurance policies, claiming that the policies’ provisions are not properly explained during sale, that the policy terms are not clear or are ambiguous in providing coverage while limiting it, and that insurers owe increased duties to insureds to notify them periodically about the upcoming policy maturity. These allegations are brought under legal theories ranging from breach of contract, contract reformation, consumer protection statutes, and fraud.
Despite the novelty that these increasingly specialized legal theories present, McDowell Hetherington has successfully defended the provisions’ enforceability three times in the last year in cases around the country.
First, in New York Supreme Court in Buffalo, MH won a complete victory on summary judgment for its client, a life insurer who issued a policy that, by its terms, matured when the insured turned age 95. The plaintiffs argued that the agents who sold their mother the $1 million policy had told them that universal life insurance was a “permanent” product that would never terminate. The court, however, agreed with MH that the contract was not ambiguous and required that the policy terminate upon maturity. Further concluding that MH’s client could not be held vicariously liable for the agents’ alleged misstatements about the policy, the court dismissed all claims.
Next, in San Francisco Superior Court, the policy owner (a trust) filed suit, alleging that the life insurer defrauded him by failing to disclose that the life insurance policy he purchased in 1995 would mature in 2019. In addition to fraud, the plaintiff claimed that the insurer had an ongoing duty to remind the policyholder from time-to-time about the impending maturity date, even though the insurance policy contained no such notice requirement. After extensive briefing, the Court granted MH’s demurrer, holding that the policy plainly disclosed the maturity date and, as such, whatever claims the plaintiff may have had accrued in 1995. Accordingly, the Court dismissed the plaintiff’s claims with prejudice.
Finally, in Delaware Superior Court, another policyowner trustee brought suit against an insurer, though on a different legal theory. Here, the Trust asserted that the policy’s terms were unconscionable when the $4 million life insurance policy reached its maturity date, and that the policy was ambiguous as worded in providing for a death benefit in one place but placing a limit on it (through the maturity provision) in another. Based on these allegations, the Trust brought claims under the Delaware’s Consumer Fraud Act. After complete discovery and numerous depositions, the Court granted MH’s motion for summary judgment and issued a 34-page Order, finding that the policy was capable of only one interpretation and that the maturity provision did not violate the Delaware Consumer Fraud Act. The Court also agreed with MH that the Delaware Consumer Fraud Act does not apply to insurance transactions.
For more information about these victories or MH’s life insurance practice, please contact David McDowell.