Trusts Sue Insurer for $44 Million & Then Some

LOS ANGELES (CN) - Sixty trusts claim in Federal Court that Phoenix Life Insurance companies defrauded them of "hundreds of millions of dollars in premium revenue," and have "no intention of willingly paying claims under the policies when the insureds ultimately die and benefits become due."

Wilmington Savings Fund Society, successor to Christiana Bank & Trust, sued on behalf of 60 John and Jane Doe Trusts.

It claims that since 2009, defendants PHL Variable Insurance Co., Phoenix Life Insurance Co. and Phoenix Companies "have broken their promises to policyholders at every opportunity and perpetrated a widespread and massive fraud upon their policyholders."

"Defendants have conspired together and secretly instituted a scheme in which they will ultimately deny coverage under many billions of dollars of life insurance policies issued by PHL and Phoenix Life, including the $466.9 million in life insurance policies issued to plaintiffs," the complaint states.

The plaintiffs have paid more than $44 million in premiums so far, but "when a large death claim is submitted for payment by a trust, PHL refuses to promptly pay the claim after receiving due proof of death - which is all that is required by the terms of the policy for the death benefit to be paid," the complaint states. "Disregarding its contractual and legal obligations, PHL improperly and without any basis requires that the trust complete a form requesting various information about any transfer of the beneficial interest in the trust and the identity of any new beneficiary. In classic 'Catch-22' fashion: (i) if the trust refuses to complete the form, PHL denies the claim; and (ii) if the trust completes the form, and indicates a transfer has occurred, PHL denies the claim."

In addition to denying benefits, PHL keeps all the premiums paid on the policy, even though company policies "expressly state that PHL will return premiums in the event that it successfully contests the policy's validity," according to the complaint.

The defendants claim they can deny benefits because "if a transfer has occurred, the policy is what PHL considers to be a so-called investor originated life insurance (IOLI) policy and, therefore, according to PHL, lacks a valid insurable interest," according to the complaint.

However, the plaintiffs say, "one former employee has candidly admitted that: (i) as much as 80 percent of defendants' life insurance business was what defendants now denounce as IOLI; (ii) defendants' managers encouraged the solicitation of such business and taught employees how to find such business; and (iii) PNX's CEO would have had to have had a 'learning disability' to not know that IOLI had become defendants' core business."

The plaintiffs say they have received "fraudulent communications indicating that the policies are valid and in force while concealing PHL's true intentions. PHL has sent hundreds of such fraudulent communications, including premium notices, annual summaries, policy illustrations, verifications of coverage and responses to policy audit requests. Defendants illegal scheme has reaped hundreds of millions of dollars from policyholders, including tens of millions of dollars from plaintiffs."

The trusts seek $44 million in damages, and punitive damages, for fraud, breach of contract and unfair competition.

They are represented by Nancy Sher Cohen with Proskauer Rose.

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