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Lincoln National Legend Series COI Increase Class Action Lawsuit

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This lawsuit claims that Lincoln National unlawfully increased their “cost of insurance” (COI) costs to increase profit despite the policies’ language saying that rate increases will only be based upon “future mortality, interest, expenses, and lapses.”

            Flexible premium adjustable life insurance policies are type of life insurance that combines features of term and whole life coverage, giving policyholders the option to change the characteristics of their policies as their needs change over time.  Lincoln National’s flexible premium adjustable life insurance policies are their “Legend Series.”  The premiums in these policies only need to be sufficient to cover COI charges and other administrative expenses deducted from the policy account value by the insurance company each month.  It represents the amount necessary to cover the insurer’s risk that it will have to pay the death benefit to the beneficiary when the insured dies. 

The Legend Series policies state that any increase in the COI rate will be based only on the expectation of “future mortality, interest, expenses, and lapses.”   They further state that the “maximum rates are based on the mortality tables” shown in the policy.  These provisions create a contractual obligation that there will be no rate hikes to recoup past losses; to recover past mortality interest, expenses, or lapses; or to earn higher future profits.

Starting in September 2016, and despite many years of improved mortality experience that is expected to continue in the future, Lincoln National began to increase the COI rates on the policies.  This increased the Monthly Deduction withdrawals from policyholders’ policy values, resulting in a significant increase in annual policyholder premiums required to maintain the policies in force over time.  Lincoln National imposed the COI rate hikes in order to shift Lincoln’s own obligation to pay interest at the guaranteed minimum rate, to recoup past losses, and spread deficiencies or reduced profits on the policies to the policyholders.  This action constitutes a breach of its contractual obligations.

One plaintiff in this class action lawsuit is Barry Mukamal.  He is a resident of Florida and the Trustee of the Mutual Benefits Keep Policy Trust, located in Pompano Beach, Florida.  The trust owns a beneficial interest in several Legend Series Flexible Premium Adjustable Life Insurance policies, with varying face amounts ranging from $600,000 to $2,400,000.  As a result of the COI rate hikes, the monthly amounts to be withdrawn from the policies increased, effecting a consequent spike in annual premiums necessary to keep the policies in force and effect. For example, the COI rate applicable to one of his policies increased by 68%, which doubled the monthly deduction from $15,922 to $31,085 per month and associated premiums.

Based on the facts of the case, the plaintiffs in this lawsuit allege that Lincoln National committed the following violations by unlawfully increasing the COI rates on their Legend Series policies:

Breach of Contract
Contract Breach of the Implied Covenant of Good Faith and Fair Dealing
Tortious Breach of the Duty of Good Faith and Fair Dealing
Violation of the New Jersey Consumer Fraud Act
Injunctive and Restitutionary Relief

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