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Federal Judge OKs $25M Genworth Universal Life Settlement

Allison Bell By Allison Bell

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What You Need to Know

  • Genworth sought cost-of-insurance rate increases for the policies in 2019.
  • Brighton Trustees sued Genworth, alleging its had explained its those rate increases in an unclear way and erred in other ways.
  • The settlement could affect advisory clients in the wealth planning market as well as insurance agents' insurance customers.

A federal judge in Richmond, Virginia, approved a $25 million universal life insurance class action at a fairness hearing Monday.

Genworth Life and Annuity Company agreed to pay the settlement to about 13,400 policyholders affected by a Genworth move to increase the policyholders’ cost-of-insurance rate in 2019.

Genworth Life also agreed not to challenge claimants based on questions about whether a claimant has an insurable interest in the life of the insured, according to documents filed with the U.S. District Court for the Eastern District of Virginia.

In addition, Genworth said it would hold back on increasing class members’ COI rates for at least seven years.

What It Means

The settlement in the case, Brighton Trustees et al. v. Genworth Life & Annuity Insurance Company, could help clients who have universal life insurance policies and have faced cost-of-insurance rate increases.

Because some wealthy clients use products like universal life insurance in income planning arrangements and other long-term financial arrangements, not simply to provide death benefit protection, the settlement could affect advisory clients in the wealth planning market as well as insurance agents’ insurance customers.

The settlement could also affect clients who want to sell their insurance policies to life settlement companies, or who invest in life settlement funds themselves.

The Parties

Genworth Life is a subsidiary of Genworth Financial, a Richmond, Virginia-based insurer.

The lead plaintiff in the case is Brighton Trustees, which is acting as a trustee of Diamond LS Trust. Diamond LS Trust manages life settlement assets for funds affiliated with BroadRiver Asset Management, a money manager.

The list of defendants also includes Bank of Utah, which is Brighton Trustees’ securities intermediary, and Ronald Daubenmier, a policyholder affected by the cost-of-insurance increase.

The Parties’ Views

Genworth declined to comment on the settlement.

Steven Sklaver, an attorney on the Susman Godfrey team that represented Brighton Trustees, welcomed the judge’s approval of the settlement.

“It supports the policyholders and ensures they’re protected in the future from unlawful rate increases,” Sklaver said. “We remain committed to advocating for policy owners affected by similar COI increases.”

The Case

The policies involved in the Brighton Trustees litigation were Gold and Gold II flexible-premium universal life insurance policies.

The oldest policies in the class were issued by First Colony Life Insurance Company, at a time when First Colony and the other businesses that became Genworth Financial were part of General Electric. Genworth Financial became an independent company in 2004. It merged First Colony into Genworth Life in 2007, according to the Brighton Trustees’ complaint.

Daubenmier bought a $100,000 policy in 2002. The initial premium was $162.74, according to a copy of a policy filed along with his original complaint in May 2020.

Under the terms of the policies, the policy owners could decide how much to pay in premiums each month. A cost-of-insurance amount went to Genworth Life. Any premiums paid over the cost of insurance increased a policy’s cash value.

Genworth Life provided policy language stating that the company would base any cost-of-insurance rate change on “its expectations as to future investment earnings, mortality persistency, expenses and taxes.”

Some of the original policyholders sold their policies to investors through “life settlement” arrangements. A life settlement is a mechanism for one party to sell a policy to another party. It has no direct connection to the kind of settlement often used to resolve litigation.

Brighton Trustees sued Genworth Life in April 2020, alleging that Genworth Life had explained the change in an unclear way and erred in other ways. The court later combined the Brighton Trustees case with a similar case filed by Daubenmier.

Genworth denied all of the allegations in the Brighton Trustees complaint in an answer filed in August 2020.

Judge David Novak said in May, during a hearing on the settlement proposed, that the parties engaged in extensive discovery and “lengthy and particularly hard-fought negotiations,” according to a transcript.

He noted that the settlement’s stranger-originated life insurance (STOLI) provision would keep Genworth Life from questioning whether a policy involved in the settlement was created to provide benefits for a party with an insurable interest in the life of the insured and was a legal policy to start with.

Seth Ard, a member of the plaintiffs’ legal team, said the settlement received unanimous support from settlement class members.

Affected policy owners are likely to get cash that had been deducted for increased cost-of-insurance payments returned to their policies before the end of the year, Ard said.

(Photo: Shutterstock)

Allison Bell

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