January 30, 2025

NY appeals court sides with Equitable in lengthy cost-of-insurance lawsuit

Equitable Life Insurance Co. breached no contract terms when it imposed cost-of-insurance charges on a universal life policy, the New York Court of Appeals recently ruled.

The court upheld a lower-court ruling against the Hobish family trust, who claimed the insurer improperly hiked COI charges in 2015. The ruling seemingly ends a lengthy legal odyssey that began with a 2017 lawsuit.

Cost-of-insurance charges are fertile ground for lawsuits. Plaintiffs enjoyed several positive verdicts across the country in recent years.

The Hobish Irrevocable Trust purchased an Athena Universal Life Insurance II policy from the defendant in 2007 to insure Toby Hobish, then 82, court documents say. The policy provided for a $2 million death benefit if the policy remained in effect at the time of Toby Hobish’s death. She died at 95 in 2019.

Her three adult children are the sole beneficiaries of the trust, court records say.

The Hobish policy included an account enabling the trust to make flexible premium payments into it at their discretion. Then known as AXA Equitable, the insurer deducted a monthly COI charge from the account, court records explain.

Payment incentives

The account accrued interest and the COI charge increased as the balance decreased, creating incentives for the policyholder to make premium payments in sums higher than the minimum necessary to pay the COI charge on a month-to-month basis.

While the policy imposed no mandatory scheduled premium payment, the account would enter a grace period before lapsing if the account balance became insufficient to meet the monthly COI charge, court records say. At that point, the policyholder would become ineligible to receive the death benefit upon Hobish’s death.

The monthly COI charges were determined by a formula known as the “COI Rate Scale.” Terms of the policy gave Equitable the right to increase COI charges, as long as any increase was “equitable to all policyholders of a given class.” The policy also included a cap on monthly COI charges, which was linked to the insured’s age.

In 2015, Equitable increased its COI rates from 43.5% to 72.5% for policies that were issued for insureds who, like Hobish, were over 80 years old. COI charges for the Hobish policy increased from about $7,000 to roughly $10,500 per month, court documents say.

“Plaintiffs claim that this change would result in a drastic increase in the annual premium payments necessary to keep the policy in force,” Judge Shirley Troutman wrote in the appeals court decision. “Plaintiffs do not contend, however, that the new COI Rate Scale exceeded the policy’s cap on monthly charges.”

Policy surrendered

After COI charges were imposed for four successive months, the trust opted to surrender the policy “under protest,” court documents say. Equitable returned $412,688.01 to the trust, representing the remaining account balance less a $35,586.49 surrender fee.

The trust sued for breach of contract and violation of General Business Law and asked for the full $2 million death benefit, minus the surrender payment already made. Plaintiffs also asked for $12 million in punitive damages.

Successive New York courts ruled against plaintiffs’ claim that Equitable breached the policy provision requiring that policy cost increases be “equitable to all policyholders of a given class.” The term “given class” is ambiguous and its meaning could not be resolved as a matter of law, courts ruled.

In the appeals court’s Jan. 14 decision, Troutman writes that plaintiff’s claim of an Equitable breach “misconstrues the record.”

“Upon defendant’s alleged breach, plaintiffs did not terminate the insurance policy. Rather, they enforced it by opting to receive a defined contractual benefit—the surrender payment—and terminate the policy’s coverage. And they did so deliberately, after extensive financial deliberations with various family members.”

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