Lawsuit: Lincoln New York Refused to Refund Life Insurance Premiums for Periods After Insureds’ Death

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A proposed class action claims Lincoln Life & Annuity Company of New York has failed to refund premiums paid by life insurance policy owners for any period beyond the end of the policy month in which an insured has died.

Under New York’s Insurance Law, insurers are required to refund premiums paid after an insured has died even if the policy at issue does not include a premium refund provision, the case says. According to the suit, Lincoln New York has refused to comply with state law in denying premium refunds.

“Lincoln NY unquestionably does not pay any of those statutorily required refunds, and instead unlawfully pockets the premiums for itself,” the complaint scathes.

The plaintiff, the trustee of a family’s trust fund, says the trust owns a standard form Lincoln New York life insurance policy with a $1.5 million face value and timely paid an annual policy premium of $53,877.72 on May 7, 2018. The insured under the policy passed away five months later on October 6, 2018, the suit says, after which Lincoln paid the death benefit.

According to the suit, however, the defendant failed to include in the death benefit the premium refund for any of the months after the insured’s death for which the plaintiff had already paid the annual premium amount.

In written correspondence dated January 28, 2019, Lincoln New York reportedly stated that the plaintiff’s annual premiums increased the policy’s value; earned interest; were accessible for a policy loan, withdrawal or cash surrender; and could have been used for future policy expenses. As a result, Lincoln determined the premiums were “unearned” and that “no refund of premium was payable,” the suit explains.

Per the complaint, the defendant’s “unearned” justification for its refusal to refund the plaintiff’s premium payments is improper under New York law, which contains no such terms.

“There is no ‘earned’ or ‘unearned’ premium requirement or defense under the statute,” the complaint states. “New York Insurance Law § 3203(a)(2) does not even use the term ‘earned’ or ‘unearned’ premium.”

Further, in the clause “right before” the premium refund provision, the New York Insurance Law specifies that if an insured dies within a policy’s grace period, the insurer may collect any portion of unpaid premiums for the period concluding on the last day of the month in which the death occurred. Because this provision benefits Lincoln New York, the insurer has followed it while refusing to adhere to the policy refund provision “in the very next clause,” the lawsuit alleges.

The plaintiff additionally alleges Lincoln New York’s refusal to issue premium refunds stands “in stark contrast” to the decision made by Athene Life Insurance Company of New York, from whom the plaintiff purchased another life insurance policy, to pay a refund plus interest “without any dispute.”

The case proposes to cover the following three classes, noting that single premium or paid-up policies are excluded:

The complaint can be found below.

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