A Connecticut judge denied a request Tuesday by PHL Variable Insurance Co. policyholders to stop paying premiums while keeping their coverage in force, despite allowing them to intervene in ongoing liquidation proceedings.

Judge Daniel J. Klau granted motions by several policyholders to intervene for a limited purpose but rejected their request for a so-called “premium holiday.” The policyholders had sought permission to suspend premium payments until the case is resolved, without forfeiting their policies.

The liquidation of the financially troubled PHL is expected by the end of 2026, interim Connecticut Insurance Commissioner Joshua Hershman said in a rehabilitator’s report filed two weeks ago.

A group of over-the-cap policyholders, mainly investors entitled to death benefits in excess of $300,000, filed a motion last month to obtain “relief” allowing the group to pursue “certain claims against Nassau Financial Group (and related subsidiaries), Golden Gate Capital and others … for looting PHL at the expense of the” policyholders.

In his Tuesday decision, Klau agreed that the policyholders’ request was "understandable," noting that some are paying millions of dollars annually while facing uncertainty about how much of their policies’ death benefits will ultimately be paid. However, the judge concluded that allowing policyholders to maintain coverage without paying premiums would be inequitable.

“It would be inequitable … to allow the policyholders to maintain coverage without actually paying for it,” he wrote, adding that policyholders must choose between continuing payments with uncertain returns or allowing policies to lapse.

Edward S. Stone represents SWS Holdings, which owns two Phoenix Generations universal life policies worth $18 million in death benefits. The company has paid more than $12 million in premiums to date, court documents say. SWS is among the large policyholders that sought intervenor status.

Absent "any meaningful relief," the ruling doesn't do much for his clients, Stone said Thursday.

To rehabilitate or liquidate?

Connecticut’s insurance office, which is overseeing the proceedings, previously sought to rehabilitate the insurer but announced in late 2025 that a turnaround was no longer feasible. Instead, the commissioner is now pursuing a liquidation strategy, citing insufficient assets to support a rehabilitation plan that would provide greater value than liquidation.

The court agreed that the shift from rehabilitation to liquidation represented a “material change in circumstances,” warranting reconsideration of a prior ruling issued in December 2025. Still, after reconsideration, the judge found that the commissioner’s opposition to the requested relief remained lawful, rational and made in good faith.

Policyholders, including institutional investors such as SWS and BroadRiver Asset Management, had argued that the move to liquidation justified revisiting earlier decisions. They also accused the commissioner of making misleading statements about the viability of a rehabilitation plan. The court rejected those claims, noting the commissioner had previously warned that rehabilitation might not succeed.

In addition to seeking a premium suspension, policyholders proposed placing premium payments into escrow accounts until the outcome of the case is determined. The court also rejected that proposal, reaffirming its earlier conclusion that the commissioner’s decision to decline it was "not arbitrary or capricious."

The ruling further denied policyholders’ requests for expanded access to non-public financial information, including internal analyses and transaction documents. The court said granting such access would undermine the statutory framework governing insurance rehabilitation and liquidation proceedings.

Full status denied

While allowing limited intervention, the court emphasized that policyholders are not entitled to full party status or broad discovery rights in the case.

The proceedings began in May 2024, when the commissioner filed a petition to rehabilitate PHL under Connecticut law. A moratorium was imposed shortly thereafter, restricting certain policyholder transactions while maintaining limited benefits.

The case now moves forward under a liquidation framework, which is expected to trigger state guaranty association protections for policyholders, though coverage is subject to statutory limits.

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