Last week we reported on on a $37.5 million settlement paid by Mass Mutual Life Insurance Company for a lawsuit that alleged the carrier “was obligated to pay additional dividends on its participating policies.” Recently, a similar lawsuit settled for a much higher sum. Penn Mutual Life Insurance Company settled a suit for $110 million that alleged that the carrier failed “to pay the full amount of annual policy dividends out of divisible surplus that are due.” The suit was initially filed in November of 2012 by a husband and wife who together owned 5 Penn Mutual participating whole life contracts, on behalf of them and “all persons similarly situated.” (1)
The suit (Harshbarger et al v. Pennsylvania Mutual Life Insurance Company) grew out of Pennsylvania law that requires mutual carriers domiciled in that state to “provide for the payment of dividends from surplus (or profits) on an annual basis,” and include in that dividend “all surplus that exceeds a maximum annual "safety fund" limit (i.e., all surplus in excess of 10% of its reserves, and not including the excess market value of its securities over their book value) (the "Safety Fund Limit").” (1)
The case wound its way through the United States District Court for the Eastern District of Pennsylvania and last month reached a settlement in a Stipulation of Settlement filed on the 25th of April.
Per information provided, the proposed settlement will include participating policies “in force at any time from January 1, 2006 through December 31, 2015.” The settlement amounts were as follows:
- For policies in force as of 12/31/2015: “A Terminal Dividend in an amount equal to 1.8% of the total Cash Surrender Value upon termination of each In Force Settlement Policy (whether by surrender or upon death of the insured).” This is expected to amount to $97 million in payouts.
- For policies terminated “by lapse or surrender” before 12/31/2015: “A pro rata share of a $13 million Terminal Dividend.”
Penn Mutual is required to pay the benefits “automatically,” and there is no need for class members to “file a claim or take any other steps to receive the payments due to them under the Proposed Settlement.” (2)
Penn Mutual denied “any and all wrongdoing,” considering it “desirable” to settle the case to “provide substantial benefits to Penn Mutual policyholders,” avoid “further expense and disruption of the management and operation of Penn Mutual ’s business,” and the “burdens, and uncertainties associated with a potential finding of liability and corresponding injunctive and related relief for Plaintiffs.” (3)
Penn Mutual, like Mass Mutual, operates as a mutual company, owned by its policyholders, not outside stock holders.
- Harshbarger et al v. Pennsylvania Mutual Life Insurance Company Class Action Complaint filed 11/1/2012
- Harshbarger et al v. Pennsylvania Mutual Life Insurance Company, Document 49, Filed 04/25/17
- Harshbarger et al v. Pennsylvania Mutual Life Insurance Company, Document 47. Filed 04/25/17