Pennsylvania Mutual Life Insurance Co. has agreed to pay $110 million in settlement with a class of policyholders who alleged the company breached its obligations by improperly withholding surplus funds rather than distributing them as dividends. The settlement involves about 293,000 whole life insurance policies issued by Penn Mutual that were in force between Jan. 1, 2006, and Dec. 31, 2015. It provides for an automatic payout of dividends to the settlement class, according to a motion for preliminary approval of the settlement. The motion says:
The injunctive relief afforded by the settlement provides terminal dividends having a face amount of $110 million, a truly exceptional result. There is no subjective or disproportionate treatment of the settlement class members, because all of them will receive settlement class benefits calibrated to the objectively determined cash surrender values of their respective settlement policies.
The settlement has received contingency approval by the Pennsylvania Insurance Commissioner, following proceedings before the Pennsylvania Department of Insurance involving the regulatory issues at the center of the case. A federal judge stayed litigation in April 2014 pending those administrative proceedings.
The lawsuit was filed in November 2012. Plaintiffs Daniel and Edith Harshbarger argued that while Penn Mutual was obligated under state law to return all profits over a “safety fund” limit, capped at 10 percent of its reserves, to participating policyholders, it repeatedly failed to do so.
The policyholders claimed Penn Mutual’s breach of its obligations cheated policyholders out of more than $5 million over at least 18 years. The complaint said that Pennsylvania state law requires the state’s life insurance companies to return all surpluses that accumulate past a maximum annual “safety fund” limit to policyholders.
Unless the state Insurance Commissioner grants an exemption, that limit is capped at 10 percent of its financial reserves, the complaint stated, adding that Penn Mutual had never sought nor received such an exemption. During the administrative proceedings, Penn Mutual argued that the plaintiffs’ relied-upon provision has been implicitly repealed through legislation and non-enforcement by the Department of Insurance and that the company’s retained surplus, nonetheless, complied with state law.
The plaintiffs are represented by Joseph N. Kravec Jr. of Feinstein Doyle Payne & Kravec LLC, Jason B. Adkins and John Zavez of Adkins Kelston & Zavez PC, Andrew Friedman of Bonnett Fairbourn Freidman & Balint PC, and Mark A. Chavez of Chavez & Gertler LLP. The case is Harshbarger et al. v. Pennsylvania Mutual Life Insurance Co. (case number 2:12-cv-06172) in the U.S. District Court for the Eastern District of Pennsylvania.
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