Nationwide settles class-action suit, averts legal fight

By BARBARA De LOLLIS, Business Writer
Miami Herald
September 5, 1998


Nationwide Mutual Insurance Co. became the latest major life insurer to settle a class-action lawsuit alleging the company deceived customers about financial returns.

Nationwide's agreement, which still faces court approval, covers 650,000 customers who bought various life insurance policies between 1982 and 1997 and were disappointed by their financial returns. The company blamed declining interest rates for its "inability to meet expectations."

Company officials were unable to calculate how many life insurance policies it has in Florida but said Nationwide controls 1 percent of the market. In other lines of business, Nationwide ranks among the top five, with 4.2 percent of the auto market and 6.3 percent of the homeowners' market. Nationally, it's the fifth-largest life insurance company.

Nationwide admitted no wrongdoing by settling, but did so to avert a costly legal battle, said Jeff Botti, a company spokesman.

But once again, the Nationwide suit -- filed in February 1997 in New York State Supreme Court -- has raised the question of abusive sales tactics.

State Farm and Prudential Insurance are in the process of settling similar lawsuits alleging sales abuse practices. State Farm, the nation's largest property and casualty insurer, settled a similar class-action suit last week for $250 million that covered more than 224,000 customers in Florida. Prudential's settlement is costing it at least $450 million.

"During the 1980s, they were very widespread in the industry," said Don Pride, a spokesman for Insurance Commissioner Bill Nelson. "A lot of these cases have come to light in recent years because people are belatedly learning that they have lost savings that they were unaware of."

Columbus, Ohio-based Nationwide has since overhauled its policies regarding sales techniques, company officials said, adopting industry reforms.

Specifically, Nationwide adopted guidelines to help customers understand the risks involved with buying life insurance policies. The National Insurance Commissioners Association created the guidelines in 1996 to regulate the use of sales charts. Regulators feared they could be used to manipulate potential buyers. State Farm is complying with the NAIC rules only in states that have adopted them. Other insurers, such as Mass Mutual, are complying with the rules regardless of each state's position.

Nelson's office said it has not ruled out an investigation of Nationwide.

The Nationwide settlement faces a final hearing on Dec. 17. Settlement options are posted on the company's Web site at "www.nationwide.com/classaction".

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