$115M settlement ends lawsuit against Pacific Life insurance

By Paul A. Long, staff reporter
Cincinnati Post
November 20, 1998

A California life insurance company has agreed to pay more than $115 million to settle a class-action lawsuit charging that it cheated customers over the past 15 years by lying about its policies.

The money will go to an estimated 127,000 people who held some 160,000 policies across the country. Two local lawyers, Ronald Parry and Beverly Storm, will share in the $12.9 million in attorney fees.

Kenton Circuit Judge Douglas Stephens approved the settlement - estimated to have a value of close to $140 million when administrative fees and other costs are included - on Thursday.

The case was filed in Covington because the lead plaintiff is a local company, Ace Seat Belt Covers, Inc.

The lawsuit, filed last year, charged that Pacific Life Insurance of Newport Beach, Calif., had systematically cheated its customers in policies it had written from 1982 to 1997. The agreement settles all claims arising from those policies.

Among the accusations in the lawsuit is that Pacific representatives would tell potential customers that a single payment would cover all premiums, that it sold life-insurance policies as investments, and that it replaced or rolled over certain policies without the policy-holders knowledge.

For instance, Ace Seat Belt said when it bought a $50,000 life insurance policy, it was incorrectly told that dividends from a previous policy would cover the premiums. And Joel Chemes of Illinois said when he bought a policy in 1989, he was told that the premiums would stop in seven years. When they didn't, he joined the lawsuit.

Parry said a number of life insurance companies sold such "vanishing premium" policies beginning in the 1980s. The problem is that the calculations were based on predictions that were too optimistic to be accurate, he said. He has been part of similar, successful lawsuits against a number of companies, including Prudential, New York Life, TransAmerica and Sun Life.

The massive litigation against Pacific Life included nearly 1 million pages of documents, according to court records. When those affected by the case were notified, the notice was sent out in five languages, and included a 28-page letter along with a 16-page memo in question-and-answer format.

Of the 127,000 policy holders affected, only 264 chose to opt out of the agreement. Just 11 filed objections, Stephens said. "The court finds that the settlement is fair, adequate and reasonable," he wrote.

Pacific has agreed to pay $49.4 million to add to the value of existing policies, and provide for $32 million of insurance to those whose policies have expired. At least $35 million is being set aside for those who have greater losses and can prove a specific amount, Parry said.

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