MetLife to pay $1.7 billion to settle lawsuit

Yahoo Finance Center
August 23, 1999

MetLife to pay $1.7 billion to settle lawsuit

NEW YORK: Wanting to straighten out its past before it goes public, Metropolitan Life Insurance Co. has agreed to pay $1.7 billion to settle a "global" class action lawsuit for misrepresenting the sale of various life insurance products.

The proposal, which must be approved by the federal district court in Pittsburgh, wraps three certified class action lawsuits -- in Pennsylvania, Ohio and West Virginia -- and more than a dozen other lawsuits into one large class-action settlement.

The litigation has been pending in some cases for at least four years. MetLife, a mutual insurance company, said it wanted to get these outstanding litigation matters cleared up as it prepares to go public in the first quarter of 2000.

It announced it was seeking to demutualize late last year. Demutalization will permit the company to issue stock to raise capital or to buy other companies.

The various lawsuits involved allegations of sales offenses, such as churning policies and an alleged scheme called "vanishing premiums" in the sale of not only life insurance policies, but annuities and certificates.

Churning involves convincing a policyholder to cancel one policy and take out another that may not be beneficial to the policyholder. The sales person benefits by receiving a large commission on the new policy. "Vanishing premiums" results when enough interest is generated over time to pay the policy's premium.

In some policies, sold as "vanishing premiums," the interest could have never equaled the premium.

The policies in question were sold between 1982 through 1997 and effect at least 7 million policyholders.

The company has been fined before in Florida and other states by regulators. In November, MetLife paid a $25 million penalty in Florida to settle allegations of agents selling life insurance as a retirement savings plan.

In Connecticut last fall, the insurance company paid a regulatory fine of $800,000 to settle allegations it defrauded customers through misrepresentations of sales practices.

SOURCE: The Journal of Commerce

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