Jefferson-Pilot Corp. settles long-standing lawsuit
The Business Journal
Serving The Greater Triad Area
March 10, 2003
Jefferson-Pilot Corp. said today that it has settled a long-standing, proposed class-action lawsuit. The estimated value of the potential benefits to affected policyholders is $44.7 million, a JP spokesman said. Attorneys fees and the cost of administering the settlement total another $7.3 million and $2 million, respectively.
The Greensboro life insurer said a judge has authorized it to send a notice to participating class policyholders that an agreement has been reached with plaintiff's counsel to settle Romig v. Jefferson-Pilot Life Insurance Co.
The settlement resolves claims by 165,000 holders and beneficiaries of certain Excess Interest Whole Life and Participating Whole Life policies, most of which were sold in the 1980s and early 1990s, regarding the manner in which their policies were sold, serviced and administered. The settlement is subject to final court approval later this year.
The case was filed in Guilford County Superior Court in 1995. It is one of numerous so called "vanishing premium" lawsuits which have cost the insurance industry millions of dollars in settlements and verdicts. This case stems from a Maryland woman's 1988 purchase of a Jefferson-Pilot policy.
Vanishing premium cases generally assert that insurance companies in the mid 1980s tended to overestimate how high interest rates would climb and how long they would remain high.
The value of some life insurance policies grow in part because of insurance company investments, so some insurance firms estimated that the rates of return from investing initial policy premiums would eventually cover the cost of any future premiums. But interest rates dropped, and policyholders who believed they would be done paying premiums weren't.
Romig's allegations closely track that scenario. The suit said JP "repeatedly represented to prospective policyholders that they would stop making payments at a specified date."
In the settlement, Jefferson-Pilot Life denies any allegations of wrongdoing. Jefferson-Pilot Life believes that its sales, servicing and administrative practices are - and always have been - designed to match customers' needs with appropriate products and to fully inform customers about the operation and features of those products.
Among other things, the settlement will provide class policyholders free term life insurance and the opportunity to purchase additional life insurance and annuity policies enhanced with special premium and interest bonuses paid by the company. And it will benefit Jefferson Pilot by resolving and eliminating the need for corporate resources to be spent on a lawsuit that has been pending for seven years. Management believes its current accruals for litigation expense are adequate.
Policyholders entitled to receive benefits will receive written notification and detailed disclosure regarding policyholder benefits provided under the settlement.