Policyholders have sued an insurer over "closed block" policy dividend reductions.
The lawyers representing the plaintiffs have filed the suit, which names Phoenix Companies Inc., Hartford, (NYSE:PNX) and its Phoenix Life Insurance Company unit as defendants, in a state court in Mercer County, New Jersey. The lead plaintiffs are Brian Shevlin, Keith Shevlin and Erin Taylor.
The defendants are seeking to move the case to the U.S. District Court for the District of New Jersey. Phoenix Companies and Phoenix Life say the case belongs in federal court, rather than state court, because it is a purported class action in which total claims exceed $5 million, and because Phoenix Companies and Phoenix Life are organized under the laws of Delaware and have offices in Hartford, rather than in New Jersey.
Lawyers for the plaintiffs, who are seeking class-action status for the case, say the defendants cost policyholders in the closed block $200 million in dividends by reducing the policy dividend in 2006 and 2009.
Phoenix Home Mutual Life Insurance Company, Phoenix Companies' predecessor company, issued policies that gave holders an opportunity to participate in underwriting gains by collecting dividends.
In December 2000, Phoenix Home Mutual converted to a stock company charter by changing its name to Phoenix Life Insurance Company and making itself a wholly owned subsidiary of a new, publicly traded parent company, Phoenix Companies Inc.
The Phoenix Home Mutual demutualization plan called for the company to put the participating life insurance policies then in force in a closed block of business, and to meet "the reasonable dividend expectations" of the holders of the policies in the closed block, according to the complaint.
During the demutualization process, the complaint reads, Phoenix Life assured the plaintiffs that the "objective of the closed block is to provide reasonable assurances to owners of the policies therein that, after the plan effective date, assets will be available to maintain the dividend scales in effect for 2000 if the experience underlying such scales continues and to implement appropriate adjustments in future dividend scales if such experiences changes."
