Met Life to Pay $1.7 Billion to Settle Lawsuits on Policy Sales

Metropolitan Life Insurance Co. agreed Wednesday to pay at least $1.7 billion to settle allegations that 7 million of its current and former policyholders were hit with deceptive sales practices.

Met Life, the nation’s second-largest life insurance company, has paid more than $135 million in fines, refunds and penalties in the last five years, after consumers complained to state and federal regulators that they were misled into buying more expensive policies or policies that did not perform as promised.

The settlement offer follows similar attempts by other insurers to end policyholder lawsuits. Prudential Inurance Co. of America, the nation’s largest insurer, has set aside $2.6 billion to settle policyholder lawsuits and has paid millions of dollars in fines, including a record $5.5 million to California regulators.

Prudential said it has paid $1 billion so far to settle 40% of the claims. New York Life Insurance Co. and State Farm Mutual Automobile Insurance Co. also agreed to settle similar cases over sales of life insurance.

Policyholders who sued Met Life claimed the company’s agents encouraged them to trade in old policies for new ones to generate commissions in a practice known as “churning.” Agents during the 1980s also allegedly promised customers “vanishing premiums,” in which a policy’s premiums would eventually be paid by its investment returns. Falling interest rates depleted the value of many policies, however, forcing some customers to pay huge premiums or allow their coverage to lapse.

The settlement agreement, which would cover people who bought policies between 1982 and 1997, is subject to a fairness review by a federal court judge Dec. 2.

The company has denied any wrongdoing. Met Life’s settlement offer comes as the company is preparing to convert from a policyholder-owned mutual company to a public company early next year.

“This settlement provides a fair resolution to issues that have been the subject of protracted litigation and that have affected much of our industry,” Met Life Chairman Robert H. Benmosche said in a statement.

Some insurance analysts and observers expect the wave of lawsuits and settlement offers to continue as policyholders increasingly turn to litigation and regulators crack down on questionable practices.

Although many life insurers have beefed up their supervision of agents and even formed a self-regulatory group, one industry watchdog contends that insurers’ reluctance to disclose information, coupled with loose state regulation, has led to conditions in which deceptive sales can still flourish.

Insurance firms are not required and often refuse to provide basic information about their policies, such as how much of each premium goes to administrative costs and what rate of return the policy earns, said Joseph M. Belth, professor emeritus of insurance at Indiana University and author of “Life Insurance: A Consumer’s Handbook.”

“They still do not disclose vital information to people who buy life insurance,” said Belth, who also edits an industry newsletter called the Insurance Forum. “As long as there are no requirements for disclosure, this whole area is ripe for all kinds of deceptive practices to go on.”

The insurers, including Met Life, say that they have done nothing wrong and that further disclosure is unnecessary. Insurance companies in 1997 established the self-policing Insurance Marketplace Standards Assn. to promote ethical market conduct among its 200 members.

Met Life negotiated the offer with law firms representing the suing policyholders, including class-action specialists Milberg Weiss Bershad Hynes & Lerach in New York and Specter Specter Evans & Manogue in Pittsburgh, where the lawsuits have been pending for four years.

Met Life said it will mail information about the proposed settlement to affected policyholders starting Aug. 27. Policyholders can call (800) 843-4790 for information on the settlement.

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Bloomberg News was used in compiling this report.