Confidential
Settlement – $35,000,000Facts
Effective September 1990, the United States Congress passed a law effecting what became commonly known in the insurance industry as the "DAC" tax. This change in law was enacted to increase taxes on life insurance companies by preventing life insurance corporations, in their tax accounting, from accelerating deferred acquisition costs as offsets against current corporate income to reduce their current net tax obligation. The plaintiff was the owner of a non-participating whole life insurance policy which provided that in addition to premiums paid by the policyholder, the insurance company would apply "excess credits" to the cash value account of the policy. Non-participating insurance policies are insurance contracts that do not have a proprietary right to distribution of corporate profits in the form of dividends and do not have a right to vote for insurance company corporate policies or board of directors; participating insurance policies have such rights. In addition, the plaintiff's policy was purchased in conjunction with what was called a "vanishing premium" plan or program. Vanishing premium plans generally provide that dividends or excess monies are not applied to the account for a few years following which earnings in the account, loans and premiums are used to purchase "paid up additions" to the policy which are then used to offset future premium obligations, rather than increasing amount of insurance, with the effect that payment of premiums "vanishes" after a specified number of years, such as five years, six years, seven years, etc. The defendant, in order to offset corporate taxes, reduced the plaintiff's excess credits and diverted that money from his and other non-participating insurance policies to pay corporate taxes. In addition, as a result of decreasing interest rates and investment returns, the premiums did not vanish as promised by the insurance sale agent at the time of the sale. The plaintiff sued on his own behalf and on behalf of all others similarly situated in a class action. The plaintiff brought this action against the defendants based on breach of contract, breach of covenant of good faith and fair dealing and fraud theories of recovery.
Settlement Discussions
The plaintiff made a settlement demand for $_________ . The defendants made a settlement offer of $_________ .
Damages
The plaintiff claimed loss of excess in the amount of approximately $100 on average per policy per year on approximately 90,000 policies and $25,000 in additional premium obligations.
Other Information
The settlement was reached approximately five months after the case was filed. A settlement conference/arbitration/mediation was held on ____/___/19____ before _____________ (name) of _____________ (affiliation or court) resulting in _____________ . Following initial settlement of this class, an additional number of policyholders who had a class action pending in Philadelphia, represented by other counsel, were added to the settlement and were included in the total number above. Approximately 4,300 claims were received for the ADR process.
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