Thursday, May 18, 2017

No. 218: Massachusetts Mutual's Dividends and the Proposed Settlement of a Class Action Lawsuit

On July 12, 2012, Karen Bacchi, a Massachusetts resident, filed a class action lawsuit in federal court against Massachusetts Mutual Life Insurance Company (Springfield, MA). The plaintiff alleges that the company violated a Massachusetts law by paying insufficient dividends to owners of participating life insurance policies. The filing of the lawsuit preceded by a few months the filing of a similar lawsuit in Pennsylvania against Penn Mutual, as discussed in No. 217 (posted May 11, 2017). Both lawsuits involve the same plaintiff attorneys.

The Bacchi case is in the hands of U.S. District Judge Denise J. Casper. The case was assigned initially to U.S. District Judge Joseph L. Tauro. When he took senior status, the case was reassigned on October 17, 2013 to U.S. District Judge George A. O'Toole, Jr. On March 11, 2015, the case was reassigned (I do not know the reason) to Judge Casper. President Obama nominated her in April 2010, and the Senate confirmed her in December 2010. (See Bacchi v. Massachusetts Mutual, U.S. District Court, District of Massachusetts, Case No. 1:12-cv-11280.)

The Parties
Bacchi, the plaintiff, purchased a participating whole life policy issued in 1975 by Connecticut Mutual Life Insurance Company. In 1996, Connecticut Mutual merged into Massachusetts Mutual, which is the defendant in this case.

The Allegation
Section 141 of Chapter 175 of the Massachusetts General Laws allows a Massachusetts-domiciled mutual life insurance company to hold a "safety fund" not to exceed 12 percent of the company's reserve liabilities, and requires the company to distribute amounts in excess of the safety fund to its participating policyholders. The law gives the Massachusetts insurance commissioner the authority to allow a company to hold a safety fund larger than 12 percent "for cause shown."

The gist of the case is a disagreement concerning the calculation of the excess funds Massachusetts Mutual held over the years. The plaintiff alleges that the company significantly understated the amount of excess funds it held by overstating its reserve liabilities and thereby understating its surplus. In 2010, for example, the company says it held excess funds equal to 4.65 percent of reserves, a figure well below the safety fund limit of 12 percent. The plaintiff, on the other hand, alleges that in 2010 the company held excess funds equal to 15.87 percent of reserves, a figure well above the safety fund limit of 12 percent.

Subsequent Developments
On October 15, 2012, Massachusetts Mutual filed a motion to dismiss the complaint. On August 27, 2013, after extensive briefing, Judge Tauro denied the motion in an order and a memorandum. The judge said the company's arguments for dismissal involve matters that have to be determined by a trier of fact. On September 10, 2013, the company filed its answer to the complaint.

For more than two years thereafter, the parties wrangled over many issues. For example, there was a blizzard of disputes over the confidentiality of documents filed in the case. On February 12, 2016, Judge Casper established a timetable and scheduled a jury trial to begin February 6, 2017.

On May 6, 2016, Massachusetts Mutual filed a motion for summary judgment. On July 27, 2016, after briefing, and at a hearing on the motion, Judge Casper took the motion under advisement.

The Proposed Settlement
On January 6, 2017, the parties filed a joint status report. They said they anticipated filing a stipulation of settlement within 45 days. Judge Casper thereupon canceled the trial, stayed the case, and ordered the parties to file the settlement papers by March 13.

On that day, the parties filed the proposed settlement agreement. It provides for payment of a total of $37.5 million to persons who are or were owners of Massachusetts Mutual participating policies at any time between January 1, 2001 and December 31, 2016. The payments for the most part are to be in the form of paid-up additions. The parties estimate that the average amount paid to class members receiving benefits will be $22.02. The total payment includes plaintiff attorney fees (not to exceed 25 percent of the $37.5 million), plaintiff attorney expenses, and a service award to the named plaintiff, all to be approved by Judge Casper.

The parties also filed a motion for preliminary approval of the proposed settlement, certification of the proposed class for the purposes of the proposed settlement, approval of the class notice, and appointment of the class representative and class counsel. On March 29, Judge Casper preliminarily approved the proposed settlement and scheduled the final approval hearing for July 27, 2017.

General Observations
This is another interesting case based on an old surplus limitation law. As I said in No. 217, I am not able to express an opinion about the fairness of the settlements in such cases because the precise methods by which companies calculate dividends on their participating policies invariably are shrouded in secrecy. Judge Casper has preliminarily determined that the settlement is fair, and will make a final determination after the July hearing. As I also mentioned, New York in 1906 became the first state to enact such a law, which was later enacted in a few other states, including Massachusetts and Pennsylvania.

Available Material
I am offering a complimentary 64-page PDF consisting of a table of contents (1 page), the complaint (18 pages), Judge Tauro's order (2 pages), Judge Tauro's memorandum (7 pages), the answer to the complaint (17 pages), the joint status report (3 pages), the proposed class notice (9 pages), and Judge Casper's order preliminarily approving the proposed settlement (7 pages). Email and ask for the May 2017 package relating to the Bacchi/Massachusetts Mutual dividends case.