Group of 29 plaintiffs sue Penn Mutual over whole life tax-avoidance ‘sham’

A group of 29 plaintiffs allege that Penn Mutual was aware of nefarious sales tactics by a rogue agent.

By John Hilton

A group of 29 plaintiffs claim that Penn Mutual Life Insurance Co. and several co-defendants ran a tax-avoidance scam around whole life insurance policies.

The amended complaint filed last week in U.S. District Court for the Central District of California alleges fraud and negligence, as well as violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

Plaintiffs, which come from states around the country, ask the court for $23.5 million in damages.

“Unbeknownst to the Plaintiffs, these tax avoidance and related scams were a sham and their purported tax advantages illusory and/or illegal,” write attorneys from the Los Angeles firm, Holmes, Athey, Cowan & Mermelstein.

The defendants include former Penn Mutual agent Randall Scott Boll, who was indicted in 2021 on four counts related to violations of federal money laundering laws and banking regulations.

Boll pleaded guilty to one count of conspiracy to cause a financial institution to fail to file currency transaction reports and to structure financial transactions. He was sentenced to one day behind bars in California, court records say, and two years of supervised release.

According to court updates, Boll is living in Arizona and pursuing a divinity degree at Liberty University. He could not be reached for comment. Penn Mutual did not respond to messages seeking comment.

‘Racketeering enterprise’

The lawsuit alleges that Penn Mutual and Boll, along with several other law, lending, accounting and financial planning firms also named as defendants, constituted a “High-Premium Insurance Enterprise.”

“The HPI Enterprise was an organization consisting of individuals and business entities associated for the common or shared purpose of selling, promoting and/or marketing high-premium life insurance policies and related products to plaintiffs through deceptive and misleading sales tactics and materials, and deriving profits from those activities,” the lawsuit reads.

Penn Mutual whole life policies were aggressively marketed as offering “significant tax advantages,” plaintiffs say. “Boll and other members and associates of the enterprise would reap high commissions (as much as 75-125% of the initial annual premium paid by the policyholder) for each HPI policy sold.”

Plaintiffs accuse Penn Mutual of ignoring its own underwriting guidelines “by repeatedly accepting insurance applications for plaintiffs that … falsely inflated the net worth of plaintiffs.” The policies equated to big profits for the insurer because all of plaintiffs’ policies “were designed to (and in fact did) terminate long before the insureds’ life expectancies,” the lawsuit states.

One type of “sham tax avoidance strategy” incorporated premium financing life insurance loans to finance the policies, the lawsuit alleges.

“The HPI Enterprise Defendants took advantage of plaintiffs’ lack of sophistication and convinced them that such policies were affordable due to the tax deductions they would generate—in essence promising them that the HPI policies would pay for themselves,” the lawsuit says.

Using life insurance in a premium financing strategy to manage tax obligations remains a controversial tactic within the industry.

Let policies lapse

Plaintiffs say they received none of the promised tax benefits, and lost “significant sums” through premiums, interest, and fees they paid to the defendants. The HPI enterprise dates to “at least March of 2016,” the lawsuit says, “and is continuing, because it is an ongoing business practice of the HPI Enterprise Defendants.”

“Ultimately, plaintiffs typically lost the HPI policies themselves (into which they had contributed significant funds) when they could no longer afford to pay the premiums,” the lawsuit claims.

Founded in 1847, Penn Mutual boasts an A+ Superior financial rating from AM Best.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.