Penn Mutual, co-defendants: Funeral home owners got bad advice on IUL

Penn Mutual companies say Montana funeral directors who claim a premium financing “scheme” cost them millions were victims of bad advice.

Filed in July 2024, the initial lawsuit involves the sale of $67.5 million worth of premium-financed life insurance policies. Defendants include MassMutual Life Insurance Co., Penn Mutual Life Insurance Co. and other financial companies.

Penn Mutual and several co-defendants filed a third-party complaint Friday asking the court to hold attorney Janette Krutzfeldt Jones and her law firm, Krutzfeldt & Jones, partly responsible for any liability in the life insurance sales.

Janette Krutzfeldt Jones died on July 5. The third-party complaint names her widowed husband, Corey Jones, in his role as representative of her estate. Also named is Todd S. Steadman in his role as trustee to life insurance trusts created by the plaintiffs.

“Insofar as Plaintiffs allege the life insurance policies and premium financing are not suitable to their needs, and to the extent such allegations are true, Ms. Jones and Mr. Steadman each breached their duties as Trustee by pursuing, obtaining, agreeing to, and maintaining the contracts for the life insurance policies and premium financing,” the third-party complaint said.

'Financial catastrophe'

The plaintiffs, who operate Stevenson and Sons Funeral Homes in Miles City, Mont., claim that a broker working on behalf of both MassMutual and Penn Mutual misrepresented the premium-financed policies as "responsible, safe, and tax-friendly" estate planning tools.

“The financial catastrophe into which Defendants led Plaintiffs could have been avoided had Defendants told them what the tripartite structure actually is: a high-risk, interest-rate-sensitive, and volatile structure unsuitable for low-risk estate and retirement goals,” the lawsuit stated.

Filed in the U.S. District Court for the District of Montana, the lawsuit claims include professional negligence, misrepresentation, breach of fiduciary duty, fraud, and fraudulent inducement. The Stevenson family seeks compensation, including rescission of contracts, restitution, punitive damages, and an accounting of payments.

In a 111-page lawsuit, the Stevenson family portrayed themselves as third-generation morticians and “not sophisticated financial professionals.” The family's funeral home business, Stevenson & Sons Funeral Homes, has six locations in Montana and was founded in 1962.

Also named as defendants are Summit Financial Group, GP Capital Partners, The Burgess Group, broker Joshoa Q. Gardner, Wintrust Life Financial, Barrington Bank & Trust, CMS National Services.

Barrington, CMS and Wintrust joined Penn Mutual in the third-party complaint. MassMutual did not.

Long relationship

Gardner had a relationship with the family that stretched back many years, the lawsuit said. He recommended the premium-financed life insurance structure as the “sole, suitable, and stable option,” the lawsuit stated.

“The Stevenson Family’s retirement and estate planning goals were simple. They wished to protect the wealth they built over generations for the benefit of their children, grandchildren, and their church,” the lawsuit said. “The Stevenson Family was not seeking a complex, high-risk investment scheme that would jeopardize their generations-built business and their family legacy.”

Beginning with the Todd Stevenson 2013 Irrevocable Family Trust, Gardner proceeded to sell $67.5 million worth of life insurance policies held by four family trusts. The transactions concluded with a 2017 Penn Annuity policy with a face value of $11.5 million, sold to the Todd Stevenson trust.

Plaintiffs shared a 2014 email from Gardner to back up claims that “misrepresentations about the stability and suitability of the premium financed structure began right away.” In the email, Gardner stated that the Stevenson family could surrender the Mass Mutual policies and walk away right then with “$10 million of cash.”

In doing so, he represented “non-guaranteed values as guaranteed, without any caveat or disclaimer that the policies may not perform as Gardner Defendants’ unequivocally represented they would,” the lawsuit stated.

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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.