Mutual of Omaha, American Heritage, Administrator Settle LTC Suit for $15 Million

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April 27, 2009 Monday 04:35 PM EST

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Mutual of Omaha, American Heritage, Administrator Settle LTC Suit for $15 Million

Fran Lysiak

KANSAS CITY, Mo.

Mutual of Omaha Insurance Co., American Heritage Life Insurance Co., and a third-party administrator have agreed to settle a class-action lawsuit for $15 million over unfair rate increases on long-term care insurance policyholders in Missouri. A state court approved the settlement earlier this month and entered final judgment.

The case dates back to December 2002, when Eric and Carol Chalgren sued American Heritage, Mutual of Omaha and Wakely & Associates, the administrator, for fraudulent concealment of planned rate increases on long-term care policies sold in Missouri, said Greg Leyh, who served as lead counsel for the class.

"The actuarial assumptions underlying the policies were so flawed the companies knew increases were inevitable," Leyh said. The certified class is made up of nearly 1,670 people in Missouri who bought the long-term care policies between 1995-2000, he said.

Under the settlement, approved by the Jackson County Circuit Court, Mutual of Omaha is providing current policyholders with benefits valued at $8.5 million, while American Heritage is providing lapsed policyholders with benefits valued at more than $2.5 million, Leyh said. American Heritage Life is a unit of Allstate Corp. Wakely & Associates has paid $4 million, Leyh said.

In a statement, Mutual of Omaha said the case related to a block of long-term care policies issued by American Heritage Life and that it reinsured this block of policies in 2002. "Mutual of Omaha was not involved in the design, marketing or sale of any of the policies, all of which were sold before Mutual of Omaha agreed to reinsure the policies," the company said.

Mutual of Omaha said it agreed to settle to avoid the expense of ongoing litigation after Wakely & Associates, which helped American Heritage with the design, marketing and sale of the policies, settled with the plaintiffs.

Mike Siemienas, a spokesperson with Allstate, said American Heritage Life is confident that the long-term care policies "were properly designed and priced," and that American Heritage is pleased that this matter is resolved.

Mutual of Omaha Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior). American Heritage Life Insurance Co. also currently has a Best's Financial Strength Rating of A+ (Superior).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

April 28, 2009