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March 18, 2015 at 11:45 AM
Northwestern Mutual Life Insurance Co. has agreed to pay $84 million to settle a class-action lawsuit triggered by a change it made in 1985 in how it calculated dividends for a fixed-income annuity.
The plaintiffs in LaPlant vs. Northwestern Mutual claimed the decision to pay dividends based on the yields from short-term bonds, instead of a dividend based on the overall performance of the mutual company, resulted in the loss of millions of dollars annually to investors.
That change violated the terms of the annuity contracts, alleged the plaintiffs.
“This lawsuit was a case of a small group of customers seeking more than their fair share of dividends, which would have come at the expense of all our other policy owners,” Northwestern Mutual spokeswoman Betsy Hoylman told CNBC. “At this point, it is best for our policy owners to close this matter.”
The “Pre-MN” annuity was sold to about 36,000 investors, 3,000 of whom resided in Wisconsin, where Northwestern Mutual is based, according to court documents.
In 2011, a district judge issued a declaratory judgment against Northwestern Mutual, finding that the insurer violated the annuity contracts, breached its fiduciary duties, and was responsible for substantial “compensatory and punitive damages,” according to court documents.
