Two investors have sued Lincoln Financial in a state court in Pennsylvania over the company's announcement in November 2022 that it would have to add $2.2 billion to life insurance reserves.
The Radnor, Pennsylvania-based company also announced a $634 million reduction in life insurance unit goodwill. The resulting $2.6 billion net loss for the third quarter of 2022 caused the price of the company's stock to fall 33%, to $34.83, the day after the announcement.
The plaintiffs say current and former Lincoln Financial executives and directors knew the company's variable universal life policies were suffering from declining performance in 2020 and failed to disclose the problems for two years. They are accusing the executives and directors of breach of fiduciary duty and of unjust enrichment. They are asking the court to require the individual defendants to pay an unspecified amount of damages, restitution and fees.
Lincoln Financial is also facing similar investor suits in a federal court in Pennsylvania.
Lincoln Financial declined to discuss the suits.
"We cannot comment on litigation," the company said.
The history: Lincoln Financial uses assumptions about interest rates, policyholder behavior and other matters to design, price and track its products. Like other life insurers, it regularly hires teams to review and update its assumptions.
In November 2022, Lincoln said that its assumptions about some of its variable universal life policies were out of date because the policyholders were keeping the policies longer than expected.
The announcement reduced the company's capital. The capital level was still well above the minimum level required by state insurance regulators, but Lincoln has been working since then to add to its capital cushion and focus on sales of products that require less capital.
The state court suits: The plaintiffs in the new state court suits are Anthony Morgan, who has owned Lincoln Financial shares since July 2020, and Harry Rosenthal, who has owned Lincoln Financial shares since July 2011.
Morgan filed a complaint in the Delaware County Court of Common Pleas Dec. 30. Rosenthal filed a similar complaint in the same court Jan. 3.
James Ficaro and John Ross of the Weiser Law Firm are helping to represent both Rosenthal and Morgan.
Richard Maniskas is part of Morgan's legal team, and Michael Fistel Jr. and Mary Ellen Conner are helping to represent Rosenthal.
"Lincoln Financial" is the marketing name for Lincoln National Corp.
The defendants in the Morgan and Rosenthal suits are Lincoln National and a number of current and former Lincoln National executives, including Ellen Cooper, the current chief executive officer, and Dennis Glass, the previous CEO.
Federal litigation: Lincoln Financial is also facing two suits in the U.S. District Court for the Eastern District of Pennsylvania.
Investors filed a securities suit, Meade v. Lincoln National, in April 2024.
The plaintiff in that case is seeking court approval to represent a class of all investors who bought or acquired Lincoln Financial stock from Nov. 4, 2020, through Nov. 2, 2022.
U.S. District Judge John Murphy, the judge presiding over the Meade suit, is also handling the stockholder derivative litigation in regard to Lincoln National Corp.
Murphy created the derivative litigation by combining two separate cases in September.
Murphy also ruled that he would suspend action on the stockholder derivative litigation until he had completed work on the Meade securities class action suit.
Lincoln Financial and the other defendants in the Meade v. Lincoln case "intend to file a motion to dismiss the complaint," according to Murphy's case consolidation order.
Lincoln Financial has also said in quarterly reports filed with the U.S. Securities and Exchange Commission that it and the other defendants in the federal suits will defend themselves vigorously.
Credit: Sergign/Adobe Stock
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