Just because your mutual insurance company charter says that the members "own and control," it doesn't necessarily make it so, according to a federal judge in New York.

In a ruling July 9, 2001, Judge Louis A. Kaplan of the United States District Court of Southern New York, dismissed a lawsuit filed by a Metropolitan Life Insurance Co. policyholder, citing an 1899 case as precedent.

"Interest in MetLife as a mutual company did not . . . render policyholders 'owners' of the corporation."

The lawsuit, which sought national class action status, was filed on behalf of MetLife policyholders who felt that the company's April 5, 2000, demutualization — a transition from a policyholder-owned to a stockholder-owned insurance company — had taken their property without compensation, sold a near-controlling interest in the insurer without advance notice or opportunity to vote, deprived all policyholders of their contractual rights, and deprived non-New York policyholders of their rights by improperly regulating interstate commerce.

According to the decision, the policyholder's "interest in MetLife as a mutual company did not rise to the level of a property interest such as to render policyholders 'owners' of the corporation" despite MetLife's 1915 charter that refers to policyholders as having "ownership and control" of the insurer.

Attorney Jason Adkins, of Adkins, Kelston & Zavez P.C., a policyholder advocate involved in several class action lawsuits against insurance companies over issues of demutualization across the country, and former executive director of the Center for Insurance Research, says that the only thing this ruling does is to delay justice.

"The Court relies on a 1899 decision that a 1906 New York court and subsequent courts have ridiculed," says Adkins, referring to the 1899 Grobe vs. Erie County Mutual Ins. Co. which concluded that members of mutual companies have no definite property interests that can be recovered. "Basically, all [that Kaplan's] decision says is that the case doesn't belong in federal court and then goes on to try to interpret New York state law — incorrectly."

Adkins also points out that the recent decision relies on mutual bank cases that are unrelated to insurance, and that other mutual insurance companies — including John Hancock, Liberty Mutual, and Prudential — all acknowledge in their conversion documents that their policyholders are their owners, so this decision is unlikely to affect other policyholders or lawsuits against current and former mutual insurance companies.

The decision, which will be appealed according to attorney James Pietz, of Malakoff, Doyle & Finberg P.C., who represents MetLife policyholders in the case, also ruled that because a 1915 amendment to the New York constitution allowed the legislature to pass the 1988 law that permitted MetLife's demutualization, the policyholders had been "on notice that the charter could be amended, just as if there had been a notice provision in the text of the charter itself."

The judge concluded his dismissal of the case by saying that the lawsuit failed even to allege any facts that, had they been proven, would have shown that MetLife violated contractual rights or that the policyholders' "membership interests constituted property."

Representatives of MetLife declined to comment on the ruling, saying only that they thought the judge's decision spoke for itself.

Pietz also remarked that once the court had decided that the issue was out of the jurisdiction of federal law, it did not need to address the issue of property rights in mutual companies, and that there were other issues in the case that disagreed with other rulings across the country that needed to be addressed on appeal.

"We plan on taking this up to the 2nd Circut Court of Appeals," said Pietz. "This decision will have limited impact until we've exhasuted all of our appeals."