First Colony Life Insurance Co. is being sued by two policyholders who allege the company illegally persuaded them to use the cash value in their old life insurance policies to replace them with new ones.

The lawsuit, which was filed in U.S. District Court in Tampa on April 12, is seeking class action status. Anyone in the U.S. who bought a First Colony policy between Jan. 1, 1982, and Dec. 31, 1999, or anyone who was a beneficiary of a policy bought at that time, is eligible for the class.

Michael Kachel, a spokesperson for First Colony, a subsidiary of GE Financial Assurance Co. based in Lynchburg, Va., says the company has no comment on the suit.

Policyholders Martha Wheeler and Charles Droz, of Winter Springs and Spring Hill, Fla., respectively, allege that First Colony induced them to use the cash value built up in their existing whole life policies to buy new ones (an illegal practice commonly referred to as "churning").

Wheeler alleges in the suit that a First Colony agent recommended that she cancel her Metropolitan Life Insurance Co. policy she'd had since 1961, and buy a First Colony policy. Wheeler claims she was told by the agent that the cash value built up in her MetLife policy would be enough to buy a fully paid-up policy from First Colony.

In 1990, Wheeler canceled her MetLife policy and paid First Colony $2,318.86 for a new $10,000 whole life policy. However, in 1997, she received an unexpected premium bill for $115.29. When she contacted First Colony, the company told her that the policy would not be paid up until her death, or until she has paid in $18,826.20, according to the suit.

Droz claims that in 1997, he was told by a First Colony agent that he could double the death benefit he already had in his $30,000 universal life policy from MetLife with a "new" First Colony product. He was told that the cash value in his MetLife policy would pay for part of the premiums on his new policy, so his payments would only be $161 a month. The suit says that Droz has suffered a "loss of value and increased costs" as a result of switching policies.

In both cases, the suit alleges that First Colony failed to tell prospective customers that interest rates earned on the cash value of policies were not guaranteed and they could be reduced at the company's discretion.

The suit also alleges that First Colony sold life insurance policies under the guise of savings plans, although specific examples of that have not been provided.