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Eight lawsuits against Lutheran Brotherhood allege sales fraud

Editor's note: On June 5, 2001, the federal judge overseeing the cases granted class action status to the lawsuits against the Lutheran Brotherhood. Lawyers for the plaintiffs believe that as many as 500,000 Lutheran Brotherhood policyholders or their beneficiaries may eventually be included in the class.

Eight lawsuits have been filed in the past year in Minneapolis state and federal courts against Lutheran Brotherhood alleging that the company duped policyholders with fraudulent life insurance sales practices.

The suits allege that the company's agents promised policyholders that insurance policy premium payments would disappear on a "vanishing premium" basis, because investment returns on policies would pay for future premiums. Some suits also allege that agents "churned" customers' policies, meaning they persuaded policyholders to use cash value built up in their current policy to replace it with a new one.

"This isn't just an insurance company. This is the Lutheran Brotherhood. It's as if the church was looking out for their best interests."

Based in Minneapolis, Lutheran Brotherhood is a fraternal benefits organization that provides insurance and financial services to members of the Lutheran faith. It denies any wrongdoing.

Five lawsuits have been filed in U.S. District Court in Minneapolis, and three have been filed in Minneapolis District Court. The first lawsuit was filed in U.S. District Court in February 1999, and the latest two were filed in Minneapolis District Court on Jan. 21, 2000. Sara Madsen, an attorney with Lockridge Grindal Nauen of Minneapolis, the counsel for the plaintiffs, says she is seeking class action status on each suit.

Madsen says that eight separate lawsuits were filed because each addresses different insurance products, such as universal life, variable universal life, and whole life. And although churning or vanishing premiums are alleged in each case, each policyholder's circumstances were slightly different. "In a class action where you have a lot of different facts and allegations, it's good to get as broad a representation as you can," Madsen says.

In one suit, Phyllis Tzschoppe Eifler claims her father, Phillip Tzschoppe, at age 79, bought a variable universal life insurance policy for $600,000. His agent promised that payments on the policy would disappear on a vanishing premium basis. However, he continued to receive bills. After paying in $168,000, Tzschoppe could no longer afford the policy and it lapsed. He died on March 11, 1999, leaving his daughter, the beneficiary of his policy, without a death benefit.

Madsen says many plaintiffs feel betrayed by the sense of trust they felt by purchasing policies from a company that preached the same values as their faith. "This isn't just an insurance company. This is the Lutheran Brotherhood,'" she says. "It's as if the church was looking out for their best interests."

In response to the vanishing premium charges, Brett Pyrtle, a spokesperson for Lutheran Brotherhood, maintains that all agents are instructed to provide illustrations on investments that show what is, and what is not, guaranteed. As for the churning charges, Pyrtle says that replacing old life insurance policies is necessary in some cases, and agents are encouraged to do what's best for their customers.

Pyrtle pointed to the fact that the company has 1.1 million policyholders and receives an average of only 50 complaints a year. "We care a great deal about our members," Pyrtle says. "We don't run into problems often, but when we do, we fix them."

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