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New England Life Insurance Co. settles lawsuits for $172 million

New England Life Insurance Co. has agreed to pay approximately $172 million to settle a series of class action lawsuits that accuse the company of deceptive life insurance sales practices.

The suits allege that the company practiced "churning" and "vanishing premium" schemes.

The company — better known as New England Financial — will offer cash or term insurance to approximately 600,000 current and former policyholders who believe they were victims of the insurer's alleged sales schemes. The class consists of anyone who bought a life insurance policy from the company between Jan. 1, 1983 and Aug. 31, 1996.

A fairness hearing has been scheduled for Oct. 4 in U.S. District Court in Boston, where policyholders will be able to air their views on the proposed settlement, which still needs approval from U.S. District Judge Robert Keeton.

Class members were represented by Milberg Weiss Bershad Hynes & Lerach LLP of New York. New England Life, based in Boston, is a subsidiary of Metropolitan Life Insurance Co. The suits do not involved MetLife because the allegations pre-date MetLife's acquisition of the company, says Peter Harrington, a spokesperson for New England Life.

The settlement consolidated 11 seperate class action lawsuits that had been pending for four years in U.S. District Court in Boston. In settling the cases, New England Life admits no wrongdoing.

The usual suspects: churning and vanishing premiums

The suits allege that the company practiced "churning" and "vanishing premium" schemes — two misleading sales practices that have been the source of several lawsuits in the life insurance industry. Churning is a practice in which agents persuade policyholders to use the cash value in their existing policies to buy new policies they don't need, and collect hefty commissions in the process.

Vanishing premiums refers to a scheme in which agents tell policyholders that the underlying investments in their new life insurance policy will perform well enough to keep the policy in force and thus eliminate the need for premium payments in the future. However, policyholders end up paying premiums once the cash value on the policy runs out.

Two forms of claim relief

There are two forms of compensation for class members in the New England Financial settlement. The first is basic term insurance that provides 18 to 54 months worth of coverage. The amount a class member receives depends on their age, the amount of coverage they have in their existing policy, and whether they still have a policy in force with the company, Harrington says.

The second form of relief is claim evaluation, in which policyholders have to prove to a third party claim evaluator how they were wronged by the company in order to receive a payout. The severity of the alleged wrongdoing will be reflected in the amount of the claim reward. Milberg Weiss has selected Seeger Weiss LLP of New York City to be the independent claim evaluator. Stephen Weiss, a partner in Seeger Weiss, is the son of Melvyn Weiss, a partner in Milberg Weiss Bershad Hynes & Lerach.

Policyholders should receive notices from the company about the proposed settlement beginning in mid-July.

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