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Provident Mutual settles class action lawsuit for $45 million

Provident Mutual Life Insurance Co. has proposed to settle a class action lawsuit for $45 million. The suit alleges the company induced policyholders to use the cash value in their old whole life policies to buy new policies and promised that premiums on the new policies would "vanish" after a period of time.

"We believe the vast majority of our policyholders have been treated with fairness and professionalism."

Provident Mutual, based in Berwyn, Pa., filed the settlement on Sept. 1 in the Philadelphia County Court of Common Pleas. It is subject to approval by the court. Approximately 200,000 current and former policyholders who purchased whole life policies from Jan. 1, 1984 to Dec. 31, 1996 are eligible for compensation.

The lawsuit is the result of a merger of four previous lawsuits. Three were filed in the Philadelphia County Court of Common Pleas in April 1996, May 1998, and May 1999. The other was filed in New York State Supreme Court in Erie County in Buffalo in Nov. 1997. The four suits became one on Sept. 1, the same day the settlement was filed.

The lawsuits allege that Provident Mutual engaged in the familiar "churning" and "vanishing premium" sales practices that have been the basis for lawsuits targeting many life insurers including Prudential Insurance Co. of America, Metropolitan Life Insurance Co., and American General Life & Accident Insurance Co. Churning is a practice in which policyholders are persuaded to use the cash value in their old policy to buy a newer policy they don't necessarily need. The vanishing premium scheme is when an agent falsely predicts that a policy's cash value will perform so well that it can be used to pay for future premiums until the policy is paid up.

In settling the lawsuit, Provident Mutual denies any wrongdoing. "We believe the vast majority of our policyholders have been treated with fairness and professionalism," says Robert Kloss, chairman, president and CEO of Provident Mutual. "We are deeply concerned that some of our customers believe their expectations were not met."

Current and former policyholders affected by the settlement will be eligible for either term life insurance coverage or cash payments. In order to receive cash payments, policyholders must file a claim with Provident Mutual and provide evidence that they had been cheated. Those who do not file a claim automatically will receive term life insurance coverage.

Chuck Hall, a spokesperson for Provident Mutual, says policyholders will receive notification of the settlement by late November. Hall anticipates the court will hold a fairness hearing on the settlement in January, although a date has not been set. He says the insurer plans to provide class action information on its Web site and establish a toll-free class action phone line.

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