State Farm faces a federal class-action complaint alleging the company sold life and annuity products tied to PHL Variable Insurance Co. even as PHL’s finances were sliding toward a $2.2bn capital shortfall.
The lawsuit, Jason v. State Farm, 25-cv-14507, filed Nov. 26 in Chicago, accuses State Farm of fraud and unjust enrichment, arguing the insurer concealed what it knew about PHL’s condition and the repercussions for policyholders.
Plaintiffs say they trusted State Farm’s agents and brand, only to discover years later that their promised benefits had quietly shrunk.
Three customers bought PHL-issued life insurance from State Farm agents: Jenny Nappo, Patrick McLaughlin and Gordon Jason.
- Nappo says she expected a $2mn payout when her husband died of cancer but received only $300,000.
- McLaughlin and Jason each bought policies worth $1.5mn and $500,000, respectively, and now report their benefits capped at $300,000 apiece.
According to the suit, that ceiling stems from PHL’s deteriorating balance sheet, an issue State Farm allegedly understood but didn’t disclose.
PHL’s troubles aren’t new. The Connecticut-based company has dealt with outdated actuarial assumptions, poor investment performance and a decade of balance sheet erosion.
Its owner, Golden Gate Capital, tried to stabilise the business using complex risk-shifting transactions, but the fixes didn’t hold. Thousands of policyholders ended up in limbo as PHL’s capital hole widened. Golden Gate didn’t respond to requests for comment.
State Farm says it’s aware of the lawsuit but hasn’t been served and can’t comment on the specifics.
Plaintiffs argue the company previously stopped selling Phoenix Cos. products after Phoenix was downgraded to junk in 2009, yet State Farm agents continued servicing existing Phoenix clients and collected millions in compensation.
According to the complaint, State Farm should have warned customers that PHL – which spun out of Phoenix – faced similar downward pressure and that policy values could collapse.
The plaintiffs want damages equal to the difference between the benefits they bought and the benefits they can actually collect today.
They also seek disgorgement of what they call “ill-gotten gains” State Farm earned while selling or servicing policies tied to an issuer they say was on a well-documented slide.
According to Beinsure, the case joins a broader line of lawsuits testing how far distributors must go when an affiliated or partner insurer shows financial strain, especially when those strains ultimately land on policyholders.
