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Lawsuit Claims Northwestern Mutual Misled Customers

October 8, 1996

EVANSVILLE, Ind. (AP) _ A federal lawsuit claims Northwestern Mutual Life Insurance Co. misled 378 customers who bought its whole-life policies.

The lawsuit, filed Monday in U.S. District Court in Evansville, accuses Northwestern Mutual of including misleading and fraudulent information in sales promotion materials. The lawsuit does not specify damages.

Mark Lucius, a spokesman for Milwaukee-based Northwestern Mutual, said Tuesday that company lawyers had just received a copy of the lawsuit and still were reviewing it. He had no other comment.

The insurer allegedly provided agents with illustrations that showed how much policyholders would receive in interest. But the clients were never told that, in order to earn those rates, they would have to keep their policy in force for 20 or 21 years, the lawsuit said.

Among other claims: that the company never properly briefed its agents on how the policies’ interest rates were calculated and that many agents never received explanatory pamphlets for policyholders.

Stuart Starry, a Houston-based attorney for the plaintiffs, said clients were told that the cash value of the policies would grow by rates of 7 percent to 10 percent, but in some cases the rate of return was as low as 5 percent.

Northwestern also would fraudulently reinvest dividends from the policies into additional insurance for the policyholders, Starry alleged.

``So what you end up with is five insurance policies instead of one, and four of them you don’t need,″ Starry said.

Last month, Prudential Insurance Co. agreed to pay up to $1 billion to settle charges that some of its salespeople allegedly ``churned″ accounts by pushing customers to use built-up cash value in old policies to finance more expensive new ones.

The 375 individuals listed as plaintiffs in the Northwestern Mutual lawsuit reside in 21 states but lived in the Evansville area at one time or another. Among them is Stephen Bagbey, the City Council president. Three businesses also are listed.

The policies in question were sold between l972 and 1996 by a dozen insurance agents, none of whom were named as defendants.

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