MetLife Hit With Shadow Insurance Class Action Lawsuit

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Metropolitan Life Insurance Co. is not setting aside the required reserves for the purpose of paying potential insurance claims through what is called “shadow insurance” practices, according to allegations in a class action lawsuit filed in New York federal court.

Plaintiff Andrew Yale filed the MetLife class action lawsuit on Jan. 12, which is similar to a class action lawsuit he filed against AXA Life Insurance Co. in April 2014, alleging similar practices.

Yale claims in his MetLife class action lawsuit that the insurance company has engaged in using captive reinsurance, also called “shadow insurance” by New York state regulators, in violation of New York state insurance law, which prohibits insurance companies from lying about the financial stability of the company, including its reserve system.

“Metropolitan Life knowingly withheld from regulators and the public its ‘shadow insurance’ practices, artificially inflating its risk-based capital ratio, and thereby misrepresenting the true extent of its exposure to the risk of financial loss, its financial condition, and the legal reserve system upon which it operates,” the MetLife class action lawsuit stated.

Yale says that as a result of such alleged misrepresentations, he and the other class members who have been insured by MetLife since 2009 are to be reimbursed for premiums paid during the proposed class period, he says in his MetLife shadow insurance class action lawsuit.

In 2013, the New York Department of Financial Services issued a report, cited in the MetLife class action lawsuit, in which it discovered $48 billion in shadow transactions that were allegedly performed by insurance companies, including MetLife.

According to the report, the insurance companies were sending their reserves to other states or offshore where they weren’t subject to the stringent regulatory requirements as they are in New York.

The New York regulator says that the practice was done so that the insurance companies could buy up other companies, increase executive pay as well as pay dividends to investors. But it was also done, the regulators said, in order to deceive regulators, investors, and customers into thinking that their reserves were better than they really are.

Such reserves are necessary for insurance companies in the case of tragic event, in which several people die at the same time and there are massive amounts of life insurance claims that need to paid at the same time, Yale explained in his MetLife class action lawsuit.

According to Yale, the federal government recently said that MetLife is considered a systematically important financial institution, which Yale interprets as a company, who’s shadow insurance practices could negatively impact the entire U.S. financial system.

Yale is proposing a class of MetLife insurance policyholders who “directly or indirectly, purchased, renewed, or paid premiums on life insurance policies by Metropolitan Life from Jan. 12, 2009 through Jan. 12, 2015.”

The MetLife class action lawsuit is charging the insurance company with misrepresentation in violation of New York Insurance Law.

MetLife issued a statement Jan. 14, saying that it always follows all laws and regulations and that it is a “financially strong company that holds more than sufficient reserves to pay claims to policyholders.”

Yale is represented by David J. Harth, Timothy W. Burns, Jeff J. Bowen, Eric G. Barber, Freya K. Bowen, Rhett P. Martin and Jesse J. Bair of Perkins Coie LLP, and by Shawn M. Raiter of Larson King LLP.

Counsel information for MetLife was not immediately available.

The MetLife Shadow Insurance Class Action Lawsuit is Andrew Yale v. Metropolitan Life Insurance Co., Case No. 1:15-cv-00199, in the U.S. District Court for the Southern District of New York.