MANHATTAN (CN) - Claiming that MetLife's "shadow insurance" practices have put the public in peril, a federal class action calls for its New York subsidiary to refund premiums.
The subsidiary, Metropolitan Life Insurance Co., is the only defendant to the complaint Andrew Yale, of New York, filed on Monday.
Yale says he bought a life insurance policy from Metropolitan Life in 2009, and wants to represent a class who obtained life insurance from Metropolitan Life between Jan. 12, 2009, and Jan. 12, 2015.
The lawsuit comes less than a month after the Financial Stability Oversight Council "issued an ominous warning" about MetLife, proclaiming on Dec. 18, 2014, that there is a range of possible alternatives in which financial distress at MetLife would threaten U.S. financial stability.
Lurking behind that scenario, Yale notes, is the June 2013 report by the New York State Department of Financial Services on "shadow insurance" practices.
"The NYDFS investigation revealed that, by using shadow insurance, at least seventeen of New York's eighty life insurance companies were making their 'capital buffers - which serve as shock absorbers against unexpected losses or financial shocks - appear larger and rosier than they actually are,'" the 31-page complaint states. "These misrepresentations, according to the NYDFS report, 'potentially put the stability of the broader financial system at greater risk' and are 'reminiscent of certain practices used in the run up to the financial crisis.'"
Yale says life insurers must maintain capital buffers to complement strong assets and reserve liabilities for expected benefits claims, "so they are able to pay claims arising from not only the expected but also unexpected events - such as the massive, instantaneous loss of life that would take place in a pandemic, a terrorist attack, or other disaster."
"This lawsuit is ultimately about how Metrpolitan Life, in conjunction with its parent, MetLife, Inc., is engaging in conduct that imperils the financial future of Metropolitan Life's policyholders, their beneficiaries, and the public at large," the complaint states.
Yale says New York's tough laws can hold the company accountable unlike certain other states that "have been in a race to the bottom in terms of regulating insurers."
Indeed "the relevant language of New York Insurance Law Section 4226 has remain largely unchanged" since 1939, when the state Legislature gave policyholders a right of action against offending life insurance companies, the complaint states.
"The right of action for the recovery of premiums paid due to misrepresentation of financial condition continues in the law as a deterrent to New York insurance companies that may be tempted to skimp on statutory reserve requirements, thereby misleading the public regarding their financial security," Yale says.
"Metropolitan Life's use of shadow insurance constituted a misleading representation or a misrepresentation of the financial condition of Metropolitan Life and the adequacy of the reserves and reserve system upon which Metropolitan Life operates," he added.
The class seeks a penalty in the form of all premiums paid for the alleged misrepresentation. It is represented by Keith Miller with Perkins Coie.
MetLife sued the Financial Stability Oversight Council on Tuesday. It is represented by Eugene Scalia, son of the Supreme Court justice, with Gibson Dunn.