Judge lets $67M premium financing lawsuit against MassMutual, Penn Mutual move forward

A lawsuit filed by Montana funeral directors who claim a premium financing “scheme” cost them millions can proceed after a judge denied a motion to dismiss last week.

Initially filed in July 2024, the lawsuit centers on the sale of $67.5 million worth of premium-financed life insurance policies. Defendants include MassMutual Life Insurance Co. and Penn Mutual Life Insurance Co.

The plaintiffs, who operate Stevenson and Sons Funeral Homes in Miles City, Mont., claim that a broker working on behalf of both MassMutual and Penn Mutual misrepresented the premium-financed policies as “responsible, safe, and tax-friendly” estate planning tools.

“The financial catastrophe into which Defendants led Plaintiffs could have been avoided had Defendants told them what the tripartite structure actually is: a high-risk, interest-rate-sensitive, and volatile structure unsuitable for low-risk estate and retirement goals,” the lawsuit stated.

Filed in the U.S. District Court for the District of Montana, the lawsuit claims include professional negligence, misrepresentation, breach of fiduciary duty, fraud, and fraudulent inducement. The Stevenson family seeks compensation, including rescission of contracts, restitution, punitive damages, and an accounting of payments.

Original plaintiff Janette Krutzfeldt Jones, a trustee for various life insurance trusts set up by the Stevenson family, died on July 5.

In an Aug. 13 decision, Judge Dana L. Christensen sided with plaintiffs on nearly all motions to dismiss. The judge granted Penn Mutual Life Insurance Company’s motion to dismiss a pair of counts from the complaint. All claims against Penn Insurance & Annuity Company were dismissed, except those brought by T.J. Stevenson.

MassMutual and Penn Mutual did not respond to requests for comment.

Unsuitable sales claimed

In a 111-page lawsuit, the Stevenson family portrayed themselves as third-generation morticians and “not sophisticated financial professionals.” The family’s funeral home business, Stevenson & Sons Funeral Homes, has six locations in Montana and was founded in 1962.

A local broker, Joshoa Gardner, had a relationship with the family that stretched back many years, the lawsuit said. He recommended the premium-financed life insurance structure as the “sole, suitable, and stable option,” the lawsuit stated.

“The Stevenson Family’s retirement and estate planning goals were simple. They wished to protect the wealth they built over generations for the benefit of their children, grandchildren, and their church,” the lawsuit said. “The Stevenson Family was not seeking a complex, high-risk investment scheme that would jeopardize their generations-built business and their family legacy.”

Beginning with the Todd Stevenson 2013 Irrevocable Family Trust, Gardner proceeded to sell $67.5 million worth of life insurance policies held by four family trusts. The transactions concluded with a 2017 Penn Annuity policy with a face value of $11.5 million, sold to the Todd Stevenson trust.

Plaintiffs shared a 2014 email from Gardner to back up claims that “misrepresentations about the stability and suitability of the premium financed structure began right away.” In the email, Gardner stated that the Stevenson family could surrender the Mass Mutual policies and walk away right then with “$10 million of cash.”

In doing so, he represented “non-guaranteed values as guaranteed, without any caveat or disclaimer that the policies may not perform as Gardner Defendants’ unequivocally represented they would,” the lawsuit stated.

Controversial practice

Premium-financed life insurance policies remain a controversial tactic in the industry. It is generally pitched as a way for wealthy individuals, families, or businesses to buy large life insurance policies without tying up their own cash. Instead of paying premiums directly, the policyholder borrows money from a bank or lender to cover the cost of the insurance.

The Stevensons say the policies were not appropriate for them. The family is described in the lawsuit as “conservative, investment risk-averse, financially unsophisticated morticians.”

The total premium for the policies and the debt service on the loans used to pay the premiums “outpaced the valuation of the products by roughly $8 million,” the lawsuit claimed.

A message left for Gardner’s attorney was not returned. According to BrokerCheck, Gardner is no longer a registered broker. His financial services employment history ended in 2016 when he left MML Investors Services, a MassMutual company.

In 2013, Gardner resigned from New York Life Securities with “an outstanding debt to the company of $33,295 for commissions paid for his own life insurance policy, which is no longer in force,” BrokerCheck said.

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