Judge tosses Penn Mutual whole life lawsuit; plaintiffs to refile
A California judge granted several motions to dismiss a lawsuit filed by a group of 29 plaintiffs who claim that Penn Mutual Life Insurance Co. and several co-defendants ran a tax-avoidance scam around whole life insurance policies.
In her ruling last week, however, Judge Sherilyn Peace Garnett left open the option for plaintiffs to refile the lawsuit.
“We anticipated that the court would want us to prepare a more detailed complaint, so this wasn’t a surprise,” Andrew B. Holmes, attorney for the plaintiffs, said via email. “We will be filing an amended complaint.”
The complaint, amended once already and filed in U.S. District Court for the Central District of California, alleges fraud and negligence, as well as violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
Plaintiffs come from states around the country and ask the court for $23.5 million in damages.
The defendants include former Penn Mutual agent Randall Scott Boll, who was indicted in 2021 on four counts related to violations of federal money laundering laws and banking regulations.
Boll pleaded guilty to one count of conspiracy to cause a financial institution to fail to file currency transaction reports and to structure financial transactions. He was sentenced to one day behind bars in California, court records say, and two years of supervised release.
According to court updates, Boll is living in Arizona and pursuing a divinity degree at Liberty University. He could not be reached for comment. Penn Mutual did not respond to messages seeking comment.
‘Significant tax advantages’
The lawsuit alleges that Penn Mutual and Boll – along with several other law, lending, accounting and financial planning firms also named as defendants – constituted a “High-Premium Insurance Enterprise.”
“The HPI Enterprise was an organization consisting of individuals and business entities associated for the common or shared purpose of selling, promoting and/or marketing high-premium life insurance policies and related products to plaintiffs through deceptive and misleading sales tactics and materials, and deriving profits from those activities,” the lawsuit reads.
Penn Mutual whole life policies were aggressively marketed as offering “significant tax advantages,” plaintiffs say. “Boll and other members and associates of the enterprise would reap high commissions (as much as 75-125% of the initial annual premium paid by the policyholder) for each HPI policy sold.”
Plaintiffs accuse Penn Mutual of ignoring its own underwriting guidelines “by repeatedly accepting insurance applications for plaintiffs that … falsely inflated the net worth of plaintiffs.” The policies equated to big profits for the insurer because all of plaintiffs’ policies “were designed to (and in fact did) terminate long before the insureds’ life expectancies,” the lawsuit states.
One type of “sham tax avoidance strategy” incorporated premium financing life insurance loans to finance the policies, the lawsuit alleges.
“The HPI Enterprise Defendants took advantage of plaintiffs’ lack of sophistication and convinced them that such policies were affordable due to the tax deductions they would generate—in essence promising them that the HPI policies would pay for themselves,” the lawsuit says.
Nothing proven
Judge Peace Garnett acknowledged that the plaintiffs “have sufficiently alleged facts to show Penn’s liability for Boll’s conduct” under the independent agent relationship. However, that burden of proof was not met as it relates to Wintrust Life Finance.
Plaintiffs allege that Boll encouraged them to take out premium-financed life insurance loans from Wintrust. But Judge Peace Garnett drew a sharp line at tying Boll to the finance company in granting Wintrust’s motion to dismiss.
“Plaintiffs do not adequately allege any representation that Wintrust made to Plaintiffs, do not adequately allege Wintrust was aware Boll was promoting its products for use in a fraudulent tax scheme, and do not adequately allege that Boll acted as Wintrust’s agent,” she wrote.
Using life insurance in a premium financing strategy to manage tax obligations remains a controversial tactic within the industry.
Plaintiffs say they received none of the promised tax benefits and lost “significant sums” through premiums, interest, and fees they paid to the defendants. The HPI enterprise dates to “at least March of 2016,” the lawsuit says, “and is continuing, because it is an ongoing business practice of the HPI Enterprise Defendants.”
Founded in 1847, Penn Mutual boasts an A+ Superior financial rating from AM Best.
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