As it moves closer to finalizing a $2.7 billion deal to be purchased by a Chinese conglomerate, a Henrico-based insurance giant has been slapped yet again with class action lawsuits from disgruntled shareholders and customers.
Genworth Financial was sued twice in the last four weeks in Richmond federal court: once by a group of shareholders who argue its deal with suitor China Oceanwide isn’t in their favor; and the other by a group of customers from its long-term care insurance business, which has caused significant financial losses for the firm in recent years.
The first case, filed Dec. 28 by three long-term care policy holders, claims the company, two of its subsidiaries and four current and former executives had a hand in a scheme from 2010 to 2014 to “buoy Genworth’s stock price and enrich themselves by diverting hundreds of millions of dollars of policyholders’ premium payments away from Genworth’s reserve funds and into their own pockets and the coffers of GFI and its investors.”
The 60-page suit alleges the company deliberately and wrongfully underfunded its long-term care reserves during that four-year period, knowingly using outdated claims data when calculating reserves and creating a “false picture of profitability.”
It cites examples of the company and its current and former executive repeatedly assuring the public it had adequate reserves.
The plaintiffs are New York resident Erika Leifer, Pennsylvania resident Saul Jacobs and California resident Helene Wenzel.
Each claims they received letters from Genworth in 2016 informing them that premiums would increase between 20 and 60 percent.
Also sued in the case are CEO Thomas McInerney; former CEO Michael Frazier, who resigned in 2012; and former CFOs Patrick Kelleher and Martin Klein.
Long-term care insurance is used to help pay for nursing home, assisted living and hospice care costs. Genworth is one of, if not the largest seller of LTC insurance in the country.
Underestimating LTC reserves has led to major losses for the company over the last several years and was one of the drivers of the deal with China Oceanwide.
Genworth ultimately disclosed in late 2014 that its LTC reserves were under-funded by about $500 million. Its stock price consequently tanked and has deteriorated further in the years since. It closed Thursday at $3.39 per share.
Genworth has repeatedly been sued by shareholders since 2014 related to the LTC division’s struggles.
Last year it paid $219 million to settle one of the cases that alleged violations of federal securities laws by misleading investors and making false statements about the health of its LTC reserves.
The latest case claims that current LTC policyholders’ premiums are paying to clean up for those misdeeds through premium hikes, reductions in benefits or termination of policies.
It argues that all premiums paid by LTC customers during that time should be considered damages in the case, because the company allegedly calculated those premium rates on verifiably false information.
The suit asks for class action status and a jury trial to determine an unspecified amount of damages and restitution for the loss in value of LTC policies, or for out-of-pocket losses for higher premiums to replace terminated Genworth policies.
It alleges six counts, including violations of New York state insurance and business laws, violations of California’s unfair competition law and unjust enrichment.
The plaintiffs in the long-term care insurance case are represented by Fairfax law firm Kelly & Crandall, as well as Pennsylvania firms Goldman Scarlato & Penny and Berger & Montague.
Genworth said it does not comment on litigation.
The second suit, filed Jan. 23 on behalf of Genworth shareholder Alexander Rice, seeks to block the China Oceanwide deal.
In asking for class action status, the suit claims violations of federal securities laws based on alleged misleading information in proxy materials concerning the background of the deal and financial projections related to the transaction. It argues the deal is unfair to shareholders because it undervalues the company.
Rice’s suit follows two cases filed late last year that claim breaches of fiduciary duty against the company and its board of directors, arguing that the deal wouldn’t result in the best value for Genworth shareholders.
Those cases, which also sought to block the deal or win damages if the deal is completed, were quickly withdrawn late last year without explanation.