A judge in Wisconsin has ruled that Northwestern Mutual Life Insurance Co. breached its contracts with thousands of annuity holders when it unilaterally changed how dividends were paid on pre-1985 annuities. In his ruling, Reserve Judge Dennis Flynn, of Racine, Wis., found the Milwaukee-based financial giant also breached its fiduciary duty, and duties of good faith, fair dealing and loyalty during the change-over. Judge Flynn wrote in his order that “intentional and repeated concealment of wrongdoing over a period of a quarter century took place.” The decision followed a non-jury trial heard by the judge in November. Judge Flynn retained jurisdiction of the complicated case for “further and supplemental relief allowed as necessary and proper.”
The class-action lawsuit was filed by investors who bought the annuities before 1985. It was contended that the change deprived them of potentially millions of dollars in dividends from Northwestern Mutual’s general portfolio over the past 25 years and into the future. While annuity holders continued to receive what were called dividends, the lawsuit contends they were merely interest payments from short-term bonds into which the company had switched the annuity assets.
The Court’s order recapped much of the evidence from the trial, which featured 21 witnesses and more than 500 exhibits. Judge Flynn found testimony of the Defense experts “wanting,” and specifically found retired Northwestern Mutual CEO Ed Zore to be, in his words, “not credible.”
“His answer to the conundrums faced by Northwestern Mutual was to tell lies and manufacture reality,” Judge Flynn wrote in an unusually harshly-worded order. The company says it will appeal. It will be most interesting to see what happens on appeal. Remember, this was a non-jury trial, heard by a judge, and that may make it difficult for the company on appeal.