A central Pennsylvania company has filed a class action complaint against insurance giants CIGNA and ACE for their refusal to pay dividends on a retention dividend workers compensation policy originally purchased from CIGNA and then sold to ACE in 1999.
Highland Tank, a company based in Manheim, Pennsylvania, bought a workers’ compensation policy with CIGNA in 1998, and then renewed it in 1999. Under a retention dividend policy, the insurer retains a portion of the premium and the balance is eligible for return to the insured in payments, which are keyed to the losses that the insured experiences during the policy period. In selling its retention dividend policies, CIGNA gave its insureds documents called Net Cost Exhibits, which correlated specific dollar dividends to specific losses. CIGNA also made promises of long-term commitment to its retention dividend policies and insureds.
In January 1999, however, six months after selling Highland Tank the first of the two policies, CIGNA announced that it had sold all of its U.S. and international property and casualty business to ACE, including its retention dividend policies, for the total price of $3.45 billion. The formal transfer was completed on July 2, 1999.
According to Highland Tank, when they announced the transaction, CIGNA and ACE assured CIGNA’s policyholders that ACE would continue business as usual, and Highland Tank renewed its policy in late June 1999. In the fall of 1999, ACE announced it would not offer further renewals on the retention dividend policies, and that it had sold the right of first refusal on those renewals to Employers of Wausau.
Three months later, ACE announced it would not pay dividends on the retention dividend policies, on grounds that the division that had issued those policies was not “a strategic fit” for ACE and was not “profitable.”
Since dividends on CIGNA’s retention dividend policies are not paid until 27 months after a policy’s inception, Highland Tank stands to receive no dividends on either its 1998 or 1999 policy. The dividends that Highland Tank stands to lose are approximately $200,000. The complaint alleges that the amount at stake for the class is approximately $27 million.
The complaint was filed on behalf of Highland Tank and all persons or entities that purchased or renewed a retention dividend workers’ compensation policy from CIGNA, its affiliates or subsidiaries on or after January 1, 1997, or from ACE on or after July 1, 1999.
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