Transamerica reaches $50 million agreement to settle excess fee claim

By Donna Glasgow | August 26 2009 07:44PM

On July 10, Transamerica Life Canada announced that, subject to court approval, it has reached a settlement that would require the company to pay an estimated $52 million plus legal and administration costs to settle a claim in the proposed class action suit, Joseph Fantl v. Transamerica Life Canada.

The proposed settlement relates to alleged excess management fees charged by Transamerica for certain segregated funds. The court hearing, aimed at determining the fairness of the settlement, was set for August 10-12.

Twenty-eight funds

The settlement concerns Investor Manager Series (IMS) funds sold by NN Life and subsequently by Transamerica after it acquired NN Life in 2000. Twenty-eight segregated funds are included under the settlement agreement. They were sold under variable annuity or universal life contracts.

Another aspect of the claim concerning the performance of the Can-Am fund is not being settled as part of this agreement.

Without admitting liability, Transamerica has agreed to pay compensation to policyholders if they were overcharged management fees exceeding the amounts set out in insurance contracts or accompanying summary information folders, according to the proposed settlement. Compensation to policyholders will be calculated on an individual basis.

Policyholders informed

Notices concerning the court hearing were mailed to the last known addresses of policyholders with policies affected by the settlement. Newspaper notices also were published in national and regional newspapers in July. Policyholders included in the settlement do not have to register or fill out applications to be eligible for compensation.

In September 2008 an announcement was made when Transamerica and plaintiff Joseph Fantl, represented by law firm Roy Elliott O'Connor LLP, came to an agreement in principle to settle this claim. In that announcement, it was stated that the proposed settlement would affect 100,000 policyholders from coast to coast.

In terms of compensation, existing policyholders will receive additional fund units or increases in universal life policies. Former policyholders will be paid by cheque.

In Transamerica's 2008 annual report, the company mentions that it has established a special provision totalling $106,250,000 "which represents its current best estimate of the expected net cost of reimbursing affected policyholders, taking into account excess fees, interest and other costs."

Doing the right thing

In a letter to advisors concerning the proposed settlement, Doug Brooks, President and CEO of Transamerica Life Canada, recalled that Transamerica first informed advisors and policyholders back in August 2007 about a potential excess fees issue and committed to "do the right thing."

He also mentions that in November 2008 Transamerica announced "that the management fee adjustment had been made and that the management fees had been reset to align with contractual maximums."

Mr. Brooks letter asks that advisors do not attempt to respond to questions from clients in regards to the published notices about the proposed settlement. Instead, advisors can direct any general inquiries to a special team at Transamerica and legal inquiries can be directed to the law firm Roy Elliot O'Connor LLP.