California Court Dismisses Parts of Tax-Avoidance Lawsuit Against Penn Mutual

A California judge has dismissed several claims in a lawsuit filed against Penn Mutual Life Insurance Co. and co-defendants alleging a tax-avoidance scam involving whole life insurance policies; however, the plaintiffs retain the option to file an amended complaint. The original suit, which involves 29 plaintiffs from multiple states, claims fraud, negligence, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), seeking $23.5 million in damages. The defendants include a former Penn Mutual agent indicted and convicted on money laundering and banking violations tied to premium-financed life insurance loans. The suit describes a coordinated effort among various entities to market high-premium life insurance policies with promises of tax benefits, which plaintiffs allege were misleading and never materialized. Judge Sherilyn Peace Garnett ruled that Penn Mutual could be held liable for the conduct of its independent agent, but dismissed claims against Wintrust Life Finance due to insufficient evidence connecting the finance company to the alleged scheme. The case highlights ongoing regulatory scrutiny and market concerns around premium financing strategies in life insurance and their potential misuse for tax avoidance. Penn Mutual, established in 1847 and rated A+ by AM Best, has not publicly responded to the allegations. This case underscores industry challenges around compliance, representation, and the complexity of insurance products marketed with tax advantage claims.