A class action has been filed against long-term care insurers Penn Treaty American Corporation and Penn Treaty Network America Insurance Company on behalf of all persons that purchased “Personal Freedom” long-term care policies from Penn Treaty within the state of Florida between January 1, 1997, and the present. The action alleges that the companies breached their fiduciary duties and committed fraud in connection with the sale of the policies. The action seeks unspecified compensatory damages and disgorgement of all profits made by the company through its allegedly fraudulent sales practices.

The action alleges that Pen Treaty promised buyers that the policies were renewable and that premiums would not increase with the age of the policyholders. Policies were allegedly offered to consumers at below-market rates to entice them to purchase them while planning to substantially increase the premiums or reduce the benefits commensurate with the same premiums in order to maintain the company’s liquidity and profitability.

In 1996, Penn Treaty filed an application for a rate increase on the policies with the Florida Department of Insurance, allegedly without disclosing that it had sold the policies at below-market prices and had promised not to increase the premiums. It received permission to increase rates. In 2001, Penn Treaty was forced to halt sales of its policies in Florida and 23 other states because its capital reserves failed to meet statutory minimums. That same year, the company asked for another increase. Again, a rate increase was allowed, effective January 1, 2002.

In 2002, Penn Treaty sent policyholders a letter notifying them that the company was again increasing rates. The company gave policyholders the choice of paying the additional premium, reducing their benefits, or canceling the policies and having no long-term care insurance. On July 30, 2002, the company started selling policies in Florida once again.

The action alleges that many of the people who bought policies from Penn Treaty are now seriously disadvantaged because they not only cannot afford to continue paying the increased premiums, but they are now considered uninsurable by other companies because they have developed significant health problems since their purchase of a Penn Treaty long term care policy.

Penn Treaty’s Personal Freedom Plan is a comprehensive plan that provides a lump sum of money for long-term care that can be used to pay expenses related to either nursing facility or home healthcare. The plan will also pay for expenses related to “homemaker care,” which is care for insureds who cannot perform daily living activities. Such activities include shopping, cooking, housekeeping, paying bills, laundry, correspondence, using the telephone, and medication management.