Northwestern Mutual Life Insurance Co. has agreed to pay $84million to settle a class-action lawsuit triggered by a change itmade in 1985 in how it calculated dividends for a fixed-incomeannuity.

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The plaintiffs in LaPlant vs. Northwestern Mutual claimed thedecision to pay dividends based on the yields from short-termbonds, instead of a dividend based on the overall performance ofthe mutual company, resulted in the loss of millions of dollarsannually to investors.

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That change violated the terms of the annuity contracts, allegedthe plaintiffs.

"This lawsuit was a case of a small group of customers seeking morethan their fair share of dividends, which would have come at theexpense of all our other policy owners," Northwestern Mutualspokeswoman Betsy Hoylman told CNBC. "At this point, it is best forour policy owners to close this matter."

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The “Pre-MN” annuity was sold to about 36,000 investors, 3,000of whom resided in Wisconsin, where Northwestern Mutual is based,according to court documents.

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In 2011, a district judge issued a declaratory judgment againstNorthwestern Mutual, finding that the insurer violated the annuitycontracts, breached its fiduciary duties, and was responsible forsubstantial “compensatory and punitive damages,” according to courtdocuments.

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With that victory, the plaintiffs amended their complaint,seeking damages for annuitants in every state.

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Northwestern Mutual moved to have the case heard in federalcourt. The insurer won a favorable ruling in U.S. District Court,which would have prevented a nationwide class.

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But in November 2012 the Court of Appeals for the 7thCircuit overturned that ruling, concluding a nationwide class wasacceptable, and directed the case back to federal district court tobe heard on its merits.

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Under the terms of the settlement, about 4,000 current and29,000 former owners of the annuity will be able to share theaward. The deal must be approved by a judge in U.S. District Courtfor the Eastern District of Wisconsin.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.