The Hartford wins excessive-fee lawsuit

The lawsuit is similar to ones filed against other insurance companies in recent years, which challenge the fee levels received by the firm versus a fund's subadvisers

Mar 1, 2017 @ 5:32 pm

By Greg Iacurci

The Hartford Financial Services Group Inc. has prevailed in a lawsuit alleging the firm charged excessive fees in its investment funds, in one of many similar lawsuits filed against insurance companies within the past several years.

Judge Renée Marie Bumb of the U.S. District Court for the District of New Jersey delivered an order in favor of the defendant on Feb. 28, following a four-day bench trial in November.

Plaintiffs in the lawsuit, shareholders in six mutual funds managed by defendants, claimed Hartford received excessive fees through the funds, because it delegated investment management responsibility to subadvisers but kept the bulk of the fee for itself despite the subadvisers performing most of the fund services.

The lawsuit, Kasilag et al v. Hartford Investment Financial Services, LLC, was brought by shareholders in 2011 under section 36(b) of the Investment Company Act of 1940, which gives shareholders recourse to recover compensation from an investment adviser in breach of its fiduciary duty to a fund.

The Hartford suit is one of many similar 36(b) cases filed within the past several years against insurance companies and asset managers such as AXA Equitable Life Insurance Co., Principal Financial, Voya Financial, Prudential, T. Rowe Price and BlackRock.

But, aside from the recent case involving AXA, it's only the second of the 36(b) lawsuits involving the "manager-of-managers theory" to run the gamut of a full trial, said Eben Colby, a litigation partner at Skadden, Arps, Slate, Meagher & Flom.

A judge found in favor of AXA in August, in a suit with a "very similar theory" to Hartford's, Mr. Colby said.

"Since AXA, there has been a trend of defendant or adviser success or momentum," said Mr. Colby, who represents defendants in 36(b) cases but is unaffiliated with the Hartford suit. "We're starting to see some cases resolved by agreement or some form of settlement, which we didn't see much of prior to the AXA case."

One attorney who's representing shareholders in some of the pending cases, who requested anonymity due to sensitivities regarding ongoing litigation, said each case will "be evaluated on its own particulars."

"There are a couple different types of 36(b) cases out there, and the more analogous it is to The Hartford, the more weight this decision will have," the attorney said.

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