On July 24, 2025, Judge Jennifer Murphy of the Eastern District of Pennsylvania granted a motion to dismiss a putative securities class action brought against a life insurance company (the "Company") and certain of its officers. Donald C. Meade v. Lincoln Nat'l Corp., et al., No. 24-cv-1704 (E.D. Pa. July 24, 2025). Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, alleging that defendants made misleading statements and omissions regarding the Company's life insurance policy lapse rates and reserve assumptions. The Court granted defendants' motion to dismiss, holding that plaintiffs failed to adequately plead falsity and scienter.
According to the complaint, the Company was in possession of information—through internal data and its participation in an industry study—that indicated that its policyholders were maintaining their guaranteed universal life ("GUL") policies longer than expected, which would require the Company to significantly increase its reserves. Plaintiffs alleged that defendants failed to disclose this information to investors and instead offered misleading reassurances about the Company's financial strength and capital adequacy. Plaintiffs alleged that the truth was revealed when the Company ultimately announced a $2.2 billion charge in November 2022, which purportedly caused substantial losses to investors who allegedly relied on defendants' prior statements.
The Court held that plaintiffs failed to plead with particularity why any alleged misstatement was false or misleading. For example, plaintiffs alleged that a 2022 industry study on GUL lapse rates and the Company's own "in-depth" GUL study covering 2019–2022 data demonstrated that defendants possessed "dire" information showing that policyholders, particularly older ones, were keeping their policies in force longer than expected, which would require materially higher reserves. The Court, however, held that because plaintiffs did not allege with particularity what contradictory data defendants possessed at the time they made each challenged statement, plaintiffs failed to sufficiently allege falsity.
The Court further held that plaintiffs failed to plead a strong inference of scienter. In so holding, the Court rejected plaintiffs' argument that alleged access to information is sufficient to plead scienter. The Court found that without particularized allegations showing that the data was so "clearly adverse" that only fraud could explain defendants' statements, the Court could not deem a fraudulent inference "at least as compelling" as an innocent one.
The Court also rejected plaintiffs' reliance on a key competitor's August 2022 decision to take a $1.4 billion charge after reviewing the same industry study, finding that different insurers may have had different product mixes, lapse assumptions, and capital cushions. Accordingly, the Court held that plaintiffs provided "no basis from which to infer that the study was necessarily dire" for the Company, noting that plaintiffs' concession that several other life insurers took "little to no action" after their own 2022 assumption reviews undercut any inference that the industry study compelled the Company to make significant assumption changes. The Court similarly rejected plaintiffs' arguments that defendants should have known about the "dire" circumstances because defendants were subject to analyst inquiries on the industry study, and because of the temporal proximity between the alleged misstatements and the 2022 charge, reiterating that plaintiffs never alleged that defendants possessed dispositive contrary information at the time of the alleged misstatements.
Because the Court held that plaintiffs failed to sufficiently allege a primary violation of Section 10(b), it similarly dismissed the derivative Section 20(a) control person claims. The Court granted plaintiffs leave to amend.
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