State Farm Mutual Automobile Insurance Co. is facing a lawsuit that claims the company misled customers and unfairly profited by selling insurance products from PHL Variable Insurance Co.—a firm regulators say is grappling with a staggering $2.2 billion capital deficit. The alleged shortfall reportedly resulted in policyholders receiving payouts far below what they were originally promised, raising serious questions about transparency, accountability, and who ultimately pays the price.
Three customers who purchased life insurance and annuity contracts from PHL Variable Insurance Co. through State Farm agents are now pushing for class-action status after filing their complaint in Chicago federal court on Nov. 26. Their claim is serious: they say State Farm was aware of PHL’s worsening financial condition and stayed silent, allegedly withholding crucial details about how those troubles could eventually hit their policies. If true, it’s not just a legal case—it's a story about trust, hidden risks, and the everyday families left to face the fallout.
One of the plaintiffs, Jenny Nappo, says she expected financial security when she lost her husband to cancer last year—but instead, she was left stunned. Out of a $2 million life insurance policy, she claims she received just $300,000. Two other plaintiffs, Patrick McLaughlin and Gordon Jason, tell a similar story—saying they purchased policies worth $1.5 million and $500,000, only to later learn their payouts would allegedly be capped at $300,000 each. If the allegations hold up, these aren’t just broken contracts—they’re broken promises at the worst possible moment.
Connecticut-based PHL has spent the last decade battling mounting setbacks—ranging from outdated actuarial assumptions to underwhelming investment returns that failed to deliver. Even when private equity owner Golden Gate Capital stepped in, using sophisticated risk-shifting deals to prop up the insurer, the impact was short-lived. PHL’s financial health kept sliding, leaving thousands of policyholders hanging without answers—and without the security they thought they had paid for. For many families, it’s no longer just about investments or insurance math—it’s about waiting, worrying, and wondering if help will ever come.
Golden Gate declined to respond to a request for comment. Meanwhile, State Farm confirmed it’s aware of the lawsuit, but said the company hasn’t yet received formal notice of the litigation. “We haven’t been served, and we still don’t know the specifics of the claims,” a spokesperson said, adding that “it’s too early to comment.” The statement may be cautious—but for policyholders waiting for clarity, the silence speaks volumes.
In their complaint, the plaintiffs claim State Farm didn’t tell customers that it had quietly stopped selling products issued by The Phoenix Companies—the company that once owned PHL—after its credit rating was slashed to junk in 2009. The downgrade, they say, should have been a red flag for clients. Instead, while State Farm’s agents continued servicing existing Phoenix policyholders, the suit alleges the firm still collected millions in commissions after the downgrade. The result, according to the complaint, wasn’t just a communication gap—it was customers left in the dark while the company kept cashing checks.
The plaintiffs are demanding damages—though the exact amount hasn’t been disclosed yet—including compensation to cover the gap between what their policies were worth when they signed up and what those same policies are valued at today. They’re also asking the court to claw back any profits they believe were unfairly earned along the way. In short, the filing aims to make sure that if broken promises generated big gains for the insurer, those gains don’t stay in the wrong hands. And the pressure is rising on State Farm to answer for it.
The lawsuit, officially titled Jason v. State Farm (Case No. 25-cv-14507), was filed in the U.S. District Court for the Northern District of Illinois in Chicago. It may sound like just another case number—but for thousands watching closely, it could become the turning point in a fight over trust, transparency, and the true value of a promise sold.
Photographer: Justin Sullivan/Ge
