A class action lawsuit has been filed by three people who bought Genworth long-term care insurance policies, alleging that the company misrepresented its ability to pay future claims.

Long-term care costs are typically not covered by health insurance, Medicare or Medicaid. Consumer purchase long-term care insurance to cover expenses should they become physically ill or mentally incompetent, or need long-term care due to old age.

The suit was filed in Virginia by three consumers who had purchased long-term care insurance from Genworth based on the company’s claims that it had a long history and experience in the long-term care market and had the financial strength to cover claims. According to the suit, the plaintiffs contend that “Genworth’s publicly touted financial strength and ability to pay future claims was a hoax.”

The suit alleges that, in an effort to increase its stock price, Genworth diverted funds from long-term care insurance policyholders’ dividends to artificially suppress its reserves. The plaintiffs claim the company used outdated claims experience about the average duration of a long-term care claim when calculating reserves.

“The artificial suppression of its reserves, in turn, created the false appearance in Genworth’s publicly reported financial statements that the Company was far more profitable than it actually was, because the monies that should have been used to fund the actual needed reserves were instead allocated to the company’s profits,” the lawsuit contends.

In 2014, Genworth admitted it had not sufficiently accounted for its reserves, which the company admitted were underfunded by more than $500 million. Genworth settled a securities fraud lawsuit over this issue and reimbursed investors for damages they suffered due to the fraud. However, this latest class action suit contends that the company did not compensate policyholders for their losses.

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