Three State Farm customers filed a proposed class action against State Farm Mutual Automobile Insurance Company in November 2025, accusing the insurer of concealing the financial collapse of PHL Variable Insurance Company while its agents kept earning commissions on Phoenix-branded policies. The State Farm PHL lawsuit, Jason v. State Farm (Case No. 1:25-cv-14507), is pending in the U.S. District Court for the Northern District of Illinois and seeks damages for everyone who bought a Phoenix life insurance policy or annuity through a State Farm agent.1Carrier Management. State Farm Sued Over Policies Backed by Distressed Insurer PHL
What the Plaintiffs Allege
The core allegation is that State Farm knew about PHL’s deteriorating finances, including the 2009 rating downgrade to junk status that led State Farm to stop selling new Phoenix products, and never warned the customers who already held those policies.2Claims Journal. State Farm Sued Over Policies Backed by Distressed PHL State Farm had entered a distribution agreement with Phoenix in 2001, letting agents sell Phoenix universal life, variable life, and term life policies alongside State Farm products.3NASFA. PHL Variable When the downgrades hit in early 2009, State Farm halted new sales but kept servicing existing policyholders.4ThinkAdvisor. State Farm Stops Selling Phoenix Annuities According to the complaint, agents collected “millions of dollars in compensation” for servicing those policies without ever disclosing the risks. Plaintiffs say they first learned of the danger from the Connecticut Department of Insurance after PHL entered rehabilitation in 2024.
The suit brings claims for breach of fiduciary duty, professional negligence, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, unjust enrichment, and breach of the covenant of good faith and fair dealing.5Edward Stone Law. Jason v. State Farm Complaint The plaintiffs are represented by Edward Stone Law P.C. and Bursor & Fisher, P.A.
Who the Proposed Class Covers
The proposed class includes all U.S. residents who were solicited by State Farm agents to purchase Phoenix life insurance policies or annuity contracts and did so.5Edward Stone Law. Jason v. State Farm Complaint Because State Farm sold Phoenix products from 2001 until early 2009, that window defines when class members would have bought their policies. The court has not yet certified the class, so at this stage no one is bound in or out.
Why the Policies Are Worth Less
The harm at the center of the case comes from a moratorium the Connecticut Superior Court imposed as part of PHL’s rehabilitation, effective June 25, 2024. The moratorium caps death benefit payouts at $300,000 for non-variable life insurance policies and $250,000 for non-variable annuities.6Connecticut Insurance Department. PHL Frequently Asked Questions Variable product owners can access only the market value in their separate accounts, not any guaranteed-account value. A hardship exemption exists but approval is not guaranteed; as of April 2026, more than 530 hardship applications had been approved, totaling over $10 million.7Connecticut Insurance Department. PHL Forum Q&A
For customers who bought six- or seven-figure Phoenix policies through State Farm agents, the caps have wiped out most of the coverage they paid for. Policyholders collectively face more than $120 million in lost benefits.8Insurance Business Magazine. Policyholders Face $120 Million in Losses as PHL Variable Slides Into Liquidation
The Three Named Plaintiffs
Each named plaintiff describes a similar pattern: a long-time State Farm customer, guided by a trusted local agent, bought a Phoenix product presented as safe.5Edward Stone Law. Jason v. State Farm Complaint
- Gordon Jason had been a State Farm customer since 1992. In February 2006, his agent advised him to replace his existing $500,000 State Farm variable universal life policy with a $1,000,000 Phoenix VUL. Under the moratorium, his death benefit is now capped at $300,000.
- Jennifer Nappo and her late husband bought a $2,000,000 Phoenix term life policy in November 2007. When her husband died of cancer on April 28, 2024, she received only $300,001.76. Her applications for hardship relief and to the California Life and Health Guaranty Association were both denied.
- Patrick McLaughlin, a State Farm customer since the mid-1980s, was invited to an estate-planning seminar where his agent recommended a $1,500,000 Phoenix survivorship policy to protect his children from estate taxes. His policy is subject to the same $300,000 moratorium cap.
What the Lawsuit Seeks
The plaintiffs are asking for damages equal to the difference between the original policy values and the reduced amounts they can now expect to receive, along with disgorgement of what State Farm earned on these products.2Claims Journal. State Farm Sued Over Policies Backed by Distressed PHL
Where the Case Stands
Plaintiffs filed an amended complaint on March 20, 2026. State Farm moved to dismiss, and the plaintiffs filed their opposition on May 21, 2026. State Farm’s reply brief was due June 11, 2026.9Edward Stone Law. State Farm PHL Variable Class Action The court has not ruled on the motion. There has been no class certification decision and no reported settlement discussions.
How This Differs From the PHL Rehabilitation
The State Farm lawsuit is separate from the Connecticut proceedings that govern PHL Variable itself. PHL was placed into formal rehabilitation in May 2024 due to its “hazardous financial condition,” and by the end of 2025 its negative capital and surplus had grown to roughly $2.3 billion.10Connecticut Insurance Department. PHL Stakeholder Information11Insurance News Net. Rehabilitator: PHL Variable Liquidation Payouts Could Exceed Guaranty Caps The court-appointed rehabilitator, Connecticut Interim Insurance Commissioner Joshua Hershman, reported on December 31, 2025 that traditional rehabilitation is not feasible and is pursuing an “enhanced liquidation plan” that would combine state guaranty association coverage with PHL’s remaining assets. Roughly 70% of policyholders are expected to be fully covered by state guaranty associations, which typically cap coverage between $250,000 and $500,000 depending on the state. A liquidation plan is expected to reach the Connecticut Superior Court in late 2026 or early 2027.7Connecticut Insurance Department. PHL Forum Q&A
Anything policyholders may recover through the rehabilitation, hardship exemptions, or guaranty associations comes from PHL’s estate and state safety nets, not from State Farm. The Illinois lawsuit is a separate effort to hold State Farm accountable for what its agents said and didn’t say when the policies were sold and serviced.