Ellis Supply says insurance company was negligent

By Kyla Asbury | Jan 25, 2016

LOGAN – Ellis Supply Inc. is suing the LaFayette Insurance Company after it claims the insurance company was negligent in marketing insurance policies.


LOGAN – Ellis Supply Inc. is suing the LaFayette Insurance Company after it claims the insurance company was negligent in marketing insurance policies.

Virgil E. Merritt, Merritt Insurance Agency, Doug Williamson, and Doug Williamson Insurance Co. were also named as defendants in the suit.

In the early 1990s, the defendants sold to Ellis Supply and its principals, Jonathan Ellis, Charles T. Ellis and Charles G. Ellis, a portfolio of life insurance policies that were intended to operate as key man policies so that upon the death of any of the company’s principals, sufficient life insurance benefits would find the surviving principals’ purchase of the deceased’s shares in the company, according to a complaint filed in Logan Circuit Court.

The plaintiffs claim they purchased the policies with checks and later learned that the policies were materially different from what had been marketed to them and from what they reasonably understood them to be.

Contrary to what was marketed to them and the plaintiffs reasonably understood them to be, the policy placed on Charles T. Ellis that the plaintiffs actually received had increasing annual premium costs throughout the terms of the policy and, unknown to the plaintiffs, the annual premiums were initially paid out of interest earned off of the PUAR plaintiffs had paid in advance, according to the suit.

The defendants were negligent in both marketing and selling the policies and in failing to accurately and timely communicate with the plaintiffs regarding the actual operation of the policies.

The plaintiffs claim they did not learn that the life insurance policies were other than what had been marketed to them until 2014, when Merritt advised the plaintiffs that the life insurance policies would lapse if they did not make additional premium payments.

As a result of the defendants’ negligence, the life insurance policies either lapsed or were rendered worthless because the potential benefits to be paid at death would be consumed by the premium costs and/or loan interest payments claimed to be owed to the policies.

The plaintiffs claim upon learning that the life insurance policies might be different from what had been marketed to them, they immediately contacted the defendants to inquire about the status of the life insurance portfolio and on June 26, 2014, wrote the defendants a letter demanding that Lafayette honor the terms of the life insurance policies as they were marketed to them.

The defendants initially disputed that the life insurance policies had been marketed to the plaintiffs as “paid-up” policies with guaranteed premiums and also refused to provide the plaintiffs with the in-force ledger they had requested, according to the suit.

The plaintiffs claim despite Lafayette’s initial denials, Merritt eventually admitted negligence in marketing and administering the insurance policies

The defendants were negligent and caused the plaintiffs damages, according to the suit.

The plaintiffs are seeking general and special damages. They are being represented by Athanasios Basdekis and Robert P. Lorea of Bailey & Glasser LLP.

Logan Circuit Court case number: 15-C-343

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