State Farm Sued Over Policies Backed by Distressed Insurer PHL

State Farm Mutual Automobile Insurance Co. faces a lawsuit accusing it of fraud and unjust enrichment for selling products from PHL Variable Insurance Co., which authorities say has a $2.2 billion capital shortfall that left policyholders with less-than-promised payouts.

Three people who bought PHL life insurance and annuity contracts from State Farm agents are seeking class-action status for their complaint, which was filed in Chicago federal court Nov. 26. They allege State Farm knew about PHL’s deteriorating finances and concealed information about the potential consequences on their policies.

One plaintiff, Jenny Nappo, said she got only $300,000 from ...