The Minnesota Attorney General's office settled a lawsuit Wednesday with two insurance companies it had alleged sold problem annuities to seniors.

Terms of the settlement provide refunds to any wronged customer. The suit, filed in February in Hennepin County District Court, had alleged both deception and sale of unsuitable annuities to Minnesota customers. Some of the annuities wouldn't give people in their 70s and 80s access to their investments without sizable penalties for at least 12 years.

In the settlement, AmerUs Life Insurance and American Investors Life Insurance companies, both now part of Aviva USA, denied any wrongdoing. A statement Wednesday afternoon from Aviva's Des Moines headquarters said: "We believe that the vast majority of products we have sold are suitable; therefore, we anticipate that this agreement will not have a material impact on the company."

The companies, however, were fined $1.4 million -- the third-largest insurance fine in state history -- by the Minnesota Department of Commerce in August 2007 for deceptive sales practices and unsuitable annuities. They paid without admitting to any of the allegations.

Wednesday's announcement, which covers up to 4,500 policies, also marks the third settlement between the attorney general's office and companies selling long-term deferred annuities. The first two were Allianz Life Insurance of North America and American Equity Investment Life Insurance Co. Collectively, the three settlements represent about 15,000 policies with an estimated value of $700 million in Minnesota. A fourth suit, against Midland National Life Insurance Co., is pending.

"These insurance companies put their profits ahead of the people they're supposed to be serving," Attorney General Lori Swanson said Wednesday. "Our laws go far enough; this is a case of companies not following the laws."

Donald and Vera Holzapfel of Mankato are among the Minnesotans who had complained to Swanson's office. Donald, 77, is a retired truck driver, and Vera, 76, is a homemaker. He said they invested $126,000 in a 12-year deferred annuity in 2004. The salesman pitched them as tax-free income and a way to avoid probate proceedings for their three children when the couple died.

"I just wanted a place to put my money so our kids could get it when we died," Donald Holzapfel said. When he tried recently to withdraw some of the money, that was the first he heard of an early withdrawal penalty. The couple chose to pay the $10,500 penalty to retrieve the rest of their money.

The Holzapfels plan to file for a refund under the provisions of Wednesday's settlement. Under those provisions, all 4,500 Minnesota policyholders age 65 and older will receive a letter telling them they can file a claim if they feel they were deceived or sold inappropriate annuities, said solicitor general Al Gilbert. The attorney general's office will review the claims along with the company, and any that are granted will bring a full refund without fees or penalties, plus 4.15 percent interest. Younger customers are not excluded, but the product was largely pitched to seniors, he said. In a previous settlement, about one in five seniors who received notices filed claims, Swanson said.

The settlement also spells out specific information the companies must collect from potential customers to apply to a suitability test before any sale, Gilbert said. The Commerce Department also continues to monitor the companies, said spokesman Bill Walsh.

Aviva USA is part of Aviva PLC, a London-based firm. Its website describes it as the world's fifth-largest insurance company. The site also says Aviva USA specializes in a portfolio of long-term savings, insurance and retirement income products.

H.J. Cummins • 612-673-4671