Courtesy of Lucy Gubenski

Lucy and Sigmund Gubenski of Philadelphia can't get access to money they invested with Roanoke-based Shenandoah Life Insurance Co.

Shenandoah Life Insurance Co. has received two handwritten letters from Lucy Gubenski seeking money to replace a 15-year-old car.

But when the retired city of Philadelphia employee asked to withdraw some of her life savings from an annuity with Shenandoah, the company replied on a legal form letter with "DENIED."

Investment losses nearly struck down Shenandoah during the collapse of 2008. It was taken over by regulators from the Virginia State Corporation Commission a year ago this month.

Since that time, the Roanoke company, which hopes to rebound through a strategic alliance or acquisition, has taken a hard line with policyholders who want to cash out.

Those policyholders are learning that the company's financial woes, in some cases, take precedence over theirs.

With the consent of corporation commissioners, Shenandoah has continued to pay claims and broker commissions, but has banned cash withdrawals and loans outside the normal claims process that in good times holders of annuities and life insurance were permitted.

It's a hard lesson in a tough economy that penalizes people merely for being unlucky enough to have invested in one of the many once-robust financial firms now on its knees.

During the operating limbo called receivership, Shenandoah said unless a policyholder has a claim, it will grant payments only in instances of financial hardship that company leaders judge to be both imminent and severe.

Gubenski sees her financial needs as quite imminent. She is 83 years old.

"I want to use my money before I go," she said in an interview this month.

Her 1995 Crown Victoria just gobbled up $721.44 of her fixed income, "which cost me more than the Ford is worth," she wrote. It must be replaced, she said.

The company rejected her claim as falling short of the requirements.

The battle continues.

Gubenski, and a handful of other denied policyholders, have chosen to fight the regulators running Shenandoah in administrative legal proceedings before the commission.

The issue, in simple form, appears to be this: Who is in worse shape, the policyholder or Shenandoah?

Gubenski's husband, Sigmund, 84, is bringing a like claim for help buying a replacement vehicle, too. He was denied as well.

To be sure, Shenandoah, a corporate fixture in Roanoke since 1916, has recognized the needs of scores of policyholders and sent them checks.

The company has granted or partially granted the hardship requests of 65 percent of people who requested money, on-site manager Don Beatty said. He put the total number of petitions at about 500 some 10 months ago but said he did not have a current number.

The 65 percent approval rate has left many to go without.

"I NEED TO GET MY MORTGAGE CURRENT SO THAT I DON'T HAVE TO KEEP PAYING THESE LATE FEES AS THEY ARE KILLING ME," Evelyn Snutch, a 76-year-old widow and supermarket cashier in Leesburg, Fla., wrote on Dec. 9.

She told the company she wishes she never bought her life insurance policy and had instead saved her monthly premiums of $90.25, which are deducted from her bank account. She said Friday she is two months behind on her mortgage and fears foreclosure.

The hardship files at the SCC, which are public records, contain a litany of personal pleadings.

Claimants detail routine household expenses that are stretching budgets to the breaking point. Some have included copies of bills and medical statements and reminded the company that they paid on time.

"At the present time, my lights have been turned off by the city of Rocky Mount for non-payment. The last two weeks of each month I can only afford one meager meal a day," said a claim attributed to a man in North Carolina.

A man in Alliance, Ohio, asked for helping paying his mother's nursing home bills. "She is wheel chair bound and suffers from the ravages of diabetes," the claim said.

These are true human victims of the prolonged recession.

When they bought policies with Shenandoah, they invested in a historically profitable company with good ratings.

But then, its investments in mortgage-backed securities collapsed in 2008. Its spare cash -- a critical cushion over and above its policy obligations -- nearly evaporated.

Declaring the company in "hazardous financial condition," regulators took over the policyholder-owned, private company on Feb. 12, 2009.

They said Shenandoah had enough money to pay current and future claims, but had to be rehabilitated.

Beatty, an SCC representative, assumed the power of management and the board with a single duty: to protect assets that totaled $1.68 billion on Dec. 31, 2008.

"Since the start of the receivership, the receivership team, with immense help from company management and staff has taken several measures to stabilize and improve the Company's financial position and preserve its value," Beatty said by e-mail this month.

"One of our most important efforts is the pursuit of a strategic alliance or acquisition which would enable the Company to resume its business operations and marketplace position."

Under a voluntary decision, Shenandoah Life decided it would make exemptions to its restriction against cashing out.

But it must treat all policyholders equally. To pay someone who is not in absolute distress would represent impermissible, preferential treatment, its legal argument states.

Gary Triggs, a lawyer in North Carolina who is representing a 66-year-old claimant, said he has found the claims documentation process difficult even for him to complete. People without money for a lawyer will find it nearly impossible to bring a successful claim, he said.

After striving to comply with filing rules, he was turned down in part because his client wants her money out of Shenandoah to buy new life insurance.

Such a move would be "clearly rational," attorney Robert Dybing wrote for the state. But he said that does not merit a special payout under the rules designed to protect the company's cash until it gets back on its feet.