The latest attempt to hold casualty carriers and annuity issuers liable for allegedly failing to disclose deductions from the amounts used to purchase structured settlement annuities for plaintiffs’ benefit has been dismissed by the U.S. District Court for the District of Massachusetts.
Ezell v. Lexington Ins. Co., Civ. Act. No. 17-10007-NMG, 2018 U.S. Dist. LEXIS 166435 (D. Mass. Sept. 27, 2018), involved a putative class action brought by structured settlement payees against the settling defendants’ insurer and 10 affiliated insurance companies. The plaintiffs alleged that the defendants intentionally failed to disclose that the settlement brokers’ 4 percent commission would be taken out of the monies used to pay the premium for the annuities purchased to fund the plaintiffs’ periodic payments.
After the court dismissed the unjust enrichment, RICO, and fraudulent misrepresentation counts in the plaintiffs’ original complaint without prejudice, the plaintiffs filed an amended complaint. The amended complaint dropped the unjust enrichment claim and attempted to cure the deficiencies in the RICO and fraudulent misrepresentation claims and reassert claims against three defendants the court had dismissed.
However, in a decision dated September 27, 2018, the court dismissed the entire action with prejudice. The court found that the amended complaint failed adequately to allege the requisite association-in-fact enterprise required to state a RICO claim. According to the court, the amended complaint alleged, at most, parallel conduct on the part of the defendants and non-party brokers. The court also found that the amended complaint failed to cure the deficiencies in the fraudulent misrepresentation count. In particular, the plaintiffs did not adequately allege which of the defendants made the alleged fraudulent misrepresentations and failed to allege that the nondisclosure of the 4 percent deduction for commissions was material. A copy of the decision is available here.
Similar claims have been asserted by settling plaintiffs in the past with varying results. For example, in Spencer v. Hartford Fin. Serv. Corp., Inc., 256 F.R.D. 284 (D. Conn. 2009), the plaintiffs’ second amended complaint asserted breach of contract, unjust enrichment, fraud, and RICO claims based on allegations that the defendant casualty carriers and annuity issuers had a policy of secretly retaining a percentage of the money that should have been invested in the structured settlement annuity for the claimants’ benefit. The court certified a class comprising approximately 21,000 claimants on the fraud and RICO claims. The case settled in 2010.
In Macomber v. Travelers Prop. & Cas. Corp., 261 Conn. 620 (Conn. 2002), the plaintiffs brought a putative class action alleging that the defendant casualty insurer and certain affiliated brokers engaged in an unlawful “rebating” scheme, whereby the brokers secretly agreed to place premium with annuity issuers and give a portion of their annuity commissions to the defendant casualty insurer. The plaintiffs also alleged that the defendant casualty insurer engaged in a “short-changing” scheme, whereby the defendant spent less on its purchase of annuities to fund the plaintiffs’ periodic payments than the settlements called for by overstating the present net worth of the annuities. The Connecticut Supreme Court allowed the plaintiffs’ claims for breach of contract, Unfair Trade Practices, Unfair Insurance Practices, negligent misrepresentation, fraud, civil conspiracy, and unjust enrichment to survive.
In an ensuing decision in that case, the Connecticut Supreme Court reversed class certification and remanded the case for further proceedings. Macomber, 277 Conn. 617 (Conn. 2006). The case eventually settled.1
These cases highlight the pitfalls and exposure to the insurance industry at the point of settlement.