Do insurers have duty to question possibly ‘abusive’ annuity cashouts?

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  • 11th Circuit panel asks top New York court for guidance on implied contractual duties
  • A mentally diminished beneficiary sued Transamerica Annuity for consenting to ‘cash now’ sales

(Reuters) - A federal appeals court on Tuesday asked New York’s highest court to weigh in on whether a mentally impaired Florida man can sue Transamerica Life and its former annuity-servicing unit for consenting to his sale of structured-settlement annuity benefits to several “cash now” companies.

The 11th U.S. Circuit Court of Appeals’ request comes two months after it heard Lujerio Cordero’s bid to revive his lawsuit against the administrators of the settlement that Cordero, a victim of lead-paint poisoning, had obtained from the family’s New York landlord in the 1990s.

A lower-court judge dismissed Cordero’s lawsuit against Transamerica, saying it had no obligation to stop him from cashing out his benefits early.

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The 11th Circuit, however, said it was “plausible” that New York would allow Cordero to sue Transamerica for “drastically undermin(ing) a fundamental objective” of the annuity contracts, even if it had not breached any duty spelled out in the contract itself.

“Because this is an important question without a clear answer, we certify it to the New York Court of Appeals,” the 11th Circuit said in a per curiam opinion by the three judges who heard argument in March.

Cordero’s lead lawyer, Brenton Ver Ploeg of Ver Ploeg & Marino, called the court’s question “perfectly appropriate.”

“This crucially important issue concerning abuses in the structured settlement industry is without a definitive opinion from New York’s highest court and long overdue for resolution,” Ver Ploeg said in an email.

Transamerica’s attorneys at the Law Office of Stephen Harris and Cozen O’Connor did not immediately respond to requests for comment.

According to Tuesday’s opinion, Cordero was to receive 360 monthly payments of about $3,200 once he turned 18 in 2008.

However, in six transactions between 2012 and 2014, he sold his remaining benefits of $960,000 to buyers, known as factoring companies, for a total of $268,000.

Because of factoring companies’ possible abusive and exploitative tactics in negotiating with injured tort victims, almost every state has statutes to protect the victims from those possible tactics, the 11th Circuit said.

Under Florida law, the former Transamerica Annuity Service Corp. had to be notified of each sale and had the right to object. Instead, it consented each time without consulting with Cordero or advising him to seek independent advice. (Transamerica later sold off its annuity-servicing business.)

Cordero sued Transamerica Life and Transamerica Annuity in federal court in Miami in 2018, raising several possible bases for liability.

The 11th Circuit’s certified question addresses only one base: Cordero’s allegation that Transamerica breached the duty of good faith and fair dealing, which New York courts have found implied in every written contract.

The case is Lujerio Cordero v. Transamerica Annuity Service Corp. et al., 11th U.S. Circuit Court of Appeals, No. 21-11340.

For Cordero: Brenton Ver Ploeg and Benjamin Hassebrock of Ver Ploeg & Marino

For Transamerica: Law Office of Stephen Harris and David Stahl of Cozen O’Connor

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