by Structured Settlement Watchdog
EPS Settlements motion to dismiss the class action lawsuit against them is one of the greatest living and breathing reasons why a plaintiff should seek their own appropriately credentialed independent settlement adviser
Plaintiffs in the EPS Settlements class action alleged that EPS breached a duty of care, in part that "In fulfilling their obligations, reasonable SSA brokers must scrutinize the financial health and prospects of the life insurance company providing the annuity and ensure that the life insurance company is properly licensed in the annuitant’s state of residence.
Answering that allegation, EPS said the following in this excerpt of its response, filed June 9, 2014:
"Even Assuming a Duty of Care Existed, There Could Not Have Been a Breach of That Duty Because ELNY Was In Superior Financial Health in 1986.
'Plaintiffs suggest that EPS breached a duty of care by failing to disclose that ELNY was in poor financial health in 1986. However, Plaintiffs admit that ELNY was not even placed in rehabilitation until 1991. Compl. ¶¶ 6, 31. Further, the Court can take judicial notice of the fact that, far from being rated poorly, as of December 1986, ELNY’s financial health was rated A+ (Superior) by AM Best, a nationally recognized rating agency for insurers. See AM Best Report for ELNY, attached hereto as Exhibit “E.”6
As such, the Court can take judicial notice that EPS in fact procured the subject annuities from a “highly-rated life insurance company,” where Plaintiffs’ suggestion that EPS did not do so is central to the Complaint. See, e.g., Compl. ¶ 3." [Source:Pacer.gov]
FLSD 9:14-cv-80521-JIC MOORE et al v. EPS SETTLEMENTS GROUP et al United States District Court Southern District of Florida
Comments
Is what EPS saying in its defense of the case, that the standard of care for a structured settlement broker is/was simply to look at the ratings from A.M.Best?
As the structured settlement industry watchdog I have tried to research, for historical purposes, all aspects of the economic environment that gave rise to so many plaintiffs' settlements being placed in one basket.
In Lessons from Executive Life of New York (ELNY), my podcast published on June 29,2012, I explored this very subject, about what should have been known.
Other than simply looking at an A.M.Best rating how much of this information should have been known by a settlement professional and/or someone with an active insurance license and how much was disclosed at the time?
- Baldwin United, a 1982 bankruptcy once described as one of the top 20 business failures of the 20th Century. A September 27 ,1983 New York Times article stated "Baldwin-United's bankruptcy puts it in the same league as Penn Central, which had liabilities of $3.3 billion, and the Itel Corporation, which had liabilities of $1.7 billion and emerged from reorganization this month. The Manville Corporation, which sought court protection just more than a year ago, said it could face liabilities of more than $2 billion because of asbestos-related lawsuits". Leonard Slome of the New York Times reported October 15, 1986, that "The 165,000 buyers of high-yield annuities of the Baldwin-United Corp., who have been blocked from touching their money for more than three years, may soon be shown a way out of their financial limbo. Ever since Baldwin-United, which had sold $3.4 billion worth of single- premium deferred annuities, filed for reorganization under the federal bankruptcy laws in 1983, the policies have been the subject of wide-ranging proceedings in federal and state courts and recommendations by insurance commissioners in two states".
- Clearly at the time of the sale of the subject annuities in the class action, there was uncertainty over the fate of the annuitants that did not get resolved until July 1987 (Source :LA Times July 10, 1987 Bruce Keppel].
- Charter Security failure in 1983, one of the top sellers of annuities
- In August 1984, E.F. Hutton & Co., then a major brokerage firm based in New York, decided to stop selling a tax advantaged insurance annuity marketed by a unit of First Executive Corp., which was based in Beverly Hills, California. E.F.Hutton also dropped certain other insurance concerns' annuities. E.F.Hutton's sales of the insurance product, known as a single-premium deferred annuity, accounted for about 20% of First Executive's total annuity sales in 1983. When E.F. Hutton's decision was announced, one Wall Street analyst estimated that First Executive would lose $100 million a year in new sales. News of Hutton's decision was first reported in the Wall Street Journal's Heard on the Street column. In a 1985 series of interviews Jim Chanos and Hutton officials disclose that several weeks prior to Hutton's action, Mr.Chanos spent two days meeting with Hutton about First Executive. At the time, he was recommending selling short First Executive stock". [First Executive was used as the qualified assignment company for ELNY annuities. Were they rated A+by A.M.Best at the time of the placement of the subject structured settlements in the class action?] Repeating my question of January 27, 2013, many structured annuities were recommended or placed with the First Executive assignee/ ELNY annuity issuer combination after 1984? [see ELNY Qualified Assignment Co| Writing Was on the Wall (Street Journal),1984!]
- First Executive's heavy use of reinsurance, particularly that provided by foreign companies outside the supervision of U.S. regulators, raised regulatory questions in 1983. After Executive Life's examination in 1983 by California authorities, the regulators ordered the company to dispose of several such agreements by sometime in 1988.
- New York had fined Executive Life a total of $150,000 in 1984, for what it said were violations of rules requiring the company to provide adequate documentation on request to state examiners.
Conclusion
- I understand why EPS felt compelled to defend itself by denying breach of the standard of care. However, I find its explanation somewhat questionable, as it suggests that a financial professional of any type rely solely on the opinion of A.M. Best while disregarding a significant amount material third-party information published in "nationally recognized" media.
- Any reasonable person would consider this a glaring red flag. The nationally recognized" circulations of the Wall Street Journal, LA Times, or New York York Times are much larger than A.M. Best.
This concerns professional advice regarding financial obligations projected to extend 30 or more years into the future. Surely, our industry should uphold higher standards than this.