Last week, a federal appeals court denied Security Benefit’s request for a full judicial review of a case alleging the insurer misrepresented how much investors could earn from certain fixed annuities
The Court of Appeals for the Tenth Circuit denied Security Benefit’s motion for en banc review. Banque review is heard by all judges of a particular court and is usually reserved for complex or important matters.
The decision to deny en banc review means the Tenth Circuit’s reversal of the district court’s order and remand to the lower court for further proceedings.
Three justices dissented from the decision, with Justice Harris Hartz writing the dissent.
The case, he wrote, “introduces an unprecedented understanding of what constitutes fraud, requiring the seller of an investment product not only to describe each negative feature of the product, but also to analyze the possible negative cumulative effect of those features and to compare that cumulative effect of the effects of features in competing products, but not in the product being sold.”
In March, a three-judge panel of the Tenth Circuit ruled 2-1 to reopen a proposed class action alleging that Security Benefit Life Insurance Co. engaged in fraud and racketeering by misleading investors in its Secure Income Annuity and Total Value Annuity products. Judge Hartz also dissented from that decision.
Security Benefit issued the following statement regarding the Tenth Circuit’s decisions remanding and denying en banc review: “The Tenth Circuit’s decision to reverse and remand was not a decision on the merits of any issue. Rather, the decision means that the issues must be decided on an evidentiary record that must be drawn up at the District Court level. SBLIC is evaluating all available options, believes it has substantial defenses to the allegations, and intends to vigorously defend itself in the lawsuit.”
Security Benefit hit with several lawsuits
The lawsuit began in 2019 in the U.S. District Court for the District of Kansas and is one of several lawsuits in several states alleging damages from security annuities. The plaintiffs allege that Security Benefit manipulated customers into investing most of the value of their fixed indexed annuity accounts in the company’s synthetic index, which performed much worse than represented.
The lawsuit targets two of Security Benefit’s FIAs, the Total Value and Secure Income annuities, both of which were offered with proprietary indexes that the company touted as “capable of generating double-digit returns,” the lawsuit alleges.
Typically, annuities are marketed with a cap or participation rate that leaves owners with less than 100% of market gains. In return, the customer is protected against market losses.
Plaintiffs say Security Benefit markets its TVA products as “unlimited” and with “100% participation.”
“Once consumers purchased the annuities, they were locked into them by onerous surrender penalties, by bonus clawback provisions, and by the very structure of the synthetic indices themselves, which were designed to credit interest only at the end of fixed periods ranging from two to five years,” the original lawsuit said.
“Collective Impact”
A Kansas judge dismissed the original lawsuit in 2021. In a March ruling, 10th Circuit Judge Veronica Rossman wrote that the lower court’s dismissal did not address the complaint as a whole, which alleged the company hid the “collective impact” of the conditions of the annuities.
In his dissent, Hartz wrote that the ruling would require sellers not only to disclose the risk of the investments, but also to analyze “whether, given the facts disclosed, the investment is a good one.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other events in more than 20 years of daily journalism. John can be found at [email protected]. Follow him on Twitter @INNJohnH.
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