Spencer v Hartford Financial, that case of which NSSTA dare not speak
Monday, March 23, 2009 at 08:01PM It is a famous JFK saying that " those who do not learn from history are doomed to repeat it." He of course heard it first from the great poet and philosopher George Santayana, but who ever was the originator of the phrase was exceptionally accurate. History does repeat itself, both for good and for bad.
Unfortunately we in the structured settlement industry are getting a repeat of the same kind of history that was plaguing our profession in the early 1990's when the Weil case was floating around the industry and we had the twin disasters of Executive Life and Confederation Life to contend with.
While we don't have any life markets that are in danger of insolvency, thank God for that, we do have a constant flood of headlines about the parent organizations of AIG and Hartford consistently in the news and it is having a negative impact on trial lawyers, plaintiffs and judges who are trying to decide if a structured settlement is the right decision for them in this environment. Obviously, if you read my blog you know what side of the argument I am on, that being that structures are the single most important planning tools available to personal injury victims and they ignore the use of structured settlement annuity contracts at their peril. They should be the foundation and bedrock of almost every single settlement plan. However, the purpose of this column isn't to beat that dead horse, I'll be busy with the whip on that argument for the next 5 years at least.
No, I am here to discuss the case that no one at NSSTA or in our leadership seems to want to acknowledge and that is the Spencer vs Hartford Financial class action litigation that has been sitting in the United States District Court in Connecticut for the last 4 years. Well, sitting is now the wrong word, that little monster of a case is now up, running and marauding through our industry as Judge Janet C. Hall signed her order certifying class action in this case under A RICO STATUTE and order the case to proceed.
Excuse me? Does anyone in our industry get what is going on here and the implications of this suit to our profession and what is sure to follow? Doesn't anyone remember what happened when our industry leadership said the Weil case had no merit and it was ok to systematically strip agents of their right to pursue a living simply because they chose to represent plaintiffs?
I know nothing, I hear nothing, I see nothing.
I've attached a copy of the order to this blog post, you can read it if you'd like, but this covers " All persons who entered into a settlement with any of The Hartford Property & Casualty Companies between 1997 and the present in which some or all of the settlement was to be paid as a structured settlement funded with an annuity from one of the Hartford Life Companies." Ok, that's bad enough, but take a little glance at the last sentence in her orders, " Excluded from this class are persons who were represented by a plaintiff's broker in connection with the settlement."
Is this starting to sink in? This case is about Hartford P&C claims that were structured and which were placed with Hartford Life and handled through defense brokers exclusively. If a plaintiff broker such as myself was part of the case, my client is excluded from this class action, and presumably I am excluded from the RICO claim that is spelled out in painstaking detail in the judges order.
Keep in mind what RICO is everyone. It is essential that a plaintiff demonstrate an injury to business or property caused by " conduct of an enterprise through a pattern of racketeering activity." I'll paraphrase again from the judges order, but she said that the Hartford's BAP ( Broker Assistance Program ) that gave independent brokers the right to work with claimants, is an ongoing partnership between the Hartford and certain brokers and thus established a " illegal enterprise " of which Hartford and the BAP brokers were complicit in running.
Now, lets let that sink in. If we have a RICO case, and it is clear we certainly do in the eyes of this judge, and the parties in "the enterprise" are Hartford P&C, Hartford Financial and "certain brokers" who took part in BAP, each of those parties had better get lawyered up pretty quick because with the judges order you now have that wonderful/horrible thing called "discovery" that will commence shortly thereafter. Plus, if you read the judges order, you'll find at the heart of the discovery will be production of the sales sheet, illustration or settlement offer used to resolve the case.
In other words, brokers get ready to produce decades old documents, files, sales notes, and illustrations under the power of court ordered discovery as the estimated 9500 cases encompassed in this action are sorted, sifted, weighed and balanced. Further, if you were a broker in the BAP program and were complicit in what the RICO language refers to as " an enterprise " you can expect to be required to produce evidence as to your role in this case.
In short, this is a disaster for the settlement industry. We all know how BAP was run, we all know the brokers who participated in it and under what terms. No one ever imagined this case would get RICO status in a federal, national class action but well, here it is. Now, the plaintiff still needs to prove his case, work through discovery and move to trial, but the mere fact that it was approved and ordered to proceed is going to weaken the "claims based model" of settlements at the very moment when the AIG headlines and other issues have already taken a serious chunk out of the number of claims generated cases that would typically be structured. Further, the specific exclusion of plaintiff broker cases from the class raises other issues, but will clearly drive a unneeded wedge between plaintiff and defense firms at the very time when relations have begun to improve.
Look, anyone that has had a private conversation with me over the last 2 years has heard me say that there are forces outside our profession, ever since the Eliot Spitzer take down of AIG, that are lining up and researching cases aimed squarely at programs like BAP, approved lists of companies, steering of business and other business practices. They aren't all just disgruntled former plaintiff guys with an axe to grind and scores to settle. No, these are powerful attorneys and state AG's who have these topics on their radar and with the success of Spencer to get this far are now going to move in hard. In their eyes, they see a profession that allowed it's near monopoly power and control over process get the best of it and is now vulnerable to legal and regulatory action.
I hope i'm wrong, I really do, but I don't think I am.
In the mean time the rest of our industry does it's best Sargent Shultz imitation. I see nothing.....I hear nothing.....I know nothing......
Sargent Shultz from the old Hogan's Heros was funny, this situation is not.
A copy of the full order and analysis in the Spencer v Hartford case.
Reader Comments (17)
You may want to revise the statistic to at least all but one or two.
It will be interesting to see what happens with the suit. The Hartford or no structure environment still appears to exist, however I believe the focal point of this suit is the fee or discount to the PC company on Hartford Life structured annuities that was not available to it on non Hartford business. In other words 4% commission on non Hartford PC business placed with Hartford Life, 3% commission on Hartford PC business placed with Hartford Life. The question of that 1% differential, who paid, received and got credit for it and whether or not there was an obligation to disclose this arrangement is central to the case. The commission differential no longer exists to the best of my research.
Agreed on the point of class certification vs verdict, but what I feel separates this case from Macomber is the quality and staying power of the attorneys, the RICO element and the fact it's in Federal Court. The case has already been out there for 4+ years, but the fact is this is now going to discovery. Unlike the attorney in Macomber who was essentially a solo practitioner who got a tiger by the tail, the Spencer case went to school on the lessons of prior attempts to address these issues.
Yes it will be going on for years and that is exactly my point. Does anyone think this is helpful or productive for our profession that one of the major players is going to have this shadow them? Does this not play into trial lawyer fears that they have not been getting a fair deal from the P&C companies when they are forced to use the in house program? Do you think this might be an issue for the rumored buyers of Hartford Life? Most importantly, does this elevate our profession in the eyes of our target market and make selling structured settlements easier?
My precise fear is that this will indeed go on for years, draining good will, time and attention from our profession at the exact time when we should be reinventing ourselves to our clients as stable, honest, transparent providers of settlement services.
I agree the industry shouldn't needlessly fear it, whats done is done at this point. My point is that by failing to discuss this for fear of embarrassing a NSSTA member and the firms who participated, the association is putting it's head in the sand. I think it's a very appropriate topic of discussion at the up coming annual but I doubt there will be a word about it. You live in CT, you know the headlines this made in the local press, with the other Hartford headlines this fall pretty much under " the last thing we needed at the moment" category.
I need to read the decision in greater detail, but the item that continues to strike me is the clear exclusion of annuitants who were represented by plaintiff brokers. Does the fact that they had a broker with them make the damages of the alleged RICO action any less of any injury to those annuitants as well?
One could surmise that the plaintiffs must have presumed that because this was a widely known practice, the plaintiff's broker disclosed the compensation arrangement to his or her client and that the client, or his or her attorney had the knowledge and consented to it.
I think we've seen that neither NSSTA nor SSP are the the ginsu knives for the industry. Far from it! In fact, as we've seen over the past few years,more discussion can be stirred up through our blogging, podcasting, videos and other media no matter how many Sgt.Schultzes or gum flapping torsos possessing the characteristics of root vegetables there are in the industry.
The reason cases involving plaintiffs brokers are excluded from the class is probably because they are unlikely to involve the illegal kickbacks that are possible when there is covert dealmaking taking place that involves a covert relationship between a defendant broker and an insurance company. Is the broker really taking their 4%, or is some part of that being kicked back...etc
You well may be correct about the 3% contract, but does it really change anything? The brokers are shopping around for the best rates and the plaintiffs payout is presumably accounting for the 4% standard commission that normally goes to the broker. If there is only a 3% broker commission then the extra 1% should be going to the settling plaintiff. Instead I presume the allegation is that the carrier is keeping the 1% (in fact Hartford seems to be admitting to that , but are trying to justify it). All of this is facilitated by insisting on having only a broker on the defendant side. Indeed, if their is a co-broke, presumably there isn't enough commission money to whack up, and/or they didn't want outside plaintiff brokers informed about the scam which would have occurred because defendant brokers would have to explain to plaintiff brokers why they were only whacking up a 3% commission.
Allan
The 3% commission means that more income could be bought for each claim dollar spent. The 3% commission rate was likely registered with the state as insurance compensation rates usually are. Checking the contracts signed by by the GAs in the industry, including those that are plaintiff exclusive will likely show they consented to the 3% rate. Allan, no offense to you but it's clear that you have not been around the industry very long. The 3% was common industry knowledge and in case you don't realize it you're talking in circles:
First you say:
"If there is only a 3% broker commission then the extra 1% should be going TO THE SETTLING PLAINTIFF"
Then you say:
"Indeed, if their is a co-broke, presumably there isn't enough commission money TO WHACK UP, and/or they didn't want outside plaintiff brokers informed about the scam which would have occurred because defendant brokers would have to explain to plaintiff brokers why they were only WHACKING UP a 3% commission"
I know where you are trying to go but you surely aren't getting there with THAT argument. Bearing in mind that rebating by licensed insurance agents is illegal in CT, it seems like your concern is about whacking up commissions.
Suggest you do your homework, subscribe to Pacer, read the case, get a copy of your GAs Hartford contract (if you can) and try not to let your emotions on the issue cause you to misinform the public without knowing all the facts.
John, I pose the hypothetical that two brokers each show my client an identical quote, but one broker is charging a 3% commission and the other is charging a 4% commission. The Insurance companies have the same costs associated with the transactions but the carrier who unilaterally employs the services of the 3% broker UNIFORMLY charges and keeps an extra 1% in undisclosed fees and costs. Now please make reference to my initial post. I am merely drawing the analogy that if this still occurs today (and i believe it does), then it is analogous with the type of behavior that impicates racketeering under USC Sect 1962 (2). As far as my client goes, arguably he is not being hurt by this. The counter-argument of course is that there is no extra costs and thus the insurance carrier is robbing my client of 1% of his structure value, and the brokers who participate in this program KNOWINGLY, is therefore conspiring in the racketeering prescribed by the federal statute.
When I said i thought the posts herein were missing the point, i was referring to the initial rather long post of the gentleman who seems to think that history is repeating itself, and i believe he/she intended to make exactly the point i am making to you.
I apologize if my lingo or semantics may have been incorrect in my prior post, but hope I have made myself clearer. Allow me to add that I have absolutely no problem with brokers in general, who I have found to be mostly honest and helpful to my clients, and whom I believe earn every penny of their commissions.
Allan
Allan
Thanks for some excellent posts. Your right in that my concern is that many of the leaders in the settlement profession don't get the implications of this case, much as they didn't get the implications of the Weil case until AFTER it was settled. The net impact tends to be fundamental reevaluations by major players as to whether or not they want to stay in the market at all.
My larger concern with Spencer is not the RICO or short changing elements, but the repercussions of what I believe might be a settlement at some future date causing P&C markets or life markets to retreat from this product line or process.
In theory a publicly traded for profit insurance company sets prices at a level that enables it to make a return on its (or its investors') capital. One must bear in mind such pricing decisions can have a negative impact on the bottom line (to wit...Hartford's guarantees on Variable annuities in the market downturn). Such decisions ultimately show up in financial ratings. Frankly I'd prefer a company act as responsibly and as fiscally prudent as possible and my guess is that you do too!
Ultimately your gripe (and I believe most people's is) a program that limits to a choice of 1. The issue is lack of choice. Other companies DO elect to offer a choice to plaintiffs, even though there is no requirement to do so. Taken independently from the allegations in the Spencer case in my opinion (as much as I personally don't think the practice is reasonable, competitive or constructive to promoting structured settlements on the whole) it's Hartford's prerogative to make its business decisions on pricing and whether it will allow a deviation from its practice.
I hope it doesn't damage your reputation to have me publicly agree with you. The 3% issue is a broker's issue - not a plaintiff issue since nothing was subtracted from the plaintiff's benefit.
The real (damages) issue is the "Hartford Life structure" or "no structure" issue. Questions relating to that issue:
1. does a liability insurer have an obligation to offer a structured settlement? If the answer is no (probably the correct answer) how can it be said that a liability carrier has an obligation to offer the best structured settlement price available at any given point in time?
2. In those cases where Hartford Life offered the best pricing, there was no damage to the plaintiff.
3. In those cases where the plaintiff accepted a Hartford Life structure rather than a cash settlement, that choice may have eliminated any basis to claim damages?
There are numerous questions and hopefully those involved in the litigation will ask the right questions.
In the meantime, my question is "given the current economic climate, why haven't plaintiff brokers been able to convince their attorney clients to demand structured settlements as part of their settlement demands"?