Spencer v Hartford Financial, that case of which NSSTA dare not speak

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.

Posted on March 23, 2009 .