In what will be one of the more closely watched lawsuits of the last ten years, AIG and many of it's subsidiary companies, including American General, were named in a federal lawsuit filed on January 3, 2017 in U.S. District Court in the district of Massachusetts. You can read the entire filing of case number 1:17-cv-10007 here.
This case is the first to address the totality of the industry wide practice of having "Approved Brokers" lists and the financial, business and strategic partnerships created by those programs. In the complaint, one of the primary contentions is that injury victims and annuitants who settled cases with AIG and it's various casualty companies over a 20 year period, were injured due to AIG "secretly deducting four percent from the cash portion of the settlement that the settling parties agreed would fund future annuity payments, and retaining that four percent for themselves or to pay commission to defense brokers." It goes on to further state, " By secretly and unlawfully diverting settlement money to pay their structured settlement specialist and unjustly enrich themselves, Defendants both avoided the cost of this defense expense and significantly decreased the amounts they promised to pay to fund future annuity payments to the settling claimants."
This is going to be a very interesting argument to make, as it is reasonably well known that the defense "brokers", a term which the plaintiffs contend is not an accurate title, are paid a 4% commission on structured settlements in return for essentially cost free services they provide for casualty companies. They pick up their travel, business and other expenses, do not bill hourly and are reliant fully on the commission of the structured settlement to be compensated for their work with the casualty company. However, I think the plaintiff's strategically take issue with the title of "broker" for a reason. By focusing on the fact that defense "brokers" are not really brokers in the legal sense of the word, but actually appointed agents of life companies, they contend in the suit, that by using this false or misleading title, the defendants "signal(s) a false duty of loyalty to the unsuspecting consumer." This distinction, as argued in the complaint, is an important hook in requesting the case be pushed forward as a RICO under 18.U.S.C section 1961(4).
As a profession this is obviously going to cause some tidal waves, as virtually every major structured settlement firm that does defense work is listed in the case as having been on either the AIG approved broker list, the "Agency Partners" program or other internal recognition systems. These lists authorized only certain general agents and "brokers" to work in partnership with AIG claims, with the pay off being fed lucrative and steady settlement business, while in return to agreeing to the claims practices these programs required. No defense structured settlement expert wants their firm listed as a possible participant in a RICO suit, or associated with racketeering, as the implications and damage to reputations in the legal world are dire.
As the authors and owners of The Settlement Channel, we've spent the better part of 30 years fighting against the concept of approved lists of brokers, life markets and other unreasonable restrictions which we feel prevented claimants from choosing the design, funding company and guarantor of their annuity payments. It has been our long held opinion, shared publicly for decades, that these strong arm deals and tactics were anti-consumer and a vestige of the dark ages of the early days of structured settlements when even the true cost of annuity programs were denied to claimants. Still, we have no desire to kick anyone when they are down or to pile on at this point. Let's just watch how this case unfolds as I am certain the concept of using defendant annuity agents to assist claims departments in providing structured settlements is a practice that can with stand scrutiny in most cases.
We will continue to follow the case and see if it reaches discovery, at which time much of the program in question will be opened up to review and people can make up their own minds as to the propriety of the industry wide practice of approved lists. The bigger issue in our analysis is whether the structured settlement profession will begin to be pulled into and under fiduciary standards and consumer friendly disclosure practices on a national level. As it stands now certain states have a modest patchwork of statutes or regulations that require some level of disclosure, but is the tide of pro-consumer, transparent compensation agreements and disclosure of conflicts about to wash over the structured settlement profession?
Time will tell, but this is going to be a battle of heavy weights on both sides. Buckle up.