First Circuit rules that insurers can pay brokers commissions for annuities purchases as part of structured settlement agreements

Norma Ezell, Leonard Whitley, and Erica Biddings settled wrongful death and personal injury claims in exchange for structured settlement agreements with the defendants' insurer, Lexington Insurance Company.  The settlements provided that Lexington would purchase annuities from which the claimants would receive specific periodic payments.

The settlement agreement for Ezell and Whitley provided that $200,000 would be "annuitized" by Lexington for the purpose of financing periodic payments, and indicated the exact amount they would receive each month.  The settlement agreement for Biddings provided that the "total present value" of the periodic payments would be $1,642,000, and also specified the amount she would receive each month.

Years later, the claimants brought a class action lawsuit against Lexington and other insurers, alleging that the insurers had made misrepresentations and engaged in a scheme to defraud the claimants.  They alleged that they did not receive the amount they were promised because the life insurer that sold the annuities to Lexington diverted four percent of those amounts to pay commissions to the brokers who arranged the transactions.  The commissions were not disclosed in the settlement agreements. 

In Ezell v. Lexington Ins.Co., 926 F.3d 48 (1st. Cir. 2019), the court affirmed the dismissal of the case.  It held that the settlement documents, fairly read, did not promise that Ezell and Whitley would receive $200,000 or that Biddings would receive $1,642,000.  Rather, they promised only that $200,000 would be "annuitized" for Ezell and Whitley, and that the "total present value" of the periodic payments to Biddings would be $1,642,000.  The court held that the amount "annuitized" to produce a periodic payment stream plausibly referred to the amount of money spent to purchase that payment stream, not the amount a beneficiary receives from it.  Similarly, the "total present value" of a payment stream plausibly referred to its cost, not the amount the beneficiary receives. 

There was no dispute that Lexington paid $200,000 to purchase the annuities for Ezell and Whitley, and $1,642,000 for the annuities for Biddings.  The payment of part of those amounts to brokers was standard in the annuity industry.  The court held that the insurers were under no obligation to inform a settlement party of the items of overhead that were standard. 

More convincing to me, the court held that even if the insurer had breached a duty to inform the claimants of the commissions, such breach was cured because the settlements included specific payment schedules, and those schedules were met.