by Structured Settlement Watchdog®
As part of my ongoing news and commentary about Aviva structured settlements for stakeholders, we bring you an important update from the lawsuit against Aviva and Athene pending in Federal Court in Massachusetts. A smoking gun appears to have been found in discovery. The lawsuit arose after it was discovered in 2014 that the Capital Maintenance Agreement that was instrumental to Aviva selling more than $1 billion in premium and over 4,200 structured settlement annuities was unilaterally terminated without notice to annuitants. Discovery in the case has led to some important revelations,sourced through copies of internal communications and documents (attached as Exhibits to the August 11, 2017 Memorandum of Law accompanying the motion for class certification) that allow readers with a PACER subscription to peer under the hood of Aviva and later Athene.
Summarized from the Plaintiffs' Memorandum of Law
A. The 2002 CMA Bars Its Parties From Terminating the CMA so as to Shed Pre-Existing Obligations
"For as long as CGNU London Annuity has any obligations under any assumed settlement agreement, CGNUII agrees to maintain capital in CGNU London Annuity to ensure that it has the necessary funds available to satisfy such obligations.
As compensation for this commitment, CGNU London Annuity agreed to pay CGNUII a one-time fee (“Fee”) in an amount equal to .5% of the premium it reports on its respective ledger in respect of each settlement agreement assumed by CGNU London Annuity during the term of this agreement".
The CMA defined a procedure pursuant to which it could be terminated, but in paragraph (f) it explicitly restricted the termination right so that CGNUII was barred from doing exactly what it has tried to do in this case: shed its obligations, under the CMA, with respect to those settlement agreements that had been assumed by CGNU London Annuity while the CMA was in force:
CGNUII agrees that its obligations under this Agreement in respect of settlement agreement payment obligations that were assumed by CGNU London Annuity before such termination shall remain effective following such termination, unless otherwise prohibited by applicable law. Download CGU 2002 CMA
[ Note: the CGNU was a predecessor name to the Aviva branding, reflecting a series or mergers and/or questions between first Commercial Union and General Accident to form CGU and then after coming together with Norwich Union, CGNU]
B. The 2003 CMA is a “continuing” obligation and therefore applies for the duration of the annuities purchased while it was in force
As explained by Plaintiff’s expert Linda Kaiser Conley, former Commissioner of Insurance of the Commonwealth of Pennsylvania, the term “continuing” obligation is a term of art. See Linda Kaiser Conley Report, attached as Exhibit 4 to the Memorandum of Law. Ms. Conley explains: “Regulators generally understand that language as a commitment to provide financial support for liabilities arising during the term of the Agreement, even if those liabilities
are payable after the termination of the guaranty/CMA.” Conley Report at 18. This industry understanding of the term is consistent with the Restatement (Second) of Surety and Guaranty §16, which specifies that “Upon termination of a continuing guaranty, the continuing guarantor
remains a secondary obligor with respect to obligations of the principal obligor incurred prior to termination.” Download 2003 Aviva CMA
C. Defendants’ Sale of Annuities at Issue and Their Entry Into the CMA
The ability of an issuer of annuities to sell them in the United States market during the period January 1, 2002 through December 31, 2009 was dramatically affected by the creditworthiness of the issuing company. Defendants’ own internal discussions show conclusively that it was effectively impossible for an annuity issuer to sell structured settlement annuities in the United States unless it had an AM Best rating of at least A+. [See Transcript of
Deposition of Debra Ficket-Wilbar, May 18, 2017, at 34:3-6 and Richard Kypta May 25, 2017, at 58:21-25, 59:1-6, 62:7-12 ] The CMA was created two months after A.M.Best downgraded Aviva to an A from A+ The impact of this downgrade was immediate, and close to catastrophic, for Aviva structured settlement program. Aviva had announced that it was considering whether to abandon the market for structured settlement annuities in the United States. The CMA literally saved the program.
[ Note: In addition to what was presented in this case, this author was personally sent a letter by Kypta, then Senior VP of Aviva Life dated May 20, 2004, in which he referred to the Capital Maintenance Agreement as one of two forms of guarantee offered by Aviva Download Aviva Kypta letter 5-20-2004 re CMA and guarantees. Kypta further expressly stated in that letter, that the letter could be filed with the New York state court (that was reviewing a petition for court approval)].
D. CGU’s Importance and Participation in the Sales Process
CGNUII knew, when it entered into the CMA, that Aviva NA intended to use the CMA as a principal selling point for its structured settlement annuities, and, indeed, that officers of Aviva NA were “keen” to use the CMA in this way. See Transcript of Deposition of Kirsty Cooper, June 14, 2017, at 34 CGNUII explicitly agreed that the existence of the CMA could be made known to all persons involved in the purchase of structured settlement annuities. See Kypta Tr. Exhibit 2.
As CGU knew it would do, AVIVA NA “heavily marketed” the CMA to those brokers who handled structured settlement annuities. CGNUII even explicitly agreed to the precise wording that Aviva NA would, and could use to promote the CMA.
"Aviva`s CMA guarantees Aviva London Assignment Corporation will have the funds necessary to satisfy all Structured Settlement contract obligations assigned to it regardless of the financial position of the life company through which the "assigned" annuities are purchased. This obligation is absolute, unconditional and continuing! " Other than the statement that the obligation imposed by the CMA was “absolute, unconditional, and continuing,” this marketing flyer said nothing at all about any limitation on the duration of the CMA.
According to Answers and Responses of Defendant Athene to Plaintiff’s First Set of Interrogatores at p. 6, Interrogatory No. 1
E. Aviva’s Rating Goes Back Up But Aviva Keeps The CMA In Place And Continues to Pay CGU For It
F. The CMA, As Described To All 4265 Purchasers, Increased The Value of Defendants’ Annuities
The Court recognized as much in its decision denying CGU’s motion to dismiss, in which the Court stated that “The annuities were sold based on the quality and consistency of CGU's guarantee, and that guarantee doubtlessly added to the annuity's value.” Griffiths , 187 F.Supp.3d at 348
Both CGNU London Annuity and CGNUII had actual knowledge that the true duration of the CMA, and the right of the parties to the CMA to terminate it without notice to or approval of the persons who purchased the protection of the CMA, or who received payments under structured settlement annuities covered by the CMA, was a fact that would be material to any person deciding whether to purchase, or to agree to the purchase, of a structured settlement annuity covered by the CMA [or any appointed agent!]
G. Defendants Decide to Terminate the CMA Even As To Annuities Already Sold As Protected By It
On or about September 30, 2013, CGU London Annuity and CGUII agreed to modify the terms of the CMA to delete the language set out in ¶
f thereof which barred CGUII from abandoning its obligations under the CMA with respect to structured settlement annuities issued while the CMA was in force. After purportedly making this “modification,” CGU London Annuity and CGUII terminated the CMA. [Memorandum of Law See Cernich Tr. Exhibit s 4 and 6 (attached as Exhibits 17 and 18.
Neither CGUII nor CGU London Annuity provided any notice of such “modification” or termination to the purchasers of the affected structured settlement annuities or to the persons entitled to receive payments under those structured settlement annuities. At least as of October 2, 2013, and as of now, despite the plain language of ALL of the marketing materials distributed to agents and approved for us with the public, CGUII contends that the commitment it undertook in the CMA could be revoked, at any time, without any notice to or approval from the persons entitled to receive annuity payments covered by the CMA, so long as CGUII and CGU London Annuity agreed to terminate such commitments. See Transcript of Deposition of Neil Harrison, June 15, 2017, exhibit to Memorandum of Law.
Hobson's Choice for Aviva
If CGUII held this belief at the time the CMA was executed, and during the period when Aviva NA was selling the structured settlement annuities covered by the CMA, and if this belief reflects the true meaning of the CMA Agreement, then when it authorized Aviva NA to issue the "absolute, unconditional, present and continuing obligation" marketing flyer and the Kypta letter described above, CGUII intentionally withheld from all decision-makers and purchasers of Aviva NA structured settlement annuities a fact that CGNUII knew would be material to the purchase decision
If CGUII did not believe this at the time, but subsequently changed its mind and adopted this belief, then CGUII’s current belief is inconsistent with the intent of the parties to the CMA. As discussed above, this belief is also inconsistent with the logic underlying any guarantee or commitment of security to support a structured settlement annuity. In this case, the meaning of the CMA currently espoused by CGUII is not the true meaning of the CMA agreement.
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