by John Darer CLU ChFC MSSC CeFT RSP CLTC
In a January 7, 2021 decision in JENNIFER LANCLOS, Plaintiff, v THE UNITED STATES, Defendant. No. 15-358C, the court ruled in favor of the United States and the result is that the United States does not have to make up the annuity shortfall arising out of the Executive Life of New York insolvency and liquidation.
What does "guarantee" mean in a promise to purchase an annuity in a settlement agreement?
Since 2013, a number of breach of contract lawsuits have seen payees of Executive Life Insurance Company of New York structured settlement annuities attempt to recharacterize the term "guarantee" in settlement agreements to mean a minimum number of payments whether or not the payee survives the payment schedule.
Plaintiff filed her complaint in this matter in 2015, alleging that defendant breached a 1986 settlement agreement resolving claims against the United States Air Force.
The settlement agreement with The United States included a provision in which plaintiff agreed to accept in “full satisfaction and final settlement” of her claims:
The purchase of an annuity which will provide the following:
$1,500 per month – from commencement of payment for a period of five
$2,000 per month – years 6-10
$2,500 per month – years 11-15
$3,000 per month – years 16-20
$3,500 per month – years 21-25
$4,000 per month – years 26-30
$4,500 per month – years 31-life
According to the January 7, 2021 decision in JENNIFER LANCLOS, Plaintiff, v THE UNITED STATES, Defendant, the agreement further provided that “[a]ll monthly payments above are guaranteed for 30 years or the life of [plaintiff], whichever is longer.” Id. at 8. Defendant duly purchased the annuity from Executive Life Insurance Company of New York (ELNY), however, after financial difficulties, ELNY became unable to make the payments in full in 2013. See id. at 3. Plaintiff alleged that defendant guaranteed the payments in the settlement agreement and that it breached the agreement when it failed to ensure the full payment was made.
In the court’s view, the distinctions plaintiff raises are insufficient to overcome the language present in plaintiff’s agreement that the Federal Circuit construed in Shaw. The Circuit reviewed the guarantee language in the Shaw settlement and concluded in citing Shaw v. United States, Case No. 17-2136 (Fed. Cir. filed June 8, 2017).
[R]elatively little significance can be given to this guarantee language. In the context of annuities, “guaranteed” is generally used as a term of art to
establish that an annuity that is measured by an annuitant’s life will continue to make payments in the event of death before the end of the guaranteed
period. In the Shaws’ agreement, the use of the term “guaranteed” indicates that the monthly payments will be made until 20 years have passed or until
the death of the annuitant, whichever is later.
In Granting the motion for reconsideration, vacating thee prior order and granting the United States's motion to dismiss, the Court concluded that "like in Shaw, the agreement here does not provide that the payments made by the annuities discharge defendant’s obligation; rather, the agreement
provides for the “purchase of an annuity,” and a lump sum payment, “in full satisfaction and final settlement” of plaintiff’s claims
Following are links to an assortment of blog posts that I've written over the last 13 years, which address the terms " guarantee" and " certain" as they apply to structured settlement annuities: