By Cyril Tuohy
The West Virginia Supreme Court of Appeals ripped into a lower court for its “myopic focus,” “cherry-picked facts” and “erroneous and specious” conclusions involving an annuity contract dispute between teachers' retirement funds and a Texas-based life insurance carrier.
In handing down its decision, the state's high court reversed the lower court’s ruling and sent the case — West Virginia Investment Management Board (WVIMB) and the West Virginia Consolidated Public Retirement Board (CPRB) v. The Variable Annuity Life Insurance Co. (VALIC) — to the state’s Business Court Division.
“We feel good about the Supreme Court’s decision,” Craig Slaughter, executive director of the West Virginia Investment Management Board, said in an interview with InsuranceNewsNet. “We want it to go to Business Court. They ruled in our favor on all the major points.”
Jeffrey E. Fleck, CPRB executive director, declined to comment because the case was still in litigation.
“VALIC respectfully disagrees with the court’s ruling and will continue to vigorously defend its interests in this matter,” the company said in an emailed statement to InsuranceNewsNet.
The WVIMB and the CPRB had appealed a decision by the Circuit Court of Kanawha County finding in favor of VALIC.
Writing for the Supreme Court of Appeals, Justice Allen H. Loughry II said, “We find that the trial court committed error in its grant of summary judgment to VALIC and, accordingly, we reverse.”
Loughry also wrote that the trial court, in finding that there was no “justiciable controversy” between the board and VALIC, had relied upon “carefully-crafted factual findings.”
“Illustrative of this point is the myopic focus by the trial court on the Board’s failure to demand immediate cash surrender of the electing teachers’ assets in June 2008 or thereafter,” Loughry wrote in his 39-page decision. “Only by applying a hypercritical lens to this case can that statement be viewed as veracious; critically, the implication that the Board never sought a cash surrender is not.”
In West Virginia, the circuit courts are trial courts. Decisions made by the circuit court are appealed to the Supreme Court of Appeals, the state's highest court. The Business Court Division is a trial court with jurisdiction over business matters.
Poking still more holes in the lower court’s decision, Loughry found that “the trial court erred in finding that VALIC had not denied any right asserted by the Board under the 1991 Contract.”
“In clear contrast to the circuit court, we find that the requisite assertion of a legal right by one party and the denial of that right by another party to a declaratory judgment action has been demonstrated,” he wrote.
The complex dispute between the teachers' retirement funds and the life insurer began when VALIC said it would levy a surrender charge of $11.5 million when teachers sought to transfer defined contribution funds into the Teachers Retirement System defined benefit plan in accordance with the West Virginia Legislature’s Teachers' Retirement Reform Act of 1990.
The funds in the defined contribution plan were placed in a 1991 group annuity contract in which it was stated, “There will be no surrender charges under this Contract,” according to court documents. VALIC eventually relented on the surrender charge.
In order to meet fiduciary obligation as to the transfer of the funds from the defined contribution plan to the defined benefit plan, the CPRB and the WVIMB in 2008 decided to buy a second annuity contract from VALIC, court documents indicate.
On Dec. 10, 2008, the CPRB submitted a request to transfer $248.3 million from the 1991 annuity contract to the 2008 annuity contract, and on Dec. 18, 2008, the WVIMB requested a withdrawal of all funds in the 2008 contract, according to court documents.
VALIC refused to surrender the funds in a lump sum, forcing the retirement board investment managers to withdraw funds in installments, the last of which were withdrawn in May 2013, court records show.
Loughry found that the trial court had resorted to cherry-picked facts with regard to the 2008 contract and the circuit court’s granting of summary judgment to VALIC.
The trial court’s finding that the Board “lacked the requisite standing to be a party to any proceeding involving the 2008 Contract,” was a “conclusion both erroneous and specious,” Loughry wrote.
Slaughter, the WVIMB executive director, said VALIC had made the case more complicated than it ever needed to be.
“Under the contract, the state was entitled to the monies in the participants’ accounts that was going to be transferred over to the teachers retirement system and VALIC didn’t want to give it to us,” Slaughter said. “We don’t think it’s all that complicated.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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