Ex-Lincoln Financial agent is lead plaintiff in Texas lawsuit over insurer’s FIA sales

Picture shows a man looking through binoculars with index results reflected in the lenses. — Plaintiffs allege that Lincoln Financial misrepresented the gains an FIA would earn.

By John Hilton

A former Lincoln Financial agent is the lead plaintiff on a Texas lawsuit alleging that the insurer misrepresented the potential returns with its OptiBlend fixed indexed annuity.

Former agent Henry Morgan and eight other plaintiffs, all Morgan's clients, signed FIA contracts in February 2020, court documents say. Plaintiffs say Lincoln led them to expect the consistent 6% gains illustrations showed.

Whether the lawsuit succeeds or not could hinge on how the court views Morgan's role as both agent and customer. A spokesperson for Lincoln said the insurer will not comment on active litigation.

Having an agent sue his carrier for products he sold is not a good look for the annuity industry, said Sheryl Moore, CEO of Wink Inc. and Moore Market Intelligence.

"This has huge implications," she said. "Other agents appointed with just about any insurance company in the indexed annuity market could make the same move."

The plaintiffs seek class-action status and are suing both Lincoln and Fidelity Product Services, provider of the index upon which the Lincoln OptiBlend FIA is linked. Lincoln and Fidelity filed motions to dismiss this week.

The motions argue that the lawsuit should be dismissed because plaintiffs do not state a claim. In other words, "they do not plausibly allege an actionable misrepresentation or non-disclosure," Lincoln's motion reads.

Likewise, plaintiffs are "time-barred." The alleged misrepresentations took place in 2019 and 2020, and "the discovery rule and fraudulent concealment doctrine do not apply," attorneys for the defendants say.

Initially filed in Dallas County court in February, the defendants successfully petitioned a month later to move the lawsuit to the U.S. District Court for the Northern District of Texas.

What was Morgan's role?

The lawsuit claims a Lincoln marketing consultant "made several oral representations to Henry Morgan and, on information and belief, made the same misrepresentations to other brokers, agents and customers, that when the market was no longer in the bull direction a return would still be generated because of the dividend stock mix in the index."

In its response, Lincoln claimed the marketing information referenced in the lawsuit was emailed to Morgan and other Lincoln agents and marked, “For agent use only. Not for use with the public.”

"Thus, the alleged misrepresentations are not actionable," Lincoln attorneys wrote. "For the same reason, the oral representations ... allegedly made to Morgan, other agents, and brokers are not actionable."

Lincoln noted that all of the plaintiffs signed an application in which he or she acknowledged that “all payments and values provided by the contract, when based on experience of the index Account, are not guaranteed as a dollar amount.” Also, the Annuity Disclosure Statement, which
each Plaintiff acknowledged reading, stated that if the “percentage change [was] negative” for the AIM Index, there “w[ould] not be any interest credited for the term.”

In that part of its response, Lincoln claimed Morgan, as a licensed agent representing the company, possessed a greater knowledge than most about how the FIA and index work, and how to read disclosures and understand what the words mean.

"This is especially true for Morgan, whose expertise, receipt of internal materials, and access to Lincoln representatives required 'greater diligence than the execution of a written contract that directly contradicted' his purported assumptions about the AIM Index," the response reads.

All in the disclosures

Lincoln attorneys pointed out that the nine Texas plaintiffs had a choice of five different accounts to place their premium. The accounts offered indexes with differing growth potential, the Lincoln response reads.

"Lincoln consistently marketed and disclosed the OptiBlend fixed indexed annuities as a
long-term investment vehicle that was intended to 'save money for retirement or other long-term
needs,' not to 'meet short-term financial goals,'" the response reads.

Furthermore, the illustrations stated in bold on the first page, “Hypothetical values are shown for illustrative purposes and are not guaranteed," Lincoln noted.

Critics and consumer advocates say disclosure language is ineffective since consumers often don't read it or understand it.

Popular products

FIAs are popular with consumers because the 0% floor means they cannot lose money.

The Lincoln FIA was tied to the 1-Year Fidelity AIM Dividend Participation Index, as chosen by the plaintiffs. Their returns were zero or near-zero while the market was rebounding strong from a COVID-19 plunge, plaintiffs said.

Plaintiffs claim they were drawn to the alleged "Partnership" between Lincoln and Fidelity.

"Lincoln marketed this product aggressively to its agents, brokers and customers," the lawsuit reads. "Lincoln started a campaign of misrepresentation amongst its agents and brokers about the new 'Lincoln and Fidelity partnership' trading on both the reputation and name of Fidelity ... and pumping the prospect that a newly licensed product from Fidelity could provide significant financial upside to clients."

Plaintiffs are alleging fraud and negligent misrepresentation and ask the court for compensation. The lawsuit calls the FIA losses, "significant and meaningful damage for retirees and individuals living on a fixed income that looked to the defendants to provide not only a place for protection of their principle, but an opportunity for growth potential."

Illustrations used to sell FIA and indexed universal life insurance have been subjected to several lawsuits, with mixed results. Industry analysts and many regulators agree that illustrations are problematic and unrealistic.

The National Association of Insurance Commissioners is considering a full-scale revamp of the overall life insurance illustration model. The problems with life insurance and annuity illustrations all lead to the same spot: the use of proprietary indexes, most of which do not have extensive performance histories.

In lieu of real performance, insurers are back testing components of their indexes to create a history. This practice has regulators concerned.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.