A judge for the Southern District of Ohio tossed out a pair of lawsuits by separate brokers last week, bolstering Ohio National's 2018 decision to eliminate trail commissions on certain variable annuities.
Judges in a pair of other lawsuits have ruled that broker-dealers Veritas Financial Partners and NEXT Financial Group may proceed with claims against Ohio National.
Ohio National terminated "any and all servicing agreements" on the VAs in question on Dec. 12, 2018. The decision is believed to be the first of its kind in the industry. The VAs with a guaranteed minimum income benefit rider are appealing to clients looking for guaranteed income in retirement.
The four lawsuits have been tied up in the court system for months and include:
- A class-action lawsuit filed in March by Stephen Cook, a Dallas-based advisor affiliated with Triad Advisors.
- A lawsuit by broker Lance Browning filed in November 2018. Initially filed as a class-action lawsuit, Browning later amended his claim to include only LPL Financial reps.
Judge Susan Dlott dismissed both claims, siding with Ohio National's argument that Browning and Cook lacked standing to sue.
- Veritas Independent Partners, an independent broker-dealer based in Conway, Ark., filed its lawsuit on behalf of broker-dealers in November.
"Defendants have not established as a matter of law that their obligation to pay trail commissions to Veritas ended in December 2018 when they terminated the selling agreement," Dlott wrote.
- NEXT Financial filed suit in the Southern District of Texas seeking to recoup lost trail commissions. Judge Alfred H. Bennett permitted that lawsuit to proceed in a Sept. 26 ruling.
In making her Oct. 2 ruling, Judge Dlott deviated from a recommendation from Magistrate Judge Stephanie K. Bowman to deny Ohio National's motion to dismiss the lawsuits.
Cook and Browning both claimed that Ohio National breached the terms of the selling agreement it inked with broker-dealers. Despite them not being party to the selling agreements, both argued that they were intended third-party beneficiaries. Ohio National said the brokers lacked standing to bring a claim since they were not party to the agreement.
A spokesperson for the insurer gave InsuranceNewsNet the following statement on the four lawsuits:
We are pleased with Judge Dlott’s dismissal of the Browning and Cook suits. We believe the Court has reached the right decision as the individual registered representatives who filed these suits are not parties to Ohio National’s selling and servicing agreements.
Regarding the Veritas Independent Partners and the NEXT Financial Group suits, these decisions are not rulings on the obligation to pay trail commissions after we ended our contract with the broker/dealer, but are simply decisions to move the case into the discovery phase as part of the normal litigation process.
Further, we believe that under the selling agreement our obligation to continue paying trail commissions on these variable annuity contracts is contingent on having a selling agreement in force.
We continue to provide all advisers with access to client contract information so they can continue to service and support these contract owners.
As a mutual insurance company, Ohio National acts in the long-term interest of all its policyholders. We have fully honored and will continue to honor our contractual obligations.
Sheryl Moore, a market research analyst and industry expert, questioned whether Cook and Browning will now join the Veritas class-action suit.
An attorney for Browning did not return phone and email messages Monday. It's possible that more distributors join the class action, Moore said.
In addition to its decision to stop paying trail commissioners, Ohio National followed up with an Oct. 29 email to clients offering a buyout of the VA contracts with the GMIB rider.
Ohio National distributes life and annuities through an independent producing general agent channel with about 11,000 agents, and through a career agency channel with about 4,000 agents, the company said.
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].
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