Ohio National: We Can Legally Terminate Selling Agreements

Ohio National is asking a federal court to dismiss a lawsuit challenging its controversial decision to terminate trail commissions on variable annuities.

The insurer bases its defense on the word "and."

In its request for summary judgement in the lawsuit filed by Veritas Independent Partners, a broker-dealer, Ohio National attorneys cite the selling agreement:

“Trail commissions will continue to be paid to broker dealer of record [a] while the Selling Agreement remains in force and [b] will be paid on a particular contract [individual annuity] until the contract is surrendered or annuitized.”

"The use of the conjunction 'and' is critical, and plainly reflects that the subject trail commissions are only payable if both the Selling Agreement is in force and the pertinent annuity contract has not been surrendered or annuitized," writes Marion H. Little Jr., attorney for Ohio National.

Ohio National informed broker-dealers in a Sept. 28 letter that it would terminate "any and all servicing agreements" on Dec. 13. That means all compensation, specifically trail commissions, stopped on that date.

The decision is believed to be the first of its kind in the industry and affects variable annuity contracts purchased with a guaranteed minimum income benefit rider. The GMIB is appealing to clients looking for guaranteed income in retirement.

Steven R. Pitzner, a Texas lawyer, doubts Ohio National will get its summary judgement from the Southern District of Ohio court.

“I think that’s a real stretch," he said of the contract parsing. "I think it’s clear that the real meaning of the parties was that the trails be paid so long as the person has the policy and hasn’t surrendered it and you could potentially get some affidavit from some IMOs that some other insurance companies have the same policies and have been paying them."

Otherwise, the parties to the lawsuit could petition for a court interpretation of the contract, Pitzner said.

'Grab Bag Of Claims'

Ohio National has been sued by several different brokers and broker-dealers. A separate lawsuit was also filed in the Southern District of Ohio by broker Lance Browning.

Ohio National attorneys previously asked the court to dismiss Browning's lawsuit. The insurer accused Browning of making "a grab bag of claims" to which he "is neither a party nor a third-party beneficiary."

An LPL broker based in Whitehouse, Texas, Browning sold annuities with Morgan Keegan and UBS/Paine Webber prior to joining LPL in 2012, court documents say. He has sold more than 100 annuities with trailing commissions that yield him $89,000 annually.

Browning's class-action lawsuit claims Ohio National is guilty of "breach of contract" and "unjust enrichment," among other claims.

Ohio National, represented by Zeiger, Tigges & Little, a Columbus, Ohio law firm, said its contracts are with the broker-dealer, not the broker.

The court has yet to rule on any of the requests for summary judgment.

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. Career agents are apparently unaffected by the decision to stop paying trails on VAs with a GMIB.

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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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.