Security Benefit petition for judicial review of index annuity lawsuit denied

A federal appeals court last week denied Security Benefit's request for a full court review of a lawsuit claiming the insurer misrepresented how much investors stood to gain on certain fixed annuities

The Court of Appeals for the Tenth Circuit rejected Security Benefit's request for an en banc review. An en banc review is heard by all of the judges of a particular court and is generally reserved for complex or important issues.

The decision to deny the en banc review means the Tenth Circuit’s reversal of the district court’s order and remand to the lower court for further proceedings stands.

Three judges dissented from the decision, with Judge Harris Hartz writing their dissent.

The lawsuit, he wrote, "introduces an unprecedented notion of what constitutes fraud, requiring a seller of an investment product not only to describe every negative feature of the product but also to analyze the possible negative cumulative effect of those features and compare that cumulative effect to the effects of features in competing products but not in the product being sold."

In March, a three-judge Tenth Circuit panel ruled 2-1 to revive the proposed class action alleging Security Benefit Life Insurance Co. engaged in fraud and racketeering by misleading investors in its Secure Income Annuity and Total Value Annuity products. Judge Hartz also dissented from that ruling.

Security Benefit released the following statement on the Tenth Circuit decisions to remand and deny an en banc review: "The Tenth Circuit’s decision to reverse and remand was not a decision on the merits of any issue. Rather, the decision means the issues are to be decided on an evidentiary record to be established at the District Court level. SBLIC is assessing all available options, believes that it has substantial defenses to the claims alleged, and intends to vigorously defend itself in the action."

Security Benefit hit with several lawsuits

The lawsuit originated in 2019 in U.S. District Court for the District of Kansas, and was one of several lawsuits in several states alleging harm by Security Benefit annuities. Plaintiffs say Security Benefit manipulated clients to invest most of their fixed indexed annuity account values in the company's synthetic index, which performed far worse than portrayed.

The lawsuit targets two of Security Benefit’s FIAs, the Total Value and Secure Income annuities, both of which were offered with proprietary indices that the company advertised as "capable of producing double-digit returns," the lawsuit alleged.

Generally, annuities are marketed with a cap or participation rate that leaves owners with less than 100% of the market gains. In exchange, the client is protected against market losses.

The plaintiffs say Security Benefit marketed its TVA products as “uncapped” and with a “100% participation” rate.

"Once consumers purchased the annuities, they were locked into them by onerous surrender penalties, by bonus claw-back provisions, and by the very structure of the Synthetic Indices themselves, which were designed to credit interest only at the end of fixed periods ranging from two to five years," the original lawsuit reads.

'Collective impact'

A Kansas judge dismissed the original lawsuit in 2021. In the March ruling, 10th Circuit Judge Veronica Rossman wrote that the lower-court dismissal failed to consider the complaint as a whole, which alleged the company concealed the "collective impact" of the terms of the annuities.

In his dissent, Hartz wrote that the decision would require sellers to not only disclose the risk of investments, but to analyze "whether, given the disclosed facts, the investment is a good one."

InsuranceNewsNet Senior Editor John Hilton 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.

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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.