‘The court is troubled’: Judge tells Security Benefit, plaintiffs to work faster

Nearly five years after plaintiffs sued Security Benefit Life Insurance Co. over the performance of a proprietary index and companion fixed indexed annuity, the pace of the case has slowed to a crawl.

And the Kansas judge assigned to hear it is not happy. "The Court does not find good cause for another 90-day extension to the existing case schedule," Judge Rachel E. Schwartz informed parties Monday.

Schwartz granted repeated delays and extensions while Security Benefit and plaintiffs wrangle over discovery details.

"Among other issues, the Court is troubled that meet-and-confer discussions that occurred in July have not resulted in the service of amended discovery responses and no depositions have occurred or been scheduled," Schwartz wrote.

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.

Advertising questioned

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.

A Kansas judge dismissed the original lawsuit in 2021 and plaintiffs appealed to the Appeals Court for the 10th District. In March 2023, a three-judge Tenth Circuit panel ruled 2-1 to revive the class action case.

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, Judge Harris 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."

Security Benefit declined to comment on the delays in the case and whether the two sides have had settlement talks. A spokesman for the insurer reiterated that Security Benefit "believes that it has substantial defenses to the claims alleged, and intends to vigorously defend itself in the action."

'Working diligently'

Little headway has been made since the 10th Circuit kicked the case back to the Kansas District Court. In a status report filed with the court Friday, the parties claim they have been "working diligently" through the discovery phase.

However, "the Parties’ document discovery efforts remain ongoing," the report reads. "This is due in part to the sheer volume of discovery needed in this case, which has necessitated numerous (to-be-expected) follow-up inquiries from Plaintiffs."

One example is the illustrations that Security Benefit provided for annuity buyers, the report explained.

"Parties met and conferred for several months before reaching an impasse and bringing the issue to the Court," the report states. "After getting the benefit of the Court’s views on the dispute, the Parties reached a compromise. But negotiating the details of that compromise—which included a data security stipulation relating to policyholders’ [personal information] that was proposed by SBL and agreed to by Plaintiffs—took several weeks."

Third-party discovery is also being delayed, the report notes, as other partners and annuity sellers are providing documentation sought by plaintiffs.

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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.