When it comes to complying with the suitability standards that states are now imposing on annuity transactions, uniqueness definately counts. And the unique combination of factors and circumstances that insurers and producers must consider in determining whether an annuity transaction "makes sense" for a particular consumer have never counted more as three of the top seven annuity writers in the industry await certification rulings that are expected later this year and in early 2008.

It all started this past June when the federal district court in Hawaii entered the only order denying class certification in any of the sales-to-seniors annuity class actions that are being filed across the country. The plaintiffs in Yokoyama v. Midland National LIfe Insurance Company, 2007 U.S. Dist. LEXIS 45318, alleged they had been damaged by the mere purchase of Midland annuities because of surrender charges and liquidation restrictions in the products. Judge J. Michael Seabright refused to treat all Hawaii consumers that purchased Midland National annuities the same because each consumer in the purported class had heard a different sales pitch, experienced a different sales presentation and purchased a fixed index annuity based on very different financial conditions and objectives. The Yokoyama decision  is currently on review before the Ninth Circuit.
 
Robert D. Phillips, Jr., of the Oakland, California firm of Reed Smith LLP, who represents Midland National, is now preparing for a round of certification hearings in Los Angeles before the Honorable Christina A. Synder that involve annuity products sold by Midland National, Old Mutual, and American Equity.  In those cases, Phillips will be trying to tell Judge Snyder why she should follow Yokoyama and why the matters before her are different from the suitability enforcement action that Minnesota Attorney General Lori Swanson has filed against Allianz Life Insurance Company of North America, one of the world’s largest insurers.

Phillips has a good chance of prevailing on summary judgment against the individual plaintiffs in Yokoyama because the annuity contracts at issue provided full payout to beneficiaries, thereby rendering the surrender penalties and liquidation restrictions about which plaintiffs complained irrelevant. But Phillips' success in one very important battle hardly guarantees victory in the ongoing class certification war. The path of a lawsuit changes dramatically after a determination concerning class certification is made in a case and moves quickly into settlement negotiations if certification is granted. Thus, if Judge Snyder decides that a "one-size-fits-all" approach has tainted the sales practices at issue in the cases before her, each resultant plaintiff class could gain access to some very deep pockets. You can almost hear the life insurance industry holding its collective breath.

For a more complete discussion of the Yokoyama v. Midland National decision and the suitability issues raised by various pending sales-to-seniors annuity cases, check out the upcoming issue of Mealey's Insurance Regulatory Compliance Report, which will be available after September 27, 2007 at http://www.lexis.com/xlink?source=mealey;meairc&relativedate=previos_2_months.