Bass, Berry & Sims attorney Chris Lazarini provided insight on why fixed annuities can be classified as insurance products rather than securities. In this case, the court relied on Supreme Court and other cases to determine the annuity was an insurance product, not a securities product, because the payments to decedent were fixed during the payment period and are therefore subject to state insurance law regulation and are exempt from federal securities laws.
Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.
Legacy Consulting Group, LLC vs. Gutzman, No. 2018-CA-001580 (Ky. App., 5/29/20)
*Fixed annuities are subject to state insurance law regulation and are exempt from federal securities laws.
**Disputes involving insurance contracts are exempted from arbitration under Kentucky’s Uniform Arbitration Act.
As Executrix of a decedent’s estate, Gutzman sued Legacy Consulting, Money Concepts, and Jackson National, seeking relief under contract, tort, fiduciary, and statutory law related to the sale of a Jackson National annuity to the decedent prior to her death. The complaint alleged Defendants improperly sold the 89-year-old decedent a half-million-dollar annuity (the “Annuity”) with life benefits only and no residual benefits to her heirs. Defendants moved to compel arbitration under the Federal Arbitration Act and Kentucky’s Uniform Arbitration Act, relying on an agreement containing an arbitration clause signed by the decedent when she converted an existing variable annuity into the Annuity.
Defendants argued the Annuity was a security and arbitration was required, because it accrued interest at a variable rate. Gutzman countered that the Annuity was an insurance contract, exempt from arbitration under the Kentucky Act, because it provided fixed payments to the decedent. The trial court sided with Gutzman and denied the motion to compel arbitration. This interlocutory appeal followed.
Conducting a de novo review and examining the Annuity documents and multiple Supreme Court and other cases considering whether various types of annuities were securities or insurance products, the Court affirms. The Court rejects the language on the documents reflecting the decedent was purchasing a variable product and is not troubled by the absence of a fixed account option among the available investment allocations. Instead, the Court finds the Annuity is an insurance product, not a securities product, because the payments to decedent were fixed during the payment period.