Structured Settlement Cash-out Left Impaired Man with Little. Transamerica Not Liable

Transamerica’s annuity and life insurance units have dodged a bullet and are not liable for their roles in a mentally challenged man giving away most all of his lifetime structured-settlement benefits, a federal appeals court decided.

The U.S. 11^th Circuit Court of Appeals, in a case that originated in Miami and required analysis of New York and Florida state law, upheld the dismissal of a lawsuit against Transamerica, part of Wilton Re U.S. Holdings since 2017. The lawsuit and court opinion highlight what has been called gaping holes in laws that were designed to prevent unscrupulous companies from taking advantage of disabled people and others with long-term settlement plans.

Lujerio Cordero was exposed to lead paint while he was a small child growing up in a New York apartment building, according to the complaint, impairing his mental abilities. In 1992, his mother sued the landlord. Four years later, she entered into a structured settlement agreement on behalf of Cordero with the landlord’s insurer, Continental Insurance Co. Starting in 2008, when Cordero turned 18, he was to receive monthly payments of $3,184 for the next 30 years – a total of almost $1.15 million.

Continental arranged for those payments to be made through an annuity contract with Transamerica Life Insurance Co., serviced by Transamerica Annuity Service Corp.

By age 22, Cordero had moved to Florida. He signed six transfer agreements with factoring companies, agreements that the court said he lacked the capacity to understand. At the urging of his mother, he gave up his right to the $1 million over the next three decades — in exchange for lump-sum payments of about $268,000, the court documents indicate.

After the man had exhausted the cash, he felt he had been duped and sought to recover the full amount of the structured settlement. His attorneys, Brenton Ver Ploeg and Michal Meiler, of Miami, filed suit in 2018, not against the factoring companies but against Transamerica. The suit asked for the difference in what Cordero received and the original amount of the structured settlement, plus costs and attorney fees.

The complaint argued that the annuity company had breached the contract under New York law, including a breach of the implied covenant of good faith and fair dealing. They also charged that Transamerica representatives exploited a vulnerable adult, a violation of Florida’s Adult Protective Services Act, known as FAPSA.

“Transamerica knew well that it could have prevented the sale of any portion of Lujerio’s structured settlement entitlement. But that’s not what happened,” reads the complaint.

The 1996 structured settlement agreement contains an anti-assignment clause, that specifically barred the recipient from assigning his benefits, a provision designed to protect the beneficiary, attorneys in the case told the court. Transamerica had a duty to enforce that, and courts have invariably honored protection clauses when annuity firms have objected to transfers, the complaint notes.

Laws in 49 states also require courts to approve assignments to factoring companies. But courts have frequently failed to interview beneficiaries before allowing the pennies-on-the-dollar agreements, the complaint alleges. In all six of the assignment agreements, courts in Sumter County and Broward County, Florida, approved the arrangements without an appearance by Cordero in court. He provided only a written waiver, although sales representatives from the factoring companies were present in the hearings.

These circumstances are “poorly kept secrets,” and well known to Transamerica, Ver Ploeg and Meiler wrote.

“Florida is a target-rich environment for an industry preying on lead-poisoned victims,” the plaintiff attorneys alleged in the suit. “The incidence of the victim’s personal appearances before a judge is vanishingly small – in none of Lujerio’s sales was he aware that a hearing occurred, having supposedly waived that entitlement – and lawsuits invoking Florida’s Structured Settlement Protection Act (“SSPA”) are handcuffed by a one-year statute of limitations.”

The federal court for the Southern District of Florida dismissed Cordero’s claim in 2020. The 11^th Circuit last week affirmed the dismissal, but not until it asked the New York Court of Appeals to answer weather the plaintiff had a covenant-of-good-faith claim under New York law. The New York court said “no.”

The 11^th Circuit judges found that Cordero’s claim under Florida’s vulnerable adult law also failed.

“Based on the facts that Cordero pleaded, Transamerica’s actions simply do not amount to ‘exploitation’ as that term is defined in FAPSA. Because Cordero has failed to state a violation of FAPSA, we affirm the district court’s with-prejudice dismissal of his FAPSA claim,” the court’s opinion notes.

Transamerica, represented by the Cozen O’Connor law firm, argued in its motion to dismiss Cordero’s claim that the assignment agreements did not impose a fiduciary duty on the corporation or on Continental Insurance to analyze and investigate the transfers.

“Allowing the Florida courts to perform their obligation to decide whether or not to approve those transactions is not actionable conduct,” the motion reads. The plaintiffs also did not show that Transamerica knew that Cordero was mentally challenged or could not manage his own affairs.

“Defendants cannot reasonably be found to owe a legal obligation to seek enforcement of a contract provision that plaintiff had already violated by entering into agreements with factoring companies to sell his payment rights,” the Cozen lawyers wrote. “To hold otherwise would turn the implied covenant of good faith and fair dealing on its head.”

The attorneys in the case could not be reached for comment. The appeals court opinion can be seen here.

Topics Florida New York