The settlement agreement for Ms. Ezell and Mr. Whitley provided that $200,000 would be “annuitized” by Lexington for the purpose of financing periodic payments, while the agreement for Ms. Biddings indicated that the “total present value” of the periodic payments would be $1,642,000.

Years after these settlement agreements took effect, the appellants accused Lexington and other affiliated insurers of misrepresenting the amount the appellants would receive from the settlements. The appellants alleged that they did not receive the promised amounts ($200,000 to be “annuitized” for Ms. Ezell and Mr. Whitley, and $1,642,000 in “total present value” for Ms. Biddings) because the life insurers that sold the annuities to Lexington diverted four percent of those amounts to pay commissions to the brokers who arranged the transactions with Lexington. These commissions were not disclosed in the settlement agreements or otherwise, the appellants contended, and as a result the insurers fraudulently misrepresented the amount that the appellants would receive from the settlements.

The appellants filed a putative class action in Massachusetts federal court, alleging that Lexington and other insurers had made fraudulent misrepresentations to the appellants, actionable at common law, and had engaged in a scheme to defraud the appellants in violation of the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).

The district court dismissed their claims, and the appellants appealed to the First Circuit.

The First Circuit's Decision

The circuit court, in an opinion by retired Justice Souter, affirmed.

In its decision, the First Circuit ruled that the settlement documents, “fairly read,” did not promise that Ms. Ezell and Mr. Whitley would receive $200,000, or that Ms. Biddings would receive $1,642,000. Rather, the circuit court continued, they promised only that $200,000 would be “annuitized” for Ms. Ezell and Mr. Whitley, and that the “total present value” of the periodic payments to Ms. Biddings would be $1,642,000. The First Circuit stated:

The amount “annuitized” to produce a periodic payment stream plausibly refers to the amount of money spent to purchase that payment stream, not the amount a beneficiary receives from it.

Similarly, the circuit court continued, the “total present value” of a payment stream “plausibly refer[ed] to its cost, not to the amount a beneficiary receive[d].”

Here, the First Circuit said, there was “no dispute” that Lexington paid $200,000 to purchase the annuities for Ms. Ezell and Mr. Whitley, and $1,642,000 for the annuities for Mr. Biddings.

The circuit court said that, assuming that the appellants' allegations about a four percent commission were true, the four percent commission payments would have been paid by the life insurance companies that sold the annuities, and would have been accounted for “as a standard element of the cost of doing business by the life insurance companies and reflected in the market prices that Lexington paid.”

In other words, according to the circuit court, the commission “was included in the price of a given annuity in the marketplace,” and the appellants provided “no basis to infer that liability insurers in Lexington's position were under any obligation to inform a settlement party of the items of overhead that it was the annuity industry's continuing practice to account for in pricing their products.”

The First Circuit ruled that because the words “annuitized” and “total present value” “simply committed Lexington to pay the amounts stated as necessary to produce the periodic payments specified in the agreements,” the annuity companies' payment of brokers' commissions from the money Lexington paid for the annuities did “not belie the facts that Lexington paid the amounts it quoted” and that the appellants received “exactly those specific annuity payments the agreements had promised.”

The circuit court said that even if there were ambiguities in the terms “annuitized” or “total present value,” the specific schedules of periodic payments set out in the settlement agreements cured them, for those agreements listed the precise amount the appellants could expect to receive each month throughout a stated period. In so doing, it said, the settlement agreements concretely defined what $200,000 “annuitized” and $1,642,000 in “total present value” meant in terms of annuity benefits to be paid to the appellants.

The circuit court concluded that because there was no dispute that the appellants received the periodic payment amounts they were promised in agreements containing no uncorrected misrepresentations, there was no allegation in the pleadings that the appellants suffered the kind of harm necessary to make out a case of the statutory or common law violations that they claimed.

The case is Ezell v. Lexington Ins. Co., No. 18-2064 (1st Cir. June 11, 2019). Attorneys involved include: Craig R. Spiegel, with whom Steve W. Berman was on briefs, for appellants. Adam H. Offenhartz, with whom James L. Hallowell, Nancy E. Hart, Peter M. Wade, William T. Hogan III, Nolan J. Mitchell were on brief, for appellees.