Prudential Overcomes Federal Appeal in Annuity Design Case

A federal court of appeals has ruled in favor of Prudential Financial in a case involving a dispute about the creation of a new variable annuity rider.

A three-judge panel at the 6th U.S. Circuit of Appeals upheld a lower-court ruling and found that Prudential did not engage in trade secrets misappropriation in 2017 when it introduced an annuity rider similar to a rider proposed by Novus Group.

Novus Group pitched the rider to Nationwide in 2014, and two Nationwide employees then moved to Prudential in 2015 and 2016.

Circuit Judge Chad Readler wrote in an opinion for the panel that heard the case, Novus Group v. Prudential Financial (Case Number 22-3736), that Nationwide declined to sign a nondisclosure agreement before its employees heard the pitch.

The two employees who moved to Prudential and Nationwide had a nondisclosure agreement with two firms that advised Novus, Annexus and Genesis Financial Development, but the agreement did not apply to the Novus product pitch to Nationwide and did not apply to Prudential, according to the opinion.

"The district court properly found that Prudential did not misappropriate Novus's alleged trade secrets because Prudential's employees who allegedly received them would have had no obligation to keep them confidential," Readler wrote.

Novus sued Prudential over the annuity rider dispute in the U.S. District Court for the Southern District of Ohio in 2019.

The district court judge ruled in favor of Prudential in August 2022, and Novus filed an appeal in November 2022.

A Prudential spokesman declined to comment on the ruling.

Representatives for Novus were not immediately available for comment.

The Transitions Beneficiary Income Rider

The Novus Transitions Beneficiary Income Rider was supposed to help the holder of a variable annuity provide a lifetime source of income for a child, a grandchild or another party other than a spouse.

The designers took that approach because existing arrangements already helped couples provide lifetime income both for the first spouse to die and the second spouse to die, according to an amended version of the complaint Novus filed at the district court level.

Documents filed with the complaint show that an actuary at Genesis helped Novus design the proposed Transitions Beneficiary Income Rider and show how it would work.

Annexus prepared materials explaining why an insurer might want to offer the rider.

The actuary at Genesis talked about matters such as tax considerations and the possibility that the beneficiary slated to receive the lifetime benefits could fall out of favor with the contract owner.

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