A federal lawsuit could affect how much flexibility, if any, life insurers and reinsurers have to stretch the terms of old contracts to make products easier and cheaper to administer.
The plaintiff in the case, Anthony Ortiz-Diaz, is suing Wilton Reassurance Life Company of New York and related companies over the reinsurer's decision to process all structured settlement annuity payments on a single day at the end of the month, even if that means the payments reach each beneficiary weeks after the payment due date stated in the beneficiary's structured settlement annuity contract.
Ortiz-Diaz has a contract showing that he will get guaranteed monthly payments by the third day of each month. The failure of Wilton Re New York and other defendants "to make the guaranteed monthly payments due on the third of the month is a breach and violation of the structured settlement annuity contract with the plaintiff," according to a complaint filed earlier this month in the U.S. District Court for the District of Connecticut.
Wilton Re New York may generate hundreds of millions of dollars in extra revenue per year by using benefits payment delays to increase the average amount of assets it has earning investment income, Ortiz-Diaz says.
Ortiz-Diaz is asking for court permission to represent a class of all structured settlement annuity holders affected by Wilton Re New York's payment date consolidation move. He estimates that the class may include thousands of payees.
Wilton Re has not yet appeared in court. The company did not respond to a request for comment.
What it means: Life and annuity issuers are realizing that millions of heavily customized life insurance policies, annuity contracts and long-term care insurance policies sold from the 1960s through the mid-1990s, before modern computer systems were in use, are starting to pay benefits.
Some insurance policy and annuity contract administrators may try to negotiate informal deals with beneficiaries and work with the courts, Congress and state legislatures to cope with information gaps and simplify payment processing.
Clients and their advisors may object to some of the proposed changes and ask for the courts, Congress or state legislatures to set beneficiary protection standards when insurers, reinsurers or administrators make payment process changes.
Structured settlement annuities: An annuity is an arrangement that can convert a set amount of cash into a stream of benefits payments.
