From DeFillippo’s complaint:
Several judges have rejected claims against accounts like the Alliance Account, concluding that beneficiaries are in virtually the same position they would be in had the insurer sent them a check because consumers can immediately withdraw the full proceeds. On Friday, Sept. 10, a federal judge in Nevada threw out a lawsuit against MetLife that alleged the insurer misled beneficiaries over the use of such an account. Last December, Judge Joseph Greenaway Jr., in federal court in Newark, N.J., asked a plaintiff’s lawyer, “What am I missing here? Your client has the ability to get all of her money from day one.”
But Bloomberg, in its July 28 story, did discuss the state of litigation, and it’s not as simple as DeFillippo makes out:
A few people have sued insurers over the use of retained-asset accounts. Prudential won a lawsuit in 2009 in which a survivor complained about the Alliance Account. MetLife has a case pending in which a survivor says that she was cheated by the retained-asset account. In court-filed papers, MetLife denies any wrongdoing.
There has been only one ruling by a federal appellate court on the substance of such accounts —and it went against an insurance company.”
As for the Nevada case, although a win for MetLife, it was not an endorsement of the accounts. Bloomberg dealt with the ruling by U.S. District Judge Larry Hicks, in Reno, in a story on September 28 (although that story had not run when DeFillippo complained to The Audit):
Hicks said MetLife, the biggest U.S. life insurer, gave consumers the misimpression that its Total Control Account Money Market Option account for death benefits was insured by the Federal Deposit Insurance Corp. Still, he threw out the suit, which claimed the insurer unfairly profited on the policy, saying the beneficiary had not lost money….
‘An ordinary reasonable person, provided with the contract at issue, would be under the impression that they were receiving either a money-market account or an account associated with money market protects,” Hicks wrote.
Far from endorsing retained asset accounts, Hicks characterized them as confusing, providing further support to the Bloomberg story.
The story on the ruling (which, again, came after DeFillippo complained) also noted that “Most court rulings on retained-asset accounts have favored the insurance industry.”
In his e-mail to us, DeFillipo accurately describes the judge’s ruling but left out the important context of his comments.
I think Bloomberg did a good job, even in its first July 28 story, of making it clear that litigation by account holders against insurance companies was far from a slam-dunk.
From DeFillippo’s complaint:
Further, Bloomberg has deliberately misled its audience by consistently claiming that these accounts are not federally insured by the FDIC. While the statement is true and designed to lead you to believe the accounts are risky, Mr. Evan’s and Bloomberg fail to report—despite repeated attempts to correct the record—that retained asset accounts are protected by State Guaranty Funds that provide protection of at least $250,000 and up to $500,000. These guarantees are at least the same as—and in most cases exceed—FDIC guarantees.
In the first, July 28 Bloomberg story much is made of the lack of FDIC protection for these accounts.
In tiny print, in a disclaimer that Lohman says she didn’t notice, Prudential disclosed that what it called its Alliance Account was not guaranteed by the Federal Deposit Insurance Corp…
This unregulated quasi-banking system operated by insurers has none of the protections of the actual banking system. Lawrence Baxter, a profesor at Duke University School of Law in Durham, North Carolina, say the potential exists for a catastrophe….
There’s more than $25 billion out there in these accounts,” Baxter says. “A run could be triggered immediately by one company not being able to honor its payout. The whole point of creating the FDIC was to put an end to bank runs…..
‘The way Prudential has set up the ‘checks’ implies that JPMorgan stands behind the accounts and that they are thus backed by the FDIC,’ Duke’s Baxter says.