ALBANY, N.Y. (Legal Newsline) - A man who traded a lifetime annuity of $3,000 a month for up-front payments worth a fraction of that amount can’t sue an insurance company for allowing him to sign such a bad deal, New York’s highest court ruled.
Issuing an opinion for the 11th Circuit Court of Appeals, the New York Court of Appeals said that Lujero Cordero had no case against Transamerica Life Insurance for failing to inform a Florida court that he suffered mental damage from lead poisoning.
Cordero’s mother sued their landlord when he was five and won tax-free payments of $3,183.94 a month until Cordero died. The structured settlement included a clause prohibiting Cordero from assigning, selling or mortgaging his payments. Such clauses are typical and intended to keep plaintiffs from squandering money they have won for lifetime care on short-term purchases.
As an adult living in Florida, Cordero decided to sell his annuity to a factoring company for immediate cash. In one deal he received $15,000 for $90,000, representing an implied annual interest rate of more than 20%. In all, he sold payments worth nearly $1 million over 20 years for $268,000.
Cordero needed court approval for each transfer under Florida’s Structured Settlement Protection Act, similar to laws in 49 states. Under Florida’s law, the factoring company must give notice to “all interested parties” including the company that issued the annuity. Only lawyers for the factoring companies attended court hearings, however. The court allowed the transfers, ruling they were in Cordero’s best interest.
After spending the proceeds repaying loans and buying a car, Cordero sued Transamerica. He claimed the insurance company violated an “implied covenant of good faith and fair dealing” under New York law by failing to stop the transfers, which were prohibited under his settlement agreement. The 11th Circuit certified the question to the Court of Appeal, which said there was no such duty in an April 25 decision.
The anti-assignment clause isn’t necessarily for the plaintiff’s benefit, the court observed, and even if it were, a reasonable person wouldn’t think it was up to the insurance company to enforce it. Under Florida law, “the court, not the issuer or obliger, is tasked with being the gatekeeper” deciding whether the transfer is in the plaintiff’s interest, the New York court said.
To hold otherwise would be creating an implied fiduciary duty “to protect a plaintiff from the consequences of their own breach,” the court said.
Judge Jenny Rivera dissented, saying majority “lost the forest for the trees” by focusing on whether Cordero had an obligation to object to the transfer he arranged when the real question was whether Transamerica had a duty to tell the court about his mental deficiency. In a lengthy opinion tracing the history of litigation over lead paint, Rivera described Cordera as “one of the thousands of children of color who would suffer lifelong cognitive impairment from lead poisoning.”
Once Transamerica was on notice that Cordera was trying to sell his annuity, she wrote, “the implied covenant encompassed a minimal duty that defendants disclose plaintiff's diminished mental capacity to knowingly agree to such transfers. This ensures that the Florida courts have the information they require to determine whether to approve the transfers.”