Date: 09-03-2002

Case Style: Lisa Macomber, et al. v. Travelers Property and Casualty Corporation, et al.

Case Number: SC 16647

Judge: Borden

Court: Supreme Court of Connecticut

Plaintiff's Attorney: Ralph Stone, pro hac vice, with whom, on the brief, was John C. Matulis, Jr., for the appellants (plaintiffs).

Defendant's Attorney: Thomas J. Groark, Jr., with whom, on the brief, were Kevin J. O’Connor, Joseph S. Allerhand, pro hac vice, John A. Neuwirth, pro hac vice, and Jonathan Margolis, pro hac vice, for the appellees (defendants).

Description: The plaintiffs, Lisa Macomber and Kathryn Huaman, the custodian for Joshua Adickes,1 appeal2 from the judgment of the trial court rendered in favor of the defendants, namely, Travelers Group, Inc. (Travelers Group), Travelers Property Casualty Corporation (Travelers Casualty), Travelers Equity Sales, Inc. (Travelers Equity), Travelers Life and Annuity Company (Travelers Annuity), and Salomon Smith Barney Holdings, Inc. (Smith Barney), following the granting of the defendants' motion to strike the plaintiffs' complaint. The plaintiffs claim that the trial court improperly concluded that, regardless of the theory of liability offered by the plaintiffs, all counts of their complaint must fail because they did not sufficiently allege any legally cognizable damages. We agree with the plaintiffs. The defendants, however, offer alternate grounds for striking each count of the complaint. After an examination of the defendants' alternate grounds, we affirm in part, and reverse in part, the judgment of the trial court.

The plaintiffs brought this action, in ten substantive counts,3 based on the defendants' conduct in entering into and funding certain structured settlements to settle claims with the plaintiffs. The defendants moved to strike all counts for the plaintiffs' failure to allege any legally cognizable injury. The trial court granted the motion and rendered judgment accordingly.

The plaintiffs' complaint alleged the following facts. Travelers Group is a diversified financial services holding company that conducts business in, among other areas, property and casualty insurance services. Travelers Group conducts these operations primarily through Travelers Casualty, which was formed in 1996 to hold the property and casualty subdivisions of the Travelers Insurance Group, Inc., an indirect wholly owned subsidiary of Travelers Group. Travelers Group owns approximately 83 percent of Travelers Casualty outstanding common stock. Travelers Group is also the corporate parent of, and controls, wholly owned subsidiaries Smith Barney and Travelers Equity. Smith Barney and Inc. (SBHU) Among the life insurance agencies that Travelers Equity and Smith Barney deal with is Travelers Annuity, another wholly owned subsidiary of Travelers Group.

The plaintiffs' complaint alleged, further, that, in accordance with industry practice, Travelers Casualty routinely utilizes structured settlements4 to resolve various types of claims. Once a claimant and Travelers Casualty agree on a structured settlement, Travelers Casualty enlists the aid of an insurance broker, whose job it is to arrange the purchase, from a life insurance company, of an annuity by Travelers Casualty that meets the terms previously agreed upon by the claimant and Travelers Casualty. After Travelers Casualty has purchased the annuity, the life insurance company pays a commission to the insurance broker.

The plaintiffs further alleged that Travelers Casualty deals primarily with those insurance brokers with whom it either has an affiliation or some sort of other special relationship. The brokers then pay Travelers Casualty between 25 percent and 75 percent of the commissions that they receive from the life insurance companies that sell annuities to Travelers Casualty. The plaintiffs claimed, specifically, that during the period between 1982 and 1994, Travelers Casualty employed its then affiliate, Travelers Equity, as its insurance broker. Travelers Equity, in turn, arranged for Travelers Casualty to purchase its annuities from Travelers Annuity. Travelers Equity returned to Travelers Casualty between 25 percent and 75 percent of the commissions that it received from Travelers Annuity or any other life insurance company. Beginning in January, 1994, Travelers Casualty also entered into an exclusive arrangement with Smith Barney, whereby Travelers Casualty agreed to purchase all of its annuities through SBHU. SBHU would arrange annuity purchases by Travelers Casualty from various life insurance companies, receiving commissions from those companies in return. Smith Barney, after receiving the commissions from SBHU, would pay Travelers Casualty 50 percent of the gross commission. In January, 1998, Travelers Casualty entered into a similar arrangement with Ringler Associates, and with Wells and Associates, both of whom are not parties to this action. Pursuant to this arrangement, the brokers agreed to ‘‘place a significant portion of their [nonTravelers Casualty] generated premiums with [Travelers Annuity]'' and give 50 percent of their annuity commissions to Travelers Casualty. In the remainder of this opinion, we refer to this transfer of a portion of the commissions from the brokers to Travelers Casualty as the ‘‘rebating scheme.''

In addition to the rebating scheme, the plaintiffs alleged that Travelers Casualty frequently spends less on its purchase of annuities than the amounts that its agreements with claimants call for, by overstating the present net worth of the annuities. Hereafter, we will refer to this course of conduct as the ‘‘short-changing scheme.''

The plaintiffs further alleged that Travelers Casualty ‘‘regularly and routinely solicits the sale of life insurance products'' without a license to do so. The plaintiffs contend, specifically, that the Travelers Casualty claim adjusters, through their training, sales presentation, and use of ‘‘ ‘Quote Partner' '' software, which converts a settlement amount into an annuity, ‘‘provide expertise life insurance interpretations and guidance concerning annuity valuations and the purported advantages and disadvantages of having annuities,'' and attempt to convince claimants, whose settlements exceeded certain amounts, to receive their settlements in the form of annuities.

Given this factual background, as alleged in general, we now turn to the specific allegations of the two plaintiffs. In 1988, Macomber was involved in an automobile accident. Thereafter, she settled her claim against the alleged tortfeasors, who were insured by Travelers Casualty, for $85,000. Under the terms of the settlement, Travelers Casualty agreed to pay the plaintiff $70,000 and to purchase an annuity ‘‘with an estimated present value'' of $15,000. This annuity was to provide Macomber with an income stream of $1015.18 annually, with thirty payments guaranteed. Macomber's attorneys' fees were calculated using a total settlement value of $85,000. The plaintiffs alleged however, that Travelers Casualty spent materially less than $15,000 for Macomber's structured settlement because Travelers Casualty ‘‘received undisclosed rebates in connection with the purchase of the annuity used to fund the structured settlement.''

Huaman, acting as the guardian of a minor child who also was involved in an automobile accident, entered into a similar structured settlement with Travelers Casualty. Travelers Casualty settled her claim for the full policy amount, namely, $10,000, of which Huaman would pay $3333 in attorneys' fees, and Travelers Casualty would purchase an annuity for Huaman's ward ‘‘that was represented to be of a value and cost of $6667 . . . .'' This structured settlement was to provide her with payments of: $2500 on January 21, 2005; $3000 on January 21, 2006; $3500 on January 21, 2007; and $5000 on January 21, 2008. The plaintiffs alleged that Travelers Casualty, as it did when purchasing Macomber's annuity, spent materially less than $6667 to purchase the annuity because ‘‘it received undisclosed rebates in connection with the purchase of the annuity used to fund the structured settlement.'' The plaintiffs also alleged that, even before receiving any rebate, Travelers Casualty paid Travelers Annuity $6569.51, not $6667, for the previously described structured settlement.

Contending that the defendants' rebating and short-changing schemes were illegal, the plaintiffs brought this ten count complaint. The plaintiffs alleged that they had entered into structured settlements with the defendants ‘‘under materially false and misleading circumstances because [the] defendants misrepresented the fundamental nature and terms of the structured settlements'' by failing to disclose the actual cost and true value of the structured settlements to the plaintiffs after taking into account the rebating and short-changing schemes. The plaintiffs specifically alleged that, had the defendants disclosed these practices, they would not have agreed to the structured settlements as configured, but would have negotiated for higher settlement amounts.

The plaintiffs complaint sounded in the following nine counts against all of the defendants alleging: (1) breach of the implied duty of good faith and fair dealing; (2) breach of fiduciary duty; (3) violation of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq.; (4) violation of the Connecticut Unfair Insurance Practices Act (CUIPA), General Statutes § 38a-316; (5) fraud; (6) negligent misrepresentation; (7) civil conspiracy; (8) conversion; and (9) unjust enrichment. Additionally, a tenth count sounded against Travelers Casualty only, alleging breach of contract. The defendants moved to strike the plaintiffs' complaint in its entirety, arguing that the plaintiffs had failed to assert a legally cognizable injury. The trial court granted the defendants' motion, concluding that ‘‘[e]ach of the counts of the [c]omplaint must fail because, regardless of how the plaintiffs choose to characterize the defendants' conduct, they have not asserted that they suffered any damage because they received the exact amounts which they agreed to and expected to receive under the structured settlement agreements. . . . [T]he suffering of some damage by the plaintiffs is a necessary element of all causes of action alleged in the [c]omplaint.'' The plaintiffs did not amend their complaint, and the trial court rendered judgment for the defendants striking the complaint. This appeal followed.

I.

The first issue that we must decide is whether the trial court improperly concluded that the plaintiffs did not allege any redressable harm. The plaintiffs contend that the trial court improperly struck their complaint because it focused only on the income stream that the plaintiffs had negotiated to receive and had failed to consider that the payment plan that the plaintiffs had agreed to ‘‘was induced by a representation as to its cost, and that the cost was not accurately reported to the plaintiffs in good faith.'' We agree.

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Click the case caption above for the full text of the Court's opinion.

Outcome: The judgment is reversed with respect to counts three, four, six, seven, eight and ten of the plaintiffs’ complaint and the case is remanded to the trial court with direction to deny the motion to strike as to those counts, and for further proceedings according to law; the judgment is affirmed with respect to counts one, two, five and nine of the plaintiffs’ complaint.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None