Structured Settlement Annuity Ownership Rights Upheld in California

In a meaningful victory for structured settlement annuity owners and issuers, the Southern District of California recently dismissed the claims of alleged “intended” beneficiary, Tera Vance, after having dismissed several unsubstantiated claims of Vance months prior in favor of an annuity owner and issuer. For structured settlement annuity owners and issuers, the Judgment issued by Judge Benitez further affirms prior California holdings that the “right to designate the beneficiary of a [structured settlement] annuity was held by the owner of the annuity, not the annuitant or payee.” Vance v. Barnett, et al., Case No. 3:20-cv-01480-BEN-KSC (S.D. Cal.).

A structured settlement annuity is typically purchased in connection with settlement of a tort claim to allow for payments to be made over a period of time to the claimant. In this instance, an individual became entitled to receive certain periodic payments following such a settlement. As is often the case, the obligation to make the periodic payments was assigned by the tort defendant to an obligor, which purchased an annuity from a life insurance company in order to fund that obligation. Pursuant to the terms of the annuity, the individual payee was the “Optional Payee.” Contract ownership was vested in the obligor. The individual payee sought to change the “Contingent Payee,” or beneficiary of the annuity, in part, to a third-party, Vance. In doing so, the individual payee submitted a change form to the owner and issuer, but the form was ultimately rejected by the owner because it was not in good order. The individual payee relocated just before the letter rejecting the form was sent by the issuer, and so it was unclear whether the individual payee saw the rejection before passing away a few months later.

Upon learning that she was not the contractual beneficiary of the annuity, Vance filed a dozen-count complaint against the annuity issuer (not the owner), and the named contractual beneficiary, the individual payee’s sister. The complaint included claims for inter alia, negligence, breach of contract and emotional distress. In her complaint, Vance advanced a legal theory that, as an “intended” or “third-party” beneficiary of the contract, she not only (i) had standing to sue the annuity issuer; but that (ii) the issuer owed her a legal duty as well. After the issuer was successful dismissing most of Vance’s claims on motion to dismiss, Vance filed two amended complaints – the second adding the annuity owner as a party.

Following a second motion to dismiss filed by the annuity owner and issuer, the Court dismissed Vance’s lawsuit in its entirety, with prejudice. In doing so, the Court relied on the earlier opinion issued in Sisco v. Cosgrove et al., 51 Cal. App. 4th 1302, 1309 (1996), holding that Vance was not, in fact a “third party” or “intended” beneficiary of the contract – in fact, she was a contractual stranger to the owner and issuer and thus not a proper party to such an action. This holding further vested all contractual right in the annuity owner to appoint a “Contingent Payee,” or beneficiary, in accord with the contractual terms. The Court here got it precisely right, providing yet another strong case to support the contractual right of annuity owners in the structured settlement space. The decision should serve as a deterrent to others considering claims surrounding supposed beneficiary designations by those other than the annuity owner will not be enforced or allowed to proceed in California.