Ohio National’s Shell Game in Canceling its Insurance Policy

Posted on November 27th, 2018 at 3:43 PM
Ohio National’s Shell Game in Canceling its Insurance Policy

From the Desk of Jim Eccleston at Eccleston Law LLC:

Sometimes, insurance policies are too good for insureds, and carriers take a bit of a “financial bath”.  that is the case with Ohio National’s Guaranteed Minimum Income Benefit Rider (GMIB) Annuity Contract.

What is unique, however, is that Ohio National didn’t just lick its financial wounds and move on (to offering other products more lucrative for Ohio National).  Instead, it sought to “swap” insureds out of their contracts, and when that failed, it just went ahead and terminated the contracts.

This shell game cannot stand.  Firms, advisors and their clients all will suffer.  Consider the following.

Consequences to firms:

Firms must be able to rely on the integrity of a contract, in this case the promise by Ohio National to continue to pay trailing commissions as long as the policy remains in effect, and the good faith and fair dealing of the contra-party to any contract which necessarily requires that the party will continue to honor its promise by offering and maintaining the insurance policy, regardless of its profitability.

If firms cannot rely on that integrity, or have doubts as to whether it can rely on that integrity, then as part of its product due diligence process the firm has no alternative but to reject any and all product offerings by that party.

If firms do not reject all such product offerings, firms face a major risk that their customers will seek to hold firms liable (either in individual lawsuits or in class actions) for failing to reject such product offerings and selling those products to them.  In short, firms would fail to meet its “reasonable basis suitability” standard in recommending and selling such products.  Lack of such suitability also would be of interest to FINRA Enforcement.

In addition to reasonable basis suitability, there is the assessment and disclosure of risk. As part of the due diligence process, Ohio National now has put firms on notice that it will attempt to re-write its contractual obligations, and for new offerings, draft language that seeks to give it unlimited discretion to terminate unprofitable offerings.  That knowledge puts a burden on firms to examine (with the help of legal counsel) all contract language for all Ohio National offerings, as well as the offerings of all insurance carriers, in order to gauge – and disclose -- the policy termination risk of each offering.

Consequences to FAs:

FAs have similar worries, and one major additional worry: satisfying clients by finding suitable replacement policies in view of the actions of Ohio National

In terms of the pending actions, even though a class action and an arbitration action have been filed, at the end of the day, advisors need to ensure that they will be paid their trailing commissions due.  Because advisor commissions may be lost in the litigation and arbitration shuffle, advisors should retain their own counsel to monitor those actions and object to any settlements not resulting in compensation to them.  Additionally, advisors with larger trailing commissions at stake would be well served to file their own litigation actions to ensure payment through their own legal counsel.

Eccleston Law, LLC is investigating multiple actions on behalf of advisors and/or their affected clients.

The attorneys of Eccleston Law LLC represent investors and advisors nationwide in securities and employment matters. The securities lawyers at Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities FraudCompliance ProtectionBreach of Fiduciary DutyFINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

Tags: james eccleston, eccleston law, eccleston law llc, eccleston, ohio national, finra, gmib

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