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Unallocated Annuity Contracts
payments to individuals. The option to purchase an annuity does not make the
funding agreements annuities, notwithstanding ten year guaranty of periodic
payment settlement option contained therein. Moreover, the reserve deposit
fund agreements are not eligible for coverage as “supplemental contracts”
since they are wholly independent of the life insurance policies issued.
Fifth Circuit
Alaska
Arizona
Indiana
Texas Life, Accident, Health & Hosp. Serv. Ins. Guar. Ass'n v. Gaylord
Entertainment Co., 105 F.3d 210 (5th Cir. 1997). GICs issued to employersponsored
retirement plans are unallocated annuity contracts, and are covered
by guaranty association in the amount of $5 million per contract holder, not per
employee‐participant in the plan.
Unisys Corp. v. Burke, No. 3AN‐97‐2685 (Alaska Super. Ct. June 25, 1998). Plan
administrator and trustee sued Alaska insurance commissioner and Alaska Life
and Health Insurance Guaranty Association seeking participant level coverage
for portions of plan which were invested in four ELIC group annuity contracts,
arguing that participants were beneficial owners’ of the ELIC contracts, and thus
satisfied the Act’s prerequisite for ownership in order to obtain coverage.
Plaintiffs also alleged the ELIC contracts represented allocated annuities
because they guaranteed annuity benefits to an individual. The Association
prevailed on summary judgment arguing alternatively a statute of limitation
defense, and that the ELIC contracts were unallocated annuity contacts for
which the contract holder failed to meet the prerequisite of being an Alaska
resident.
Arizona Life & Disability Ins. Guar. Fund v. Honeywell, Inc., 190 Ariz. 84, 945 P.2d
805 (1997). Although GICs were issued to trustees of employee retirement plan,
court found individual plan participants to be equitable owners of the GICs.
Accordingly, the GICs fell within the coverage provision for annuity contracts
issued to state residents, and the Arizona association was obligated to cover
losses to pension plan caused by GICs.
Bennett v. Indiana Life & Health Ins. Guar. Ass’n, 688 N.E.2d 171 (Ind. Ct. App.
1997). The trustee of a pension benefit plan holds the assets of the plan in trust
for the exclusive benefit of the plan participants, who are, in turn, the beneficial
or equitable owners of any contracts held in trust for their benefit. Resident
plan participants are residents to whom contractual obligations are owed under
Indiana guaranty association law. The term “life,” against which statutory
obligations and coverage limitations are measured, refers to the lives of resident
plan participants rather than the GIC contract holders who may be benefit plan
trustees.
Maryland Board of Trustees v. Life & Health Ins. Guar. Corp, 335 Md. 176, 642 A.2d 856
(1994). Utilizing liberal construction of the statute, the court held that GICs
issued by ELIC are annuities for purposes of coverage under a version of the
Model Act with no reference to unallocated annuity contracts; it is a question of
fact whether the annuity features of the contract are too indefinite to be
enforced.
Pennsylvania
Unisys Corp. v. Pennsylvania Life & Health Ins. Guar. Ass'n, 667 A.2d 1199 (Pa.
Commw. Ct. 1995), aff’d, 684 A.2d 546 (Pa. 1996). Under version of the Model
Act with no reference to unallocated annuity contracts, the GICs were held to
be covered annuity contracts. The guaranty association was only liable to the
trustee who was a state resident.
Texas Unisys Corp. v. Texas Life, Accident, Health & Hospital Serv. Ins. Guar. Ass’n, 943
S.W.2d 133 (TX. Ct. App. 1997). Executive Life GICs were “unallocated annuity