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

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.

* * *

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

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.

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