Settlement Is Reached in Baldwin Case : 22 Brokers to Contribute $157 Million to Pool
Thousands of people who bought annuities from Baldwin-United before its collapse in 1983 will receive an “enhanced” settlement from a pool of $157 million that will be financed by 22 brokerage firms that sold the policies, state regulatory officials said Monday.
Brokers that sold the single-premium deferred annuities had faced several regulatory inquiries and court actions after Baldwin-United filed for bankruptcy protection in September, 1983.
Insurance commissioners and attorneys general representing 47 states--all but Georgia, Ohio and New York--exchanged letters of commitment confirming the tentative settlement. Forty-nine states and all 22 brokerage firms must sign the settlement before it can take effect.
Enhancement Plan
Details of the so-called enhancement plan are scheduled to be revealed today by insurance regulators and Metropolitan Life Insurance, which has offered to handle distribution of the pledged funds.
The agreement calls for each of the securities dealers to pay $5 million in lieu of fines, forfeitures or other claims that state officials might have assessed for alleged violations of consumer-protection and insurance laws.
Four of the firms will each contribute about $12 million more to settle private class-action claims against them filed by holders of the annuities. The other 18 earlier settled similar suits at a shared cost of about $140 million.
In addition, about 30 insurance companies, led by Metropolitan, earlier indicated a willingness to participate financially in a settlement, which also would distribute Baldwin-United’s remaining assets.
“This is a critical step in achieving agreement on an enhancement plan of the Baldwin-United Insurers,” said Iowa Insurance Commissioner Bruce Foudree, president of the National Assn. of Insurance Commissioners. “This is the first time the states have joined to forge such a national regulatory settlement agreement for the benefit of insurance policyholders and is absolutely unique in the history of the United States.”
The settlement will spare policyholders “years of protracted litigation,” said Massachusetts Atty. Gen. Francis X. Bellotti, chairman of a special Baldwin-United subcommittee of the National Assn. of Attorneys General.
Because the insurance industry is regulated by the states and not the federal government, developing a settlement required unusual coordination, drawing upon the services of both national associations. The two groups jointly announced the tentative settlement.
“My office and those of many other attorneys general and insurance regulators have alleged that Baldwin products were marketed aggressively by most of the major brokerage firms in violation of state consumer protection and insurance laws,” Bellotti said.
More than $3 billion of the annuities--touted as high-return, low-risk, tax-deferred investments--were sold to 165,000 people nationwide by six insurance subsidiaries of Cincinnati-based Baldwin-United from 1979 through July, 1983, when the subsidiaries were taken over by insurance commissioners after the units and their parent were unable to convince creditors to grant extensions on nearly $1 billion in debts. Baldwin-United later filed for reorganization in federal bankruptcy court in Ohio.
Purchasers of the annuities made a single payment--typically $20,000--and were promised interest rates averaging 14% for the first year and a guaranteed minimum of 7.5% for the next 10 years, with interest income remaining untaxed until the investor began drawing benefits, generally at retirement.
The goal of the “enhancement plan” was to increase the brokers’ contributions to the settlement enough to pay policyholders the 7.5% interest promised them at the time of purchase, with a refund of principal by 1988. An earlier rehabilitation plan approved by bankruptcy court would have offered investors a 5.5% return.
