The National Association for Fixed Annuities is asking an appellate court for an emergency injunction to suspend the Department of Labor’s fiduciary rule after a lower court refused NAFA’s request for a preliminary injunction.
The appeal filed Tuesday claims that NAFA members, which are marketing organizations and their advisors, will be “forced to accelerate irreversible, costly and industry-altering actions in the weeks ahead to re-structure their entire distribution system, which has been in place for decades.”
NAFA, represented by Bryan Cave law firm in Washington, D.C., said that maintaining the status quo of the annuity distribution system is important because the preparation to meet the April 10 applicability deadline would inflict the harm that the association’s lawsuit is trying to prevent.
The DOL’s rule requires insurance agents and advisors to hold to a fiduciary standard when selling fixed indexed annuities (FIAs) involving retirement money, while still upholding the suitability standard. Advisors would be required to demonstrate that they had the clients’ best interest in the sale and that their compensation was “reasonable,” which was not defined in the rule.
The rule also would require a financial institution to guarantee that the standard was upheld. The financial institution could be held accountable for any wrongdoing in a lawsuit. Insurance agents and independent marketing organizations (IMOs), the traditional FIA wholesaler, were not considered financial institutions in the rule. Many insurance companies, which were named as financial institutions, said they were not willing to assume the liability with independent insurance agents.
On Nov. 4, Judge Randolph D. Moss of the federal District of Columbia circuit denied NAFA’s request for a preliminary injunction and granted a summary judgment to the DOL.
The judge ruled that NAFA did not meet the standard for an injunction, namely, proving that it can win its case on merit. Appellate courts typically defer to the circuit judge’s decision and rarely issue an emergency injunction.
Three other cases are in the works. The second lawsuit, filed by Market Synergy Group, was heard Sept. 21 in a U.S. District Court in Kansas. The third of the original lawsuits was heard Nov. 17 in a Dallas federal court, a consolidated case led by the U.S. Chamber of Commerce.
All three lawsuits make similar claims that the DOL was “arbitrary and capricious” and overstepped its authority with the fiduciary rule.
A fourth case – Thrivent Financial vs. Department of Labor – takes a different route in challenging the DOL’s class-action provision. It will be heard March 2 in St. Paul, Minn.
Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected]
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