Past Expect Focus articles have reported on the dismissal of “bonus” fixed annuity suits by several courts (see Expect Focus, Vol. IV, Autumn 2007, and Vol. II , Spring 2007). Now, a Pennsylvania federal district court has rejected efforts to certify national and state-only classes of “bonus” annuity purchasers.

The plaintiff in Smith v. John Hancock had alleged that purchases of the insurer’s fixed annuity contract were predicated on the promise that purchasers would receive a first-year bonus interest rate, which was supposedly illusory because the product allegedly was designed to allow the bonus to be “recaptured” in subsequent years through the setting of lower renewal rates. Prior to issuing the class certification ruling, the Smith court dismissed seven of the nine claims in the complaint, concluding, inter alia, that plaintiff’s theory of liability did not support a breach of contract claim. While the plaintiff’s common law and statutory fraud claims survived dismissal, the court ultimately rejected class certification of those claims on multiple grounds.

The court ruled that plaintiff’s purchase of two fixed annuities with a firstyear bonus interest rate from another insurer just two months after she purchased the defendant’s annuity subjected her to unique defenses, rendering her both an inadequate and atypical class representative. Also, finding that the relief sought by the plaintiff related exclusively or predominately to money damages, the court declined to certify a Rule 23(b)(2) class. Finally, rejecting a Rule 23(b)(3) class, the court found that common questions did not predominate over those affecting only individual class members because the element of reliance, key to both fraud-based claims, could not be presumed.

Smith confirms that despite efforts by the plaintiffs’ bar to focus on purportedly uniform product features rather than point-of-sale representations and omissions, the need to establish reliance remains a formidable obstacle to class certification. Smith also illustrates the potential benefits of pursuing dispositive motions prior to a court’s assessment of class certification so that, at a minimum, the number of claims under consideration for class certification might be narrowed and sharpened. Jorden Burt represented the insurer in this litigation.