A case alleging fraud against senior citizens by American Investors Life Insurance Company and two of its subsidiaries was cleared for a class action under a May 12 ruling by a California state court.
The ruling by San Luis Obispo Superior Court Judge Martin Tangeman sets the stage for a September 2005 trial on the allegations, which originally were filed in 2003.
The suit claims that three senior citizens and “thousands of others” were victimized by a marketing scheme involving agents posing as estate planning experts to gain the confidence and financial information of senior citizens.
According to papers filed by plaintiffs’ attorneys, the agents then sold living trusts to the seniors, along with annuities.
The suit was filed by Los Angeles area law firms Gianelli and Morris, Ernst & Mattison, and Stephen Dorsi.
An attorney in San Francisco, Ingrid M. Evans of Renne Sloan Holtzman & Sakai, says she has a similar suit on behalf of a client, Beverly Buhs, Millbrae, Calif. Like the San Luis Obispo case, the charges involve alleged fraud in the sale of annuities and living trusts to seniors.
Buhs charges that a living trust sold to her and her husband by agents of another California insurance agency was badly put together. In her suit, Buhs charges that after her husband died, she had to hire an attorney to restructure the trust. She also lost $20,000 of a $90,000 death benefit from an annuity that the agents sold to her.
Buhs also is suing American International Group, manufacturer of the annuity. Buhs says she did not discover until after her husband died that the annuity had high surrender charges, meaning she could not cash it in without penalty.
Evans says it is inappropriate to sell deferred annuities to a senior who may not outlive the surrender-charge period.
In another case filed in February, California Insurance Commissioner John Garamendi and Attorney General Bill Lockyer are seeking more than $110 million in penalties, restitution and damages from the operators of what it called a “living trust mill.”
Companies named in the suit included Family First Advanced Estate Planning and Family First Insurance Services of Woodland Hills, Calif., along with their parent firm, American Investors Life Insurance, Topeka, Kan.
“Using lies, trickery and outright fraud, these defendants took away the hard-earned savings of thousands of seniors who trusted them with nearly everything they had,” says Garamendi.
Garamendi and Lockyer charge the firms sold thousands of living trusts and related services to seniors as a guise for selling them inappropriate annuities.
“Life agents would tell the seniors that their existing investments were no good, and then induce the seniors to close out their existing investments and purchase the annuity policies,” Garamendi says.
Evans charges that she has seen many deferred annuities sold to seniors, despite that fact that they carried high surrender charges for up to 15 years. Some, in fact, offered no death benefit to the surviving spouse, she says.
The San Luis Obispo suit also named American Investors and two of its subsidiaries, Family First Advanced Estate Planning and Family First Insurance Services.
According to Robert S. Gianelli, one of the lawyers for the plaintiffs, the policies involved charged a 12% penalty if the senior wanted his initial investment back after one year. The senior would have to hold these policies for 11 years to avoid a penalty.
That was “a bad deal for our clients and any elderly customer,” says Gianelli. “One of the victims, Murray Cheves, was 90 when he was sold the policy and would have had to live to age 101 to avoid the penalties altogether.”
Cheves died a year after he bought the policy, and his beneficiaries were assessed a penalty of $12,000 to cash in the death benefit, according to Gianelli.
Evans says deferred annuities with long surrender charge are never appropriate for seniors. She says, too, that financial advisors should not get involved in setting up a living will without the help of an attorney.
“Even I would go to an estate planning attorney, because I would want to get the correct kind of advice,” Evans says.
A spokesman for AmerUs Group Company Inc., Des Moines, holding company for American Investors and its subsidiaries, declined to comment on the specific charges because they in litigation.
But the spokesman, Marty Ketelaar, notes that “many significant carriers of annuities are facing similar suits.”
He also says AmerUs takes “any accusations seriously, but we think we have a valid defense” to the charges.
Meanwhile, Frank Keating, head of the American Council of Life Insurers, Washington, took a slap at critics of annuity sales to seniors while insisting the industry was taking the fraud accusations seriously.
In a letter to The New York Times published May 18, Keating charged that a recent Times article about the California lawsuits was a “highly melodramatic indictment” of the entire annuity industry.
He also said the ACLI is supporting NAIC proposals to ensure proper disclosures about annuity fees and surrender charges.
“Let there be no misunderstanding of the industry’s position on improper sales practices: Wrongdoers should be punished and put out of business,” Keating wrote.