Thursday, December 19, 2002
Court of Appeal Upholds Penalties and Restitution Order In Sales of Annuities to Seniors
By a MetNews Staff Writer
The Court of Appeal for this district yesterday upheld an order requiring an insurance company to pay millions of dollars in penalties and restitution for unfair business practices in the marketing of annuities to senior citizens.
The ruling by Div. Two, upholding the judgment rendered by Los Angeles Superior Court Judge Ronald Sohigian, grows out of a lawsuit brought by then-Attorney General Dan Lungren and the State Bar in 1996.
The State Bar’s involvement was a result of claims that the organization that did the actual marketing, the Orange County-based Alliance for Mature Americans, as well as Fremont and other insurers, were engaged in the unauthorized practice of law.
The plaintiffs alleged that the alliance provided living trusts to seniors who requested them, then used hard sales tactics to convince them to re-invest their assets into riskier annuities.
The complaint charged the average alliance client was 73 years old, and that some suffered from Alzheimer’s or Parkinson’s disease. More that 10,000 living trust packages worth more than $200 million were sold by Alliance in California from 1991 on, the state alleged, with clients paying $1,000 to more than $2,000 for living trust packages, with commissions of up to 40 percent going to the sales agents.
Agents allegedly used confidential information provided for the living trust to persuade the seniors to cash in IRAs, stocks, mutual funds and other saving accounts, sending those funds to more precarious ventures.
The alliance settled by agreeing to pay a $100,000 penalty plus $1 million in restitution, and to stop selling living trusts. Two other insurers, Baltimore-based Fidelity and Guaranty Life Insurance Company and Cincinnati-based Great American Life Insurance Company, settled earlier by agreeing to pay millions of dollars in penalties and restitution but the bulk of the suit, seeking a total of more than $200 million plus injunctive relief, was aimed at Fremont.
Justice Kathryn Doi Todd, writing yesterday for the Court of Appeal, rejected Fremont’s claims that the penalties—a little more than $400 for each violation of the unfair business practices law as found by Sohigian—were excessive and violated due process.
The justice wrote:
“The misconduct was persistent and stretched over more than two years. The trial court found appellant knew of the connection between the estate plan sales and annuity sales and that its agents were engaging in the unauthorized practice of law. Appellant’s willfulness is evidenced by the fact that the disapproved language remained in the annuity policy after litigation commenced and appellant continued to collect the premium charges.”
The appellate panel also upheld the trial judge’s order that full restitution, including interest, be offered to all purchasers. Fremont had argued that the order was improper because not all customers had been the victims of deceptive or unfair business practices.
There was, she said, sufficient evidence “to support a reasonable inference of class-wide deception or harm.” She cited expert testimony by an actuary who testified that he could not understand the premium charge based on the information in the annuity policy.
“This evidence alone supports the findings of the trial court that the annuity policy was ‘misleading and deceptive’ and therefore ‘likely to deceive,’ ” the jurist wrote.
The case is People v. Fremont Life Insurance Company, B139066.
Copyright 2002, Metropolitan News Company