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Life Insurance Harms & Undue Influence | Elder Financial Abuse

Elder Financial Abuse & Insurance Sales.jpgA California attorney has a duty both to his client and to the legal system to represent his client within the bounds of the law.[1] This is how our system works. It helps to define advocacy. And it helps to explain why cases that outside observers might think are absolutely winnable or questionably defendable become hard-fought battlegrounds over facts and law.

An example of such vigorous advocacy is evident in a recent California Court of Appeal case. A lower court in a California elder financial abuse case denies the protections of the California Elder Abuse Act. The couple appeals the ruling to a higher court.[2] I omit the actual names of both the couple and the defendants in this commentary. This case is being returned to the lower court and the evidence in the case has not yet been presented to a judge or jury.

The Court of Appeal synthesizes the alleged facts of the case as follows: A few decades ago husband and wife purchase two life insurance policies naming their children as beneficiaries. The policies combined death benefit is approximately $1,000,000. The annual premium cost is $14,000. The couple's revocable trust owns one policy and their daughter owns the other. The couple advances enough money to the trust and to their daughter to pay the annual $14,000 premium.

In 2013, husband, age 82 and at the end of his career as a lawyer, is "suffering from confusion and cognitive decline." Wife at the same time has already relinquished control over the couple's affairs to the husband by a power of attorney. Wife is diagnosed with Alzheimer's and is "in even a more precarious state of health." The lawsuit alleges that an insurance agent, his agency and an insurance brokerage network seize on this situation and "allegedly" carry out an elaborate scheme that involves arranging the surrender of one of the existing life insurance policies and the replacement of the other with a policy providing more limited coverage, at massively increased cost.

The premiums for the new coverage, spread out over the term it is to be in force, amounts to some $800,000. This forces the elderly couple to feed cash into the Trust to sustain it and, in effect, consumes most of their intended $1,000,000 gift in transaction costs, including $100,000 in commissions to the insurance agent, his agency and an insurance brokerage firm.

So if this case ultimately goes to a judge or jury trial what evidence would the plaintiffs present? It's a fair assumption that if the plaintiffs have the evidence alleged in the lawsuit the elements of their case would likely be:

Husband and wife have an insurance plan in place for over two decades to provide a $1,000,000 death benefit to their children. The annual cost for this planned benefit is $14,000. An expert testifies that husband is suffering from confusion and cognitive decline. An expert also testifies that wife has Alzheimer's and has relinquished control of the couple's affairs to her husband.

The insurance defendants meet with husband and wife at their home and convince them of "their insurance expertise and that they had (the couple's) best interests at heart." The insurance agents offer to review and fine-tune the insurance policy part of the couple's estate plan. The insurance agents are aware of the couple's cognitive decline and wife's Alzheimer's. The agents review the life insurance policies and find that one policy has a death benefit of $600,000 with an annual premium of $6,000. The other policy has a death benefit of $540,000 with an annual premium of $8,000. The couple's daughter owns one policy and the couple's revocable trust owns the other policy. The insurance agents tell husband, "He could use the cash value in the existing policies to get substantial additional coverage wile keeping the annual premium costs at $14,000."

The insurance agents deal only with husband and cut the daughter out of any discussions and limit her access to information. She is given signature pages of blank forms to sign. The insurance agents try to get replacement coverage for the couple but coverage is denied because of wife's cognitive disorder and "abnormal lab" results for husband. Insurance agents the try to get a new policy insurance only husband.

Insurance agents through a series of misrepresentations to husband and the life insurance company have husband borrow money from a policy and apply a surrender value from another policy to purchase a new life insurance policy. The new policy has a death benefit of almost $1.2 million but requires an initial payment of about $250,000 and an annual premium of $100,000. The policy terminates on husband's 91st birthday. The result to the family is the Trust is "drained of cash" and the Trust is obligated to pay "over $1 million in additional premiums."

Much of the battleground of this case involves the interpretation of a statute. And the statute at issue is the California Elder Abuse Act. The defense lawyers agree that husband and wife are "elders" under the Act but argue that the couple is not deprived of any property. The Appellate Court says "although we are skeptical of such a stingy reading of the statutory text, the position the Respondents (the insurance defendants) take does have some surface appeal."

The Court then addresses issues beyond the surface appeal. While this commentary is not a law review or a brief and all the intricacies of the Elder Abuse Act are not going to be addressed we can hit some highlights.

"The Legislature recognizes that elders are a class of persons who are particularly vulnerable to abuse and that "this state has a responsibility to protect" them."[3]

The Elder Abuse Act protects elders by providing heightened remedies that encourage private enforcement of laws against abuse and neglect.

"Attorney's fee and cost awards are available for 'financial abuse' claims proved by the preponderance of the evidence."[4]

In 2008 the Legislature replaced "the prior requirement that 'bad faith' be shown with a standard based on the whether the defendant "'knew or should have known' of 'likely' harm to the elder."[5]

The Legislature also "redefined the phrase 'takes, secretes, appropriates, obtains, or retains' so that any 'deprivation' of property was subject to liability, including 'by means of agreement, donative transfer, or testamentary bequest, and regardless of whether the property is held directly' by the elder or on his behalf by a third-party[6] and ... created a new basis for liability, adding 'deprivation' of property by 'undue influence'[7] as a ground for suit separate from 'deprivation' "'or wrongful use or with intent to defraud.'"[8]

So let's get to the essence of how the Court of Appeal analyzed the plaintiffs' first amended complaint (FAC). The Court looked to whether deprivation committed by "undue influence" is actionable. The Court notes deprivation committed by "undue influence" is an alternative basis for liability to "deprivation" by "wrongful use or intent to defraud" under the revised liability scheme created by amendment to the Elder Abuse Act in 2008.

The Court says the FAC sufficiently alleges the elderly couple felt need to pay more into the Trust to keep it afloat and that this was brought about by "undue influence" as now defined in section 15610.70. The defendants are alleged to have taken advantage of two aged individuals, both in a state of cognitive decline; and, by use of their professed expertise as insurance professionals carried out an elaborate plan of replacing insurance on the victims' lives by "actions or tactics" that included "haste or secrecy" ultimately visiting serious inequity on them, which included adverse "economic consequences," "divergence from [their] prior intent," and commissions paid that are out of proportion to the value of the services rendered to them.

The Court notes that the defendants are free to argue in their defense that, factually, and as a matter of causation, the couple's actions in paying more money into the Trust were volitional and somehow independent of their alleged bad acts, but for now the FAC sets forth plenty to permit a finding to the contrary.

So what does this all really say? Well, it confirms our experience that when we file elder financial abuse cases, we are in for a fight. Defendants with capable counsel will represent their clients within the bounds of the law. We expect this. The Court also makes clear that the language of the statute means what it says: "A person or entity takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult is deprived of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.[9]

We are committed to upholding the rights of elders victimized by elder financial abuse and we do so in the major urban counties of California, including Los Angeles, Alameda, Santa Clara and Sacramento. If you would like to speak with us about an elder financial abuse claim call us at Hackard Law (916) 313-3030.

Life Insurance Harms & Undue Influence | Elder Financial Abuse from Hackard Law on Vimeo.


[1] People v. McKenzie (1983) 34 Cal.3d 616, 631.

[2] California Court of Appeal, Mahan v. Charles Chan Insurance Agency, Inc. A147236. Decided: August 23, 2017.

[3] Welf. & Inst. Code § 15600, subd. (a); see Bookout v. Nielsen (2007) 155 Cal.App.4th 1131, 1139-1140.

[4] Welf. & Inst. Code § 15657.5.

[5] Welf. & Inst. Code § 15610.30, subd. (b).

[6] Welf. & Inst. Code § 15610.30, subd. (c).

[7] Welf. & Inst. Code § 15610.30, subd. (a)(3).

[8] Welf. & Inst. Code § 15610.30, subd. (b).

[9] Welf. & Inst. Code § 15610.30, subd. (c).

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