< Library - Seniors & Annuities                                                                      
Seniors & Annuities

  RETIREE WINS ANNUITIES FRAUD CASE VERSUS INSURANCE COMPANY
(Law Protecting Seniors Applied)

     A Riverside Superior Court jury awarded a total of $17.4 million to a senior citizen who was induced into buying fraudulent annuity sold by North American Company for Life and Health. The award included $3.4 million in compensatory damages and $14 million in punitive damages.

     In 2002, an agent for North American sold several annuities totaling $350,000 to Ernst Hammermueller that will not mature until he was 97 years old. Hammermueller was an 82-year old resident of an Oxnard retirement home and suffering from Alzheimer’s disease and dementia. At the time he signed the annuity documents, he was not informed by North American’s agent that the annuities would mature only after 15 years when he would be 97 years old.

     The annuities have a penalty clause that charges a steep penalty when a withdrawal of funds is made before maturity. Consequently, the funds are locked up for a period of time longer than the seniors’ remaining life expectancy. If financial needs require withdrawal, a penalty of at least 10% of the principal is charged.

     Hammermueller filed the lawsuit under California’s senior protection law. If the misconduct is established, seniors may recover damages for lost money. In addition, punitive damages may be recovered when the senior’s money is taken through deceit, malice, fraud or oppression. Hammermueller claimed that selling an annuity that will not benefit the beneficiary, or will mature only after the beneficiary is long dead, is deceitful and fraudulent. To serve as an example and discourage similar abuse upon the elderly, he requested an award for punitive damages.

     The insurance company, on the other hand, argued that while selling the wrong kind of annuity was indeed a mistake, it was an isolated incident that can only be blamed on a rogue agent. North American claims that it offered to fully refund the invested amount as soon as the lawsuit was filed. Since the company has implemented corrective measures to prevent the recurrence of this mistake, it argues that the punitive damages imposed was not justified.

     In recent years, several class actions have been filed on behalf of seniors who have invested billions of dollars in annuities but may not live long enough to receive their expected benefits. Parallel investigations have also been launched by the California Department of Insurance and the Attorney General’s Office into the complaints. Our law firm represents retirees who have been damaged as a result of the sale of similar annuities.

     Seniors are targeted because they have savings or cash from retirement funds. Unscrupulous agents or brokers, apparently with the blessing of the insurance companies, employ pressure tactics on the elderly into buying annuities without fully disclosing the disadvantages of the policies they are selling. Long after the seniors parted with their money would they discover the fraud. In the meantime, the insurance agent reaps huge commissions for parting the retiree from his or her hard-earned money.

     Brokers are taking the brunt of the backlash from the elderly investors who claim that they had trusted their agents to steer them into suitable investments given their age and financial objectives. Other buyers argued their agents had convinced them to place their money in “exciting, sure-fire” annuity products but failed to fully explain the fine print.

     However, an increasing number of lawsuits have placed the blame squarely at the door of insurance companies which put the terms of the deceptive policies in writing. Indeed, a growing number of elder abuse lawsuits filed against some insurance companies indicate that these companies are aware of these practices by their agents. Therefore, the fact that they have not taken steps to stop the bilking of seniors suggests that these schemes are institutionalized wrongdoing on the elderly, not just isolated acts of some overzealous agents.

     The recent jury verdict against North American seems to suggest that California courts and juries no longer buy the argument that the fraudulent marketing of annuities are mere isolated acts of unscrupulous agents. An emerging pattern of involvement by some insurance companies in the fraudulent schemes is quite evident. Punitive damages are indeed necessary to discourage similar practices of elder abuse. After all, if they are merely forced to return the money when they get caught, what incentive is there for the insurance company not to do that again?

© Law Offices C. Joe Sayas, Jr.