[This article was originally published on January 19, 2003. The links were updated on July 12, 2018.]
Across America, older Americans are being targeted by salespeople selling annuity products. The sales tactics employed can be highly deceptive. In California, such an underhanded scheme has cost a life insurance company $2.5 million.
The trial court found that Fremont Life Insurance Company, through a group calling itself the Alliance for Mature Americans (AMA), pretended to assist elderly prospects with estate planning but in reality was intent on convincing them to purchase long-term annuities. An AMA representative would visit a prospect and identify himself or herself as a certified trust advisor or an expert in estate planning. The representative would offer to sell the senior citizen an estate plan, including a living trust, a pour-over will, and powers of attorney. The documents would later be delivered by a Fremont life insurance agent who would then try to persuade the consumer to purchase an annuity policy, which was the company's major goal. The representatives did not identify themselves as life insurance agents and did not advise the prospective purchaser that their ultimate objective was to sell the annuity policy and earn a commission from that sale.
The court ruled that Fremont and the AMA were engaging in the unauthorized practice of law and in unfair, fraudulent, and deceptive business practices in the marketing of annuity policies. Part of the fraud was in the suggestion that the AMA was an organization of senior citizens or that it worked on behalf of senior citizens, when in fact it was simply a sales organization. The court also found that the annuity policy being sold was misleading and deceptive in its failure clearly to describe the full consequences of the early withdrawal of funds.
The court fined Fremont a total of $2.5 million and ordered restitution to affected consumers. The fine was particularly large because senior citizens were involved. Fremont appealed, claiming that the penalties were excessive, particularly in light of its claim that the ploy netted it only $627,599. A California Court of Appeal upheld the award.
To download the California Appeal Court's ruling (People v. Fremont Life Insurance Co., Cal. Ct. App., 2nd, No. B139066, Dec. 18, 2002) in Word format, click here.