Calif. Judge OKs Class Action In Senior Fraud Case

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.