American Equity to Pay $16.4 Million to Settle ‘Living Trust Mill’ Lawsuit
By InsuranceNewsNet
August 5, 2008
American Equity Investment Life Insurance Co. agreed to pay about $16.4 million to settle a class-action lawsuit in Kentucky alleging the company used fraud to sell inappropriate annuities to elderly people.
The Iowa company was accused of working with lawyers along with Advanced Legal Marketing Services and Addison Insurance Marketing of Dallas to run a “living trust mill.”
Senior citizens were persuaded to buy a living trust out of fear that their families would lose too much money in probate proceedings, according to the suit. After they purchased the trust, agents of the insurance and marketing companies, appearing as representatives of the law firm, encouraged them to sell their investments and buy annuities from American Equity. The company sold people “approaching their life expectancy” 20-year-term annuities with substantial surrender fees, said William F. McMurry, the plaintiffs’ lawyer. The suit included 24,000 purchasers.
American Equity agreed that it would no longer sell annuities where the company has knowledge that sales leads were generated through the marketing of living trusts, McMurry said.
He said the settlement also:
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Offers victims the right to immediately annuitize funds, with a 2.4 percent bonus added to the value of their policies.
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Give those who claim that an annuity sale was unsuitable or based on a misrepresentation “a full refund of premiums plus interest, the current policy value, modification of surrender charges, or other appropriate relief."
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Allows those who were 79 or older when they purchased a deferred annuity to withdraw up to 25 percent of the policy value for each of the next four years, penalty free.
The Des Moines Register reported that Wendy Carlson, chief financial officer and general counsel of American Equity, said the company did not admit any liability as part of the settlement. She described it as similar to a settlement in Florida, where the company agreed to increase credits allowed on deferred annuities. The credits would increase the value of the customers' policies, if they choose to take periodic payments after the annuity matures, the Register reported.
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