Maine Supreme Court Upholds Order Requiring Insurer to Pay Restitution and Civil Penalty Stemming From Deceptive Practices by its Agent

Monday, January 28, 2013

The pertinent facts are as follows. In 2007, a Bankers Life insurance agent met with a 75 year-old woman who had recently been treated for cancer to discuss issues related to Medicare, health and prescription insurance. These meetings resulted in the elderly woman purchasing three Bankers Life annuities. To purchase these annuities, the woman liquidated three certificates of deposit, sold General Electric stock and rolled over an IRA. The sales contained several irregularities: (1) a required summary of the woman’s financial situation failed to quantify many items, including debts; (2) the suitability of the IRA annuity rollover was questionable for several reasons (not the least of which was that the annuity would not mature until a time period after the woman’s life expectancy terminated); (3) mathematical considerations used to justify the recommendations were improperly compared, and omitted in part; (4) the timing of the stock sale was questionable given the substantial capital gains tax and the negative tax liability; and (5) the woman’s access to funds was diminished and delayed.

The Maine Superintendent of Insurance (which has oversight over insurance companies and agents that sell insurance and annuity products to the public) found the Bankers Life agent failed to evaluate the suitability of his recommendations, was incompetent, untrustworthy and financially irresponsible in his annuity sales, and made misleading comparisons between the woman’s existing investments and those offered by Bankers Life.  The Superintendent ordered Bankers Life to pay restitution and a $100,000 civil penalty stemming from these deceptive practices.

Bankers Life appealed to the Superior Court. The Superior Court affirmed the decision of the Superintendent. Bankers Life appealed to the Maine Supreme Court.

In Bankers Life and Casualty Company v Superintendent of Insurance, 2013 ME 17 (January 10, 2013), the Maine Supreme Court affirmed the Superintendent’s decision, finding the Superintendent did not abuse her discretion in imposing restitution and a civil penalty against Bankers Life.

The Bankers Life decision is significant in at least two respects. First, it seems that the Maine Bureau of Insurance has taken a keen interest in pursuing actions against insurers for unsuitable sales of annuities to the elderly. In all likelihood, this will be an ongoing trend, particularly given Maine's aging populations. Second, the decision highlights the challenge in overturning agency decisions. Under the applicable standard a court will reverse administrative fact findings by a state agency only if the decision "plainly compels a contrary result." That means that focus in defending such matters should be at the administrative level.

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