Agent made certain misrepresentations in company's questionnaire, California court finds
In a recent case, the evidence did not support that a director, officer, or managing agent in the insurance company knew in advance about the insurance agent’s likelihood of committing misconduct, a California court said.
In Williams v. National Western Life Insurance Company, the plaintiff, following his wife’s death, contacted Victor Pantaleoni to revise a living trust. Pantaleoni sold a $100,000 annuity of National Western Life Insurance Company to the plaintiff.
The plaintiff, however, returned the annuity to the insurance company within the 30-day “free look” period. Pantaleoni then wrote a letter over the plaintiff’s signature so that the insurer would reissue a new annuity. The plaintiff cancelled the second annuity. The insurance company charged the plaintiff a surrender penalty worth $14,949.91, which led him to file a case.
The jury, finding the insurer liable for negligence and financial elder abuse, awarded the plaintiff damages, including punitive damages amounting to nearly $3 million. The insurance company appealed.
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In its previous decision, the California Court of Appeal for the Third District reversed the judgment. It decided that Pantaleoni acted as an independent agent who sold annuities for numerous insurance companies and lacked the authority to bind the insurer.
The plaintiff asked the California Supreme Court to review the appeal court’s decision. The Supreme Court granted the review. The Supreme Court ordered the appeal court to vacate its decision and to reconsider its finding that Pantaleoni was not an agent in light of sections 32, 101, 1662, 1704, and 1704.5 of the Insurance Code and the decision in O’Riordan v. Federal Kemper Life Assurance Company (2005).
The Court of Appeal, Third Appellate District granted the petitions for rehearing filed by both the plaintiff and the insurance company. It affirmed the decision finding the insurer liable for negligence and financial elder abuse but reversed the assessment of punitive damages.
With respect to s. 1704.5 of the Insurance Code, the court found that Pantaleoni made the following misrepresentations in the insurance company’s questionnaire:
- stated that the plaintiff’s annual income was $24,000, even though the plaintiff told Pantaleoni that it was $16,000;
- provided that the plaintiff’s net worth after purchasing the annuity was $50,000 to $99,999 and that his liquid net worth was $120,000.
In reality, the plaintiff invested approximately $80,000 with a broker and had $114,000 in the bank. Pantaleoni assisted the plaintiff with a $100,000 check drawn on his bank funds to buy the annuity. The appeal court held the insurer responsible for Pantaleoni’s wrongful actions since he was one of its agents.
On the issue of punitive damages, no officer, director, or managing agent responsible for corporate policy possessed the knowledge required to support an award of such damages, the appeal court ruled.
The evidence could show, at best, that the insurer was negligent in appointing Pantaleoni and in renewing his appointment to sell annuities in light of his restricted license, the appeal court said. However, the evidence could not establish that any person in the insurance company – let alone a director, officer, or managing agent – had advanced knowledge of Pantaleoni’s propensity to commit the misconduct that victimized the plaintiff.
Regarding the issue of ratification, there was not enough evidence to demonstrate that the insurer ratified Pantaleoni’s actions, either by adopting or approving them, after the chief legal officer and the vice-president of marketing operations learned about the plaintiff’s lawsuit, the appeal court said.
The appeal court noted that, upon discovering what happened, the insurance company tried to refund the surrender charge and prevented Pantaleoni from placing new business.