Recovering Losses from Insurance and Annuity Fraud
Many lawsuits and arbitration proceedings involve claims related to the sale of annuities (particularly variable annuities) variable life insurance, and other insurance-related products. Mr. Betts has extensive experience with the handling these claims, and is knowledgeable about the federal and state laws that apply to transactions involving annuities and insurance. The legal theories that can be employed in the pursuit of these cases may include claims under the federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq., and Rule 10b-5, and state statutory and common law claims, such for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, et seq., fraudulent and negligent misrepresentations and nondisclosures, and breach of fiduciary duties.
In recent years, a high percentage of the claims related to insurance and annuity products generally have related to variable annuities. Variable annuities are complex products that are not readily understood by many investors. Claims related to variable annuities can be based on various forms of alleged misconduct by brokers and agents, including:
Misrepresentations and Nondisclosures - investors often allege that they were induced to purchase variable annuities in reliance on misrepresentations fraudulently or negligently made, or through failure on the part of the broker or financial advisor to disclose all of the material terms of the variable annuity.
Churning/Twisting/Switching/Replacement - investors may allege that a variable annuity that replaced a previously-purchased annuity was recommended to generate additional commissions for a broker or financial advisor and the firm.
Unsuitability - a fundamental duty of a broker is to recommend suitable investments, and many cases involve situations where brokers are alleged to have sold a variable annuity that was not suitable particularly when the investor is a senior.
This FINRA Investor Alert discusses many of the issues related to variable annuities of which investors should be aware when considering the purchase of a variable annuity.
Another insurance product that has has been the subject of extensive litigation is variable universal life (VUL) insurance. VUL policies are confusing and can be the subject of claims that challenge whether a financial advisor or insurance agent accurately represented their terms at the time of sale. Many investors who purchase these policies do not understand - because they are not told - that sustaining the cash value of the policy, and supporting a promised level of death benefit, may not be realistic. As a result, investors can find themselves in a position where they either need to replenish the policy with additional funds or surrender the policy at a significant loss.
Many investors in VUL policies do not appreciate the extent to which the policies are burdened with a myriad of fees and that a significant portion of the premiums paid for these policies are needed to cover those fees before any return can be realized on the investments held within the policy. In addition, many investors do not fully understand that financial advisors are highly incentivized to sell these policies, which can lead to failures to disclose and other abuses.
The federal Securities and Exchange Commission (SEC) has issued an Investor Bulletin describing variable life insurance and the factors that investors should consider in deciding whether to invest in such a policy.