Williams v. National Western Life Ins. Co. – Insurance – United States – Mondaq

(Insurer, Which Issued Annuities to Elderly Plaintiff on
Applications Submitted by a Life Agent Under Insurance Code Section
1704.5, Was Liable for Agent’s Wrongful Actions in Procuring
Unsuitable Annuities, Including Liability for Elder
Abuse)

(April 2022) – In Williams v. National
Western Life Ins. Co. (Mar. 4, 2022, No. C090436)
___Cal.App.5th___ [2022 Cal. App. LEXIS 183], the California Third
District Court of Appeal affirmed a jury verdict finding National
Western Life Insurance Company (“NWL”) liable for
negligence and financial elder abuse based on the wrongful acts of
a soliciting agent but reversed the award of punitive damages.
After his wife died, an elderly man, Barney Williams, inquired with
an organization called American Family Legal Services in 2016 about
making changes to his living trust. A representative from the
company, Victor Pantaleoni, who identified himself as a
“paralegal,” scheduled a meeting at Williams’ home.
Pantaleoni’s business card with American Family Legal Services
identified him as a “CSA” and “Managing
Partner/Paralegal” with the company, and included insurance
license numbers for California, Arizona, and Nevada, but nowhere
specified that he sold insurance. In response to Williams’
request to amend the Trust, Pantaleoni proceeded to shepherd
Williams into purchasing an annuity, a form of life insurance, from
NWL.

After Pantaleoni delivered the annuity, Williams decided he did
not want it and returned it to NWL during a 30-day free look
period. Two weeks later Pantaleoni returned with more blank
documents for Williams to sign, including documents that retracted
the cancellation of the annuity. When NWL declined to refund the
premium, Williams sought the assistance of a financial advisor who
wrote to NWL to cancel the annuity. Because the 30-day free look
period had passed, NWL refunded the premium but charged a surrender
penalty.

Pantaleoni’s actions concerning the annuity included: (1)
misrepresenting on NWL’s suitability questionnaire that
Williams’ annual income was $24,000 when Williams told
Pantaleoni it was $16,000; and (2) misrepresenting on the
questionnaire that Williams’ net worth after purchasing the
annuity was $50,000 to $99,000 and liquid net worth was $120,000,
when Williams had approximately $80,000 invested with a broker but
only $114,000 in the bank and Pantaleoni had facilitated
Williams’ signing a check for $100,000 drawn on his bank funds
to purchase the annuity.

In December 2017, Williams filed a complaint in Butte County
Superior Court alleging claims for elder financial abuse,
negligence per se, and breach of fiduciary duty against NWL. A jury
subsequently awarded damages against NWL, including punitive
damages totaling nearly $3 million.

In a previous opinion, the Third District reversed the judgment,
concluding that Pantaleoni was an independent agent who sold
annuities for multiple insurance companies and had no authority to
bind NWL, and that Pantaleoni was an agent for Williams, not NWL
(Williams v. National Western Life Ins. Co. (2021) 65
Cal.App.5th 436, 436 [279 Cal.Rptr.3d 620].) In the previous
opinion, the courts held that Pantaleoni was an independent agent
who functioned as an insurance broker under Insurance Code, section
33, not as NWL’s agent under Insurance Code, section 31.
Pantaleoni therefore acted as Williams’ agent in the purchase
of the annuity. The court also held that NWL has no obligation to
investigate the Williams’ answers to the suitability
questionnaire. Last, the court previously held that the elder
financial abuse claim failed because the plaintiff had not provided
evidence that NWL knew or should have known of any fraudulent
conduct committed by Pantaleoni.

Nowhere did the Third District’s previous opinion cite or
discuss Insurance Code section 1704.5, which states that if a
policy of life insurance is issued pursuant to an application
submitted by a licensed life agent, “the insurer is
responsible for all actions of the agent that relate to the
application and policy as if the agent had been duly appointed for
the insurer,” whether or not the insurer specifically
appointed the agent.

Williams petitioned the California Supreme Court, which granted
the petition and held:

The matter is transferred to the Court
of Appeal, Third Appellate District, with directions to vacate its
decision and reconsider its finding that Pantaleoni did not have an
agency relationship with National Western Life Insurance Company in
light of Insurance Code sections 32, 101, 1662, 1704 and 1704.5 and
O’Riordan v. Federal Kemper Life Assurance Company
(2005) 36 Cal.4th 281, 288 [30 Cal. Rptr. 3d 507, 114 P.3d 753].
(See also Ins. Code, §§ 31 (“‘Insurance
agent’ means a person authorized, by and on behalf of an
insurer, to transact all classes of insurance other than life,
disability, or health insurance, on behalf of an admitted insurance
company” (emphasis added)], 33 [“‘Insurance
broker’ means a person who, for compensation and on behalf of
another person, transacts insurance other than life, disability, or
health with, but not on behalf of, an insurer” (emphasis
added)].) (Cal. Rules of Court, rule 8.528(d).)

Williams v. National Western Life Ins. Co. (2021) 284
Cal.Rptr.3d 91 [495 P.3d 312].)

Cited by the California Supreme Court in the above-quoted
provision, Insurance Code section 1704.5 provides in relevant
part:

“[A] licensed life agent may present a proposal for
insurance to a prospective policyholder on behalf of a life insurer
for which the life agent is not specifically appointed, and may
also transmit an application for insurance to that insurer,”
and;

“If a policy of insurance is issued pursuant to that
application, the insurer is considered to have authorized the agent
to act on its behalf, and the insurer is responsible for all
actions of the agent that relate to the application and policy as
if the agent had been duly appointed for the insurer.”

Section 101 provides: “Life insurance includes insurance
upon the lives of persons or appertaining thereto, and the
granting, purchasing, or disposing of annuities.”

On remand, the court summarized the trial witness testimony at
great length. The evidence showed that NWL appointed Pantaleoni as
an agent in 2005, 2009, and 2013 in Arizona, California, and
Nevada. Pantaleoni testified that he had life insurance agent
appointments from multiple insurance carriers.

Pantaleoni’s 2009 and 2013 contracts with NWL stated:

“We appoint you to personally procure applications for
insurance for us, deliver policies issued by us and provide
policyholder services as requested, all subject to our Rate Book
and our Rules and Regulations. You are an independent contractor,
and this agreement does not establish an employer-employee
relationship.”

“You agree to abide by our Rules and Regulations and the
laws and regulations where we are licensed to sell
insurance.”

After reviewing the evidence, the Third District Court of Appeal
held that Pantaleoni was NWL’s authorized agent under section
1704.5 because NWL issued two annuities, a form of life insurance
policy, to Williams on applications submitted by Pantaleoni.
Section 1704.5 therefore made NWL “responsible for all actions
of the agent that relate to the application and policy as if the
agent had been duly appointed for the insurer.'” (Ins.
Code § 1704.5, subd. (a).)

NWL argued that the California Supreme Court only directed the
lower court to eliminate the portion of its prior opinion
analogizing an independent agent serving multiple insurance
companies to an insurance broker. NWL further maintained that an
insurance agent selling policies for multiple insurers may be the
agent of the insurance company or the insured, depending on the
facts.

In response, the Third District held: “NWL misses the point
of section 1704.5, which treats an agent selling life insurance
differently from agents selling other classes of
insurance.”

NWL further contended the evidence showed Pantaleoni was acting
outside the scope of his agency for NWL when he sold an annuity to
Williams, and therefore NWL cannot be held liable for
Pantaleoni’s negligent conduct, citing Pantaleoni’s
agreement with NWL, which “expressly prohibited the sales
tactics Pantaleoni employed with Williams.” NWL contended
Pantaleoni also failed to follow NWL’s many compliance
bulletins that he received relating to California laws and
regulations. NWL cited evidence presented at trial that Pantaleoni
violated both California law and his contract with NWL.

The Third District held:

Missing from this list are the critical
facts that Pantaleoni filled out the suitability questionnaires for
Williams that overstated his annual income and grossly overstated
his net worth and liquid net worth after purchasing the annuity.
Under section 1704.5, NWL is responsible for these actions and
charged with Pantaleoni’s knowledge that these figures were
false and that the true state of affairs was that the annuities
were unsuitable for Williams. Thus, NWL is responsible for its
agent’s actions in procuring an unsuitable annuity.

Moreover, assuming Pantaleoni exceeded
his authority in some or any of his actions, there is no evidence
that Williams knew or had notice that Pantaleoni had breached his
contract with NWL or failed to follow NWL’s compliance
bulletins. Absent notice to the insured, an insurer is liable for
the acts of an agent that are within the ordinary scope and limits
of the insurance business entrusted to the agent, even if they are
in violation of private instructions and restrictions on the
agent’s authority. [citations] NWL appointed Pantaleoni to
procure applications and deliver insurance policies, which was what
he did in Williams’s case. The actions that NWL asserts
breached Pantaleoni’s contract with NWL and violated the
company’s compliance bulletins occurred in the course and scope
of Pantaleoni procuring annuity applications from Williams and
delivering policies to him that NWL issued.

The court further held that since, under section 1704.5,
“NWL is charged with knowledge of what Pantaleoni
knew—i.e., that Pantaleoni employed deceptive methods to sell
Williams unsuitable annuities—NWL committed financial elder
abuse in accepting $100,000 from Williams to purchase the annuity
and in charging him a $14,949.91 surrender penalty.”

Without publishing its analysis, the court reversed the punitive
damages award and remanded the case to the trial court to
reconsider the attorneys’ fee award in light of the
reversal.

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