BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 1170 (Leno)
As Amended April 12, 2012
Hearing Date: April 17, 2012
Fiscal: Yes
Urgency: No
TW
SUBJECT
Senior Insurance
DESCRIPTION
This bill would provide senior citizens protection against
deceptive insurance advertisements regarding veterans
organizations or agencies. This bill would add veteran's
benefits assistance advertising and promotions, as specified, to
the list of deceptive practices under the Consumer Legal
Remedies Act. This bill would provide additional disclosure
requirements, as specified, for the sale of life insurance and
annuities to senior citizens. This bill would prohibit an
insurance agent, as specified, from delivering living trusts or
other legal documents, other than insurance product documents,
to a senior citizen if the purpose of the delivery is to sell an
insurance product.
BACKGROUND
In 2003, the Senate Insurance Committee held an informational
hearing entitled "Financial Planning or Fleecing of Seniors?:
Insurance Products and Investments." This hearing highlighted
many instances where senior citizens were preyed upon by
"Medi-Cal advocates," who would convince seniors to spend down
their assets through the purchase of annuities so that the
seniors would qualify for Medi-Cal. These "advocates" received
a commission for the sale of the annuity, and the senior
purchased a product that may not be appropriate for their life
expectancy and financial circumstances.
To combat this financial predatory scheme, in 2008, the
(more)
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Legislature extended consumer protections under the Consumer
Legal Remedies Act (CLRA) for unreasonable fees charged for the
preparation, assistance, or advice regarding applications for
public social services. (SB 1136 (Alquist, Ch. 479, Stats.
2008).) The CLRA prohibits unfair and deceptive commercial
conduct, and authorizes a consumer to commence a civil action
for damages resulting from violations of the CLRA. The
definition of public social services under the CLRA includes
activities and functions of state and local government
administered or supervised by the State Department of Public
Health or the State Department of Social Services.
In 2007, the United States Department of Veterans Affairs
(USDVA) reported that private companies were targeting the
elderly at assisted living facilities, and these companies would
offer to assist elderly veterans qualify for veteran's benefits.
(Acting Director Bradley G. Mayes, Letter to all VA Regional
Offices and Centers, Jan. 3, 2007.) The USDVA noted that
companies were charging fees related to veteran's benefits
applications even though these companies had not been authorized
by USDVA to perform such services. In order to protect seniors
from improper fees associated with veteran's benefits
applications, SB 180 (Corbett, Ch. 79, Stats. 2011) added to the
definition of public social services in the CLRA veteran's
benefits administered by the United States Department of
Veterans Affairs and the California Department of Veterans
Affairs.
Veterans' associations around California are reporting an
increase in predatory practices on elderly veterans. "Veterans
advocates" are offering services to redistribute the veteran's
finances so that the veteran will qualify for the Veterans Aid
and Attendance program. As with the MediCal and Medicaid
schemes, these "advocates" reorganize a senior veteran's
finances through the purchase of insurance and annuity products
that may not be appropriate for the senior veteran's life
expectancy and financial circumstances.
This bill, sponsored by California Advocates for Nursing Home
Reform, would provide consumer protections regarding veteran's
benefits assistance advertising, as specified. This bill also
would prohibit insurance agents, as specified, from delivering
legal documents to the senior for the ultimate purpose of
selling insurance products.
This bill was heard by the Senate Insurance Committee on April
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11, 2012 and passed out on a vote of 7-0.
CHANGES TO EXISTING LAW
1. Existing law , the Consumer Legal Remedies Act (CLRA),
provides that it is an unfair or deceptive trade practice for
any person to charge or receive an unreasonable fee, as
defined, to prepare or aid an applicant or recipient in the
procurement, maintenance, or securing of public social
services. (Civ. Code Sec. 1770(24).) Existing law defines
"public social services" to include activities and functions
administered or supervised by the United States Department of
Veterans Affairs or the California Department of Veterans
Affairs involved in providing aid or services, or both, to
veterans, including pension benefits. (Id.)
This bill , under the CLRA, would require advertising or
promotion of a veterans benefits assistance event to include
an oral and written disclosure that, if the individual
presenting the event is not licensed to act as an agent or
attorney regarding veteran's benefits, the individual is not
authorized to file a Veterans' Aid and Attendance benefits
application, not authorized to represent anyone before the
Board of Veterans' Appeals, and prohibited from accepting
preparation fees for veteran's benefits applications.
This bill would require advertising or promotion of a
veteran's benefits assistance event that is not sponsored by
or affiliated with the United States Department of Veterans
Affairs, the California Department of Veterans Affairs, or
other veteran's organization to contain a written and oral
disclaimer that there is no affiliation between these entities
and the sponsor.
2. Existing law provides that all insurers, brokers, agents,
and others engaged in the transaction of insurance owe a
prospective insured who is 65 years of age or older, a duty of
honesty, good faith, and fair dealing, and that this duty is
in addition to any other express or implied duty that may
exist. (Ins. Code Sec. 785(a).)
Existing law provides that the conduct of an insurer, broker,
or agent, or other person engaged in the transaction of
insurance, during the offer and sale of a policy or
certificate previous to the purchase is relevant to any action
alleging a breach of the duty of good faith and fair dealing.
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(Ins. Code Sec. 785(b).)
Existing law authorizes an attorney to sell financial products
to an elder or dependent adult with whom the attorney has or
has had, within the preceding three years, an attorney-client
relationship, as specified, as long as the attorney provides
the following disclosures, in a separate writing, as
specified, to the elder or dependent adult:
the amount and source of commission the attorney is
receiving from the sale of the financial product;
the relationship between the source of the commission
and the person receiving the commission;
that the client may obtain independent advice regarding
the purchase of the financial product and will be given a
reasonable opportunity to seek that advice;
a statement that the financial product may be returned
to the issuing company within 30 days of receipt by the
client for a refund, as specified; and
a statement that, if the purchase of the financial
product is for purposes of Medi-Cal planning, the client
has been advised of other appropriate alternatives, as
specified. (Bus. & Prof. Code Sec. 6175.3.)
This bill would prohibit an insurance agent who is not a
licensed attorney from delivering to a person who is 65 years
of age or older a living trust or other legal document, other
than an insurance contract or other insurance product
document, if a purpose of the delivery is to sell an insurance
product.
This bill would prohibit an insurance agent who is a licensed
attorney from delivering to a person who is 65 years of age or
older a living trust or other legal document, other than an
insurance contract or other insurance product document, unless
the insurance agent complies with the commission disclosure
requirements set forth in Business and Professions Code
Section 6175.3, described above.
3. Existing law provides insurance agent contact disclosure
requirements, as specified, for insurance product
advertisements directed at persons age 65 or older. (Ins.
Code Sec. 787.)
Existing law prohibits an insurer, agent, broker, solicitor,
or other person or entity from sending deceptive or misleading
advertisements soliciting disability and life insurance and
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annuity business from persons age 65 or older. (Ins. Code
Sec. 787(a).)
Existing law provides that an advertisement includes
envelopes, stationery, business cards, or other materials
designed to describe and encourage the purchase of a policy or
certificate of disability insurance, life insurance, or an
annuity. (Ins. Code Sec. 787(b).)
Existing law prohibits advertisements using words, letters,
initials, symbols, or other devices that are so similar to
those used by governmental agencies, a nonprofit or charitable
institution, senior organization, or other insurer that they
could mislead the public. (Ins. Code Sec. 787(c).)
Existing law prohibits advertisements using any name, service
mark, slogan, symbol, or other device that implies that the
insurer, or policy or certificate advertised, or that any
agency who may contact the consumer in response to the
advertisement, is connected with a governmental agency, such
as the Social Security Administration. (Ins. Code Sec.
787(e).)
Existing law prohibits an insurer from using, in the trade
name of its insurance policy or certificate, any terminology
so similar to the name of a governmental agency or program
that may confuse, deceive, or mislead a prospective purchaser.
(Ins. Code Sec. 787(h).)
This bill would make clarifying revisions and apply these
provisions to veteran's benefits, as specified.
This bill would require any advertisement for an event,
presentation, seminar, workshop, or other public gathering
regarding veterans' benefits or entitlements to comply with
the requirements added by this bill under the Consumer Legal
Remedies Act.
4. Existing law requires a person meeting with a senior in the
senior's home for the purpose of the sale, offering for sale,
or generation of leads for the sale of life insurance,
including annuities, to the senior insured or prospective
insured to deliver a written 24-hour advance notice of the
meeting. (Ins. Code Sec. 789.10(a)-(b).)
Existing law provides that, if the senior has an existing
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insurance relationship with an agent and requests a meeting
with the agent in the senior's home the same day, a notice,
with specified disclosures, must be delivered to the senior
prior to the meeting. (Ins. Code Sec. 789.10(b).)
This bill would require a person meeting with a senior in the
senior's home for the purpose of the sale, offering for sale,
or generation of leads for the sale of life insurance,
including annuities, to the senior insured or prospective
insured to deliver a written notice of the meeting no less
than 24 hours and no more than 14 days prior to the initial
meeting.
This bill would require that, if the senior has an existing
insurance relationship with an agent and requests a meeting
with the agent in the senior's home the same day, a
stand-alone notice, without any attachments, must be delivered
to the senior prior to the meeting and must include, along
with existing disclosures in 16-point bold type, the following
information:
the agent's full name as it appears on his or her
California insurance license;
the agent's license number;
the agent's mailing address and phone number listed on
his or her California insurance license; and
a disclosure that the agent is a licensed insurance
agent and meeting with the senior at the senior's home for
the purpose of selling, discussing, and/or delivering life
insurance, including annuities, and/or other insurance
products as specified.
COMMENT
1. Stated need for the bill
The author writes:
Financial predators target high wealth veterans who otherwise
would not qualify for the ÝVeterans] Aid and Attendance
Program and counsel them how to move their assets into "safe
harbors" such as irrevocable trusts and deferred annuities.
Insurance agents advertise "free lunch" seminars to educate
senior vets about their entitlement to VAA benefits. They
often market these seminars as if they were sponsored by
non-profit veterans' organizations or governmental agencies
that assist veterans. These materials usually fail to
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disclose the true intent of the seminars: to gather financial
data in order to sell insurance products.
2. Expanding consumer protections against predatory trust mill
practices
This bill would prohibit insurance agents from delivering legal
documents, other than insurance product documents, to persons 65
years or older. This bill would make a distinction between
insurance agents who are not licensed attorneys and those who
are with respect to the delivery of such documents in order to
provide for attorneys who have other legitimate purposes for the
delivery of estate planning documents. Existing law provides
that insurers, brokers, agents, and others engaged in the
transaction of insurance owe a prospective insured who is 65
years of age or older, a duty of honesty, good faith and fair
dealing, and that this duty is in addition to any other express
or implied duty that may exist. (Ins. Code Sec. 785(a).)
Existing law also provides that the conduct of an insurer,
broker, or agent, or other person engaged in the transaction of
insurance, during the offer and sale of a policy or certificate
previous to the purchase is relevant to any action alleging a
breach of the duty of good faith and fair dealing. (Ins. Code
Sec. 785(b).)
The author argues that this bill is necessary to further protect
senior citizens against trust mill scams, which involve the
selling of inappropriate insurance annuities to senior citizens.
A large trust mill operation was uncovered in 2006 when the
California Attorney General filed a lawsuit against American
Investors Life Insurance Company, Family First Insurance
Services, and Family First Advanced Estate Planning. The suit,
settled in 2007, alleged that these companies sold thousands of
unnecessary insurance annuities to senior citizens.
Then-Attorney General Jerry Brown stated that "Ýt]hese companies
tricked senior citizens into buying annuities that would not pay
out for years and had substantial early withdrawal fees -
investments that made no sense for elderly people." (Office of
the Attorney General, Press Release, Brown Settles Annuity Sales
Scam (Dec. 20, 2007) <
http://ag.ca.gov/newsalerts/print_release. php?id=1513> (as of
Apr. 8, 2012).) According to the press statement issued by the
Attorney General's office, "Family First sent sales
representatives, who were not authorized to practice law, to
senior citizens' homes to provide legal advice on estate
planning. . . . After preparing the living trust documents the
agents returned to the seniors' homes-under the guise of acting
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as their financial or estate advisors-and induced the seniors to
move their liquid assets into annuities." (Id.)
Senior citizens are still falling victim to predatory trust mill
scams. A recent Internet search for trust mill scams included
an online social networking listing by the President of NESA,
LLC, a law firm advertising assistance to insurance companies
wanting to increase their annuity sales. The President of NESA
maintains a LinkedIn website and describes the services of NESA
as follows:
Clients pay NESA $3,000 for a Plan and agents earn commissions
on products called for in the Plan, typically one or more tax
deferred annuities, pre-paid funeral trusts, and sometimes
LTCI policies, adding up to about $200,000 commisionable per
case on average. Clients get a money back guarantee: if they
follow NESA's plan and they fail to shelter what NESA
promised, NESA makes the refund. As far as agents are
concerned, NESA provides each agent - at no charge - with
everything needed for successful sales and marketing of
Medicaid/VA services without liability. NESA also pairs each
agent with a local lawyer who will prepare necessary legal
documents, resulting in an unbeatable team. Agents can expect
increased income, higher client acquisition and retention, and
a market that is under served and growing exponentially.
Specialties: Medicaid Planning, VA Planning, all states,
helping insurance agents get more business. (Hal Fliegelman,
President of NESA, LLC, LinkedIn page,
(As
of Apr. 8, 2012).)
The author argues that the trust mill scam uncovered by the
Attorney General's Office can still be perpetrated through the
delivery of estate planning documents by insurance agents. This
is because existing law does not prohibit the insurance agent
from gaining access to the senior's home under the guise of
delivering estate planning documents, then pressuring the senior
to purchase insurance annuities, which may not be in the
senior's best interest but for which the insurance agent would
make a substantial commission. Given that insurance agents and
attorneys are involved in the practice of preparing estate
planning documents, which may include appropriate insurance
products, this bill would set up a different standard for
delivery of these documents depending upon whether the insurance
agent is a licensed attorney.
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a. Non-attorney insurance agent delivery prohibitions
This bill would prohibit an insurance agent who is not a
licensed attorney from delivering to a person who is 65 years
of age or older a living trust or other legal document, other
than an insurance contract or other insurance product
document, if a purpose of the delivery is to sell an
insurance product. Although existing law provides a duty of
good faith on the part of the insurance agent, existing law
does not prohibit an insurance agent from delivering estate
planning documents being delivered for the purpose of selling
insurance products.
As discussed above, trust mills utilize the delivery of
estate planning documents in order to gain direct access to
the senior to sell inappropriate insurance documents to the
senior citizen. This bill would prohibit an insurance agent
from delivering the estate planning documents if the intent
of the delivery is to sell insurance products. As such, the
insurance agent would be subject to licensing disciplinary
measures carried out by the California Department of
Insurance.
b. Attorney/insurance agent delivery prohibitions
This bill also would prohibit an insurance agent, who is a
licensed attorney, from delivering to a person who is 65 years
of age or older a living trust or other legal document, other
than an insurance contract or other insurance product
document, unless the insurance agent complies with the
commission disclosure requirements set forth in Business and
Professions Code Section 6175.3. Existing law, the State Bar
Act, authorizes an attorney to sell financial products to an
elder or dependent adult with whom the attorney has or has
had, within the preceding three years, an attorney-client
relationship, as specified, as long as the attorney provides
commission disclosures, as specified, to the senior citizen.
(Bus. & Prof. Code Sec. 6175.3.) Existing law also provides a
duty of good faith for attorneys who are insurance agents
(Ins. Code Sec. 785), as well as the duty of good faith and
requirement to avoid conflicts of interest relating to the
client (Cal. Rules of Prof. Conduct Rules 3-120 and 3-300.)
The author recognizes the need to provide for an attorney, who
may prepare estate planning documents in the regular course of
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business, but may also sell insurance products. For this
reason, this bill would provide a narrow prohibition on
attorneys who deliver both estate planning documents and
insurance product documents, unless the attorney also provides
commission disclosures required of attorneys who sell
financial products, as specified. These disclosures would
alert the senior citizen to a possible conflict of interest on
the part of the attorney, as well as provide the senior with
information about the potential need for outside review of the
insurance documents provided by the attorney.
3. Expanding consumer protections for senior veterans and
veteran's spouses
This bill would expand protections for senior citizens against
deceptive or misleading insurance advertisements regarding
veteran's benefits assistance. This bill would add veteran's
benefits assistance advertising and promotions, as specified, to
the list of deceptive practices under the Consumer Legal
Remedies Act. Existing law prohibits misleading or deceptive
insurance advertising to senior citizens, as specified, and
requires specified disclosures in insurance advertising. (Ins.
Code Sec. 787.) Existing law also provides veterans senior
citizens with a private right of action against individuals
charging unreasonable fees associated with the procurement of
veteran's benefits administered by the United States Department
of Veterans Affairs or the California Department of Veterans
Affairs. (Civ. Code Sec. 1770(24).)
The Veterans Aid and Attendance (VAA) program, administered by
the United States Department of Veterans Affairs, provides
supplemental income to veterans or their surviving spouses if
their combined income is less than $15,493 per year and they own
assets less than $80,000, excluding a residence. Veterans or
their surviving spouses may also qualify for placement in
assisted living facilities operated by the California Department
of Veterans Affairs.
The author argues that this bill is necessary to address recent
trust mill activity relating to the VAA program. Proponents of
this bill report that "veterans advocates" are targeting veteran
senior citizens to sell them financial services and products
such as irrevocable trust preparation and deferred annuities for
the purpose of hiding the veteran's assets to qualify for
veteran's benefits. The "veterans advocate" may receive a
commission on the sale of deferred annuities. This bill would
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provide veterans and their surviving spouses with protections
against unscrupulous "veterans advocates" by adding prohibitions
in the Consumer Legal Remedies Act on misleading advertising
regarding veterans benefits sent to senior citizens. This bill
also would extend existing advertisement disclosure requirements
for the sale of insurance products to persons over the age of 65
to include advertisements relating to veteran's benefits.
4. Additional in-home meeting notice requirements for the offer
of insurance products
This bill would require additional disclosure requirements, as
specified, to be provided to a senior citizen when an agent
requests an in-home meeting for the sale of life insurance and
annuities. Existing law provides notice and disclosure
requirements, as specified, that must be delivered to a senior
citizen when an insurance agent will visit the senior in his or
her own home. (Ins. Code Sec. 789.10.)
a. Time of delivery of the in-home meeting notice
Existing law requires an in-home meeting notice to be
delivered to the senior citizen no less than 24 hours prior to
the meeting date. (Ins. Code Sec. 789.10(b).) This bill
would require an in-home meeting notice to be delivered to the
senior citizen no less than 24 hours and no more than 14 days
prior to the meeting.
The California Department of Insurance (CDI) has received
complaints from seniors advising they did not receive advance
notice of in-home visits. The insurance agents then provide
proof that they delivered the in-home meeting notice long in
advance of the meeting. Accordingly, CDI requested a
modification to the in-home meeting notice so that it is not
delivered so far in advance of the visit that the senior has
forgotten the purpose of the visit.
As demonstrated by CDI, providing an in-home meeting notice
more than two weeks in advance of the meeting date may make it
difficult for the senior citizen to remember that the meeting
has been arranged. As such, the senior citizen may be
surprised by the appearance of the insurance agent and not
have additional counsel at the meeting to help the senior
review the proposed insurance documents. This bill would
require the in-home meeting notice to be sent to the senior
citizen within a stated period of time, no sooner than 24
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hours prior to the meeting and no later than fourteen days
before the meeting.
b. Insurance agent information to be disclosed in the
in-home meeting notice
Existing law requires an in-home meeting notice to be in
14-point font, but does not require the notice to be delivered
by itself or to include the insurance agent's identifying
information. (Ins. Code Sec. 789.10(b).) This bill would
require the in-home meeting notice to be a stand-alone
document, in 16-point bold type, and include the insurance
agent's full name, license number, mailing address, and
telephone number.
The author reports instances where insurance agents downplay
or undermine the in-home meeting notice required under
existing law by tacking the notice on to a letter telling the
senior that the "real" purpose of the in-home visit is to
deliver an estate planning document. Given the deceptive
nature of this type of letter and the predatory practices
utilized by trust mill representatives, the author argues that
this bill is necessary to better illuminate the true nature of
the in-home visit - selling insurance products to the senior.
Additionally, providing the insurance agent information in a
single, legible, written document would provide the senior
citizen with clear and helpful information in the event there
is a concern about the insurance product documents being
offered.
c. Clarified disclosure statement regarding the purpose of
the in-home meeting
Existing law requires a disclosure statement to be included in
an in-home meeting notice that advises the senior citizen that
the insurance agent will be making a presentation on insurance
products. (Ins. Code Sec. 789.10(b).) This bill would
clarify this disclosure statement by requiring the following
statement to be included in the in-home meeting notice: "I am
a licensed insurance agent. My purpose for coming to your
home is to sell, discuss, and/or deliver one of the
following."
The author argues that, given the current problem of
misleading sales tactics employed by trust mill participants,
the disclosure in this bill would provide the senior citizen
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with the understanding that the insurance agent is going to
the senior's home for a specific purpose - to sell, discuss,
or deliver an insurance product. This disclosure would also
aid the senior citizen in making a more informed decision
about whether the senior citizen wants the insurance agent to
come to the senior's house for this purpose, and whether the
senior citizen prefers to have additional counsel available at
the meeting to help the senior citizen make an informed
decision on the purchase of the insurance products.
Support : American Federation of State, County and Municipal
Employees, AFL-CIO; Consumer Federation of California
Opposition : None Known
HISTORY
Source : California Advocates for Nursing Home Reform
Related Pending Legislation : SB 1184 (Corbett, 2012) would
prohibit an insurance agent or broker from doing business with
any party that assists a veteran senior citizen to obtain
veterans benefits unless the broker or agent maintains
safeguards to ensure that the agent or broker has no financial
incentive to refer the policyholder or prospective policyholder
to any government administered veterans benefits program.
Prior Legislation :
SB 180 (Corbett, Ch. 79, Stats. 2011) See Background.
SB 1136 (Alquist, Ch. 479, Stats. 2008) See Background.
SB 2333 (Killea, Ch. 1454, Stats. 1990) established senior
citizen insurance product protections.
Prior Vote : Senate Committee on Insurance (Ayes 7, Noes 0)
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