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California’s Elder Abuse and Dependent Adult Civil Protection Act is elastic enough to encompass claims arising from sharp insurance sales practices, even when elders do not pay anything directly to the agents.  So concluded the First District Court of Appeal earlier this month in Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 12 Cal.App.5th 442.

The Mahan opinion provides a helpful historical overview of the Elder Abuse Act in addition to affirming the long reach of the protective statute.  As elder abuse claims become increasingly common in California trust and estate litigation, this will be an often-cited case.

What happened to Fred and Martha?

Fred and Martha Mahan were vulnerable to undue influence.  He (age 86) was experiencing confusion and mental decline and she (age 79) had been diagnosed with Alzheimer’s disease.

In 2013, the defendants allegedly carried out an elaborate scheme to target Fred and Martha by selling new life insurance coverage with a total premium of $800,000, which would result in a $100,000 sales commission.

Years earlier, as part of their estate planning, Fred and Martha had set up the “Children’s Trust” to hold their life insurance policies.  They put enough cash in the Children’s Trust to pay the premiums necessary to procure $1 million in coverage, thus giving them peace of mind that there would be at least $1 million available for their kids when they passed.

The defendants allegedly manipulated Fred and his daughter, Maureen Grainger, who was the trustee of the Children’s Trust, into acquiring new policies as part of a scheme to obtain the hefty commission.

Why did the trial court dismiss Fred and Martha’s financial elder abuse claim?

Fred and Martha sued the defendants for financial elder abuse and brought other tort claims.  Maureen as trustee of the Children’s Trust joined in those other claims but was not in a position herself to assert the financial elder abuse claim as she was not an elder with standing to sue.

Given the powerful remedies available to plaintiffs in financial elder abuse cases, the defendants attacked that claim and sought to use Fred and Martha’s estate planning structure against them.

Defendants artfully argued, and the Alameda County Superior Court agreed, that the transfer of funds by Fred and Martha to the Children’s Trust for the purchase of the new policies was a voluntary act and that the defendants did not actually take, obtain or retain Fred and Martha’s money given that it belonged to the Trust.  Hence, the trial court sustained the defendants’ demurrer, leaving Fred and Martha to appeal.

How did the appellate court respond?

The Elder Abuse Act begins at California Welfare and Institutions Code section 15600.  The court summarized the history of the Act beginning with its adoption in 1982.  Over the years, the Legislature incrementally has expanded the scope of the Act, particularly with regard to financial elder abuse claims.

Accordingly, the court observed that defendants’ “narrow construction of the Elder Abuse Act [is] incompatible not only with its overall remedial purpose, but also with the breadth of the ‘financial abuse’ provisions of the Act as those provisions have evolved by amendment in recent years.”

The court characterized defendants’ alleged actions as “churning,” a term more often used in the stock-trading context as “excessive trading done primarily to benefit the broker by generating commissions in excess of those justified.”

Further, the court applied the new statutory definition of undue influence in California Welfare and Institutions Code section 15610.70 as follows: defendants “are alleged to have taken advantage of two aged individuals, both in a state of cognitive decline; and, by use of their professed expertise as insurance professionals, carried out an elaborate plan of replacing insurance on the victims lives by ‘actions or tactics’ that included ‘haste or secrecy,’ ultimately visiting serious inequity on them, which included adverse ‘economic consequences,’ ‘divergence from [their] prior intent,’ and commissions paid that are out of proportion to the value of the services rendered to them.”  Thus, the allegations if true would amount to undue influence.

Although the court lamented the “meandering style” of the plaintiffs’ lengthy complaint, which was “bereft of subheadings or clear organizing principles,” the court found that it alleged facts sufficient to constitute a financial elder abuse claim.  The court therefore allowed the suit to go forward, significantly increasing the monetary exposure of the defendants.

A roadmap for plaintiffs

Any potential plaintiff in California who is considering a financial elder abuse claim against a professional service provider, such as an insurance agent, should read the Mahan case as it provides a roadmap on how to structure a viable complaint.  The opinion, more broadly, encourages creative applications of California’s Elder Abuse Act.