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New York Sues Life Settlement Company for Influencing Brokers
- November 16th, 2006
New York Attorney General Eliot Spitzer is suing the nation's largest "life settlement" company, accusing it of paying life settlement brokers secret fees to suppress competitive bids, resulting in many elderly sellers receiving less than they could have for their life insurance policies. The suit could have major repercussions for the entire life settlement industry.
Spitzer, who was recently elected governor of New York, filed suit in New York state court against Coventry First, a Fort Washington, Pa., company that claims to have more than half the life settlement market share. In 2005, Coventry purchased 1,318 life insurance policies representing more than $3 billion in death benefits. Spitzer's investigation has uncovered more than 200 cases nationwide where brokers were allegedly paid commissions -- in many cases half or more of what the seller received -- in order to steer business to Coventry.
Life settlement companies buy insurance policies -- term, whole life, universal and other types -- from the elderly, pay the premiums, and collect the death benefit when the policyholder dies. Payments are usually significantly more than a policy's trade-in value, but less than the death benefit. Life settlement companies look for individuals who have experienced a decline in health since the policy was issued and don't have a long time to live. See "Life Settlements: Cash for Your Life Insurance Policy."
Elderly sellers of life settlement policies are represented by brokers who are supposed to be acting on the seller's behalf by shopping the policy around to many different potential buyers like Coventry. According to Spitzer's suit, Coventry biased brokers' choice of life settlement company by offering them secret commissions that reduced the amounts sellers received for the policies. The Spitzer suit alleges that brokers suppressed competitive bids from other life settlement companies.
In one case cited by Spitzer, a Florida-based broker represented 79-year-old widower living in Hawaii who was selling a $400,000 policy. E-mail messages, Spitzer says, show that both Coventry and the broker knew that the widower had a better offer from a competing company, but the widower was never told about the more lucrative bid.
The suit asks for, among other things, restitution to victims and treble damages.
Coventry says the suit has no merit and will fail. 'The attorney general's civil complaint relies almost exclusively on a handful of out-of-context e-mails that do not support the allegations," Coventry Chief Executive Alan Buerger said. Coventry also notes that it pays sellers an average of three times what the insurance carriers would have paid them.
Steve Leimberg of Steve Leimberg's Estate Planning Newsletter says that no matter how the suit turns out, it is "a wake-up call" that could "have major repercussions for the entire life settlement industry."
Local Elder Law Attorneys in Ashburn, VA
Law Offices of John L. Laster
John Laster is a lawyer licensed to practice in Virginia, Maryland and the District of Columbia. He limits his practice to wealth transfer planning, trusts, wills, powers of attorney, health care decision-making issues, estate administration and related tax, elder law and disability concerns. Listed in The Best Lawyers...
Hale Ball Carlson Baumgartner Murphy PLC
Attorney Samantha Simmons Fredieu is an associate at Hale Ball. Ms. Fredieu graduated magna cum laude from Vermont Law School where she was the symposium editor on the Vermont Law Review, a production editor on the Vermont Journal of Environmental Law, and a member of the Moot Court Advisory Board. She has clerked for...