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Estella Rowe, On Behalf of Herself and All Others Similarly v. Bankers Life and Casualty Company and Bankers Life Insurance Company of Illinois

March 29, 2012


The opinion of the court was delivered by: Judge Robert M. Dow, Jr.


Plaintiff Estella Rowe sued Bankers Life and Casualty Company and its former affiliate, Bankers Life Insurance Company of Illinois*fn1 (collectively, "Bankers"), on behalf of herself and all others similarly situated. Rowe alleges that Bankers conspired with its independent sales agents and others to induce elderly consumers to buy equity-indexed deferred annuities, which, according to Rowe, are unsuitable investment vehicles for anyone over sixty-five years old. Before the Court is Rowe's motion for class certification and to appoint class counsel [94]. For the reasons stated below, the Court denies Rowe's motion -- although the denial is without prejudice to the filing of a new motion to certify a California subclass.

I. Background

A. Class Allegations

Bankers is an Illinois corporation that sells life insurance, long-term care insurance, and annuities to senior citizens and others in California, Illinois, and other states. An annuity is a type of insurance product. When purchasing an annuity, a consumer agrees to make an upfront lump-sum payment (a premium), or a series of payments, to the insurance company. In return, the insurance company agrees to make payments to the purchaser over a period of time. With a deferred annuity, the product at issue here, the insurance company does not begin making payments immediately upon receipt of the premium. During this period, the premium grows on a tax-deferred basis. In this sense, a deferred annuity is a savings vehicle, not an immediate income stream.

There are different types of deferred annuities. A "fixed" deferred annuity is an annuity in which the insurance company pays the consumer a guaranteed interest rate on his or her premium payments for a set period of time. An "equity-indexed" deferred annuity, on the other hand, typically guarantees a lower rate of interest on the consumer's premium payments, but is also tied to a market index. If the market index goes up, the rate of interest and, thus, the value of the annuity also will increase, although not by the same percentage as the rise in the market index. Bankers' equity-indexed deferred annuities are linked to the S&P 500. The "cost" of a deferred annuity is limited liquidity, or, as Bankers puts it, "full liquidity at a price." (Resp. at 6.) A purchaser of one of Bankers' equity-indexed deferred annuities, for example, may withdraw a small percentage of her money each year after the first year without a penalty, but incurs a "surrender charge" if she needs to withdraw a larger amount before the maturity date.

Rowe alleges that Bankers, its independent sales agents, UVEST Financial Services Group, Inc., and 40/86 Advisors, Inc. constitute an "enterprise" as defined in 18 U.S.C. § 1961(4), over which Bankers maintains systemic control. Rowe contends that Bankers "develops and underwrites the [a]nnuities, and develops standardized marketing materials[,]" while UVEST "facilitates replacement transactions[,]" 40/86 "provides investment advice and services" for the funds that Bankers takes in, and the independent sales agents "market and sell the [a]nnuities." (2d Am. Compl. ¶ 139.) Rowe alleges that the structure of the enterprise is critical to Bankers' ability to market and sell its equity-indexed deferred annuities to seniors for whom such annuities are unsuitable.

Most important to the scheme, Rowe contends, is Bankers' use of independent sales agents to sell its annuities. By using independent contractors instead of employees, Bankers is able to "evade its responsibilities and obligations by contending that it lacks control or oversight over the actions of its [a]gents." (2d Am. Compl. ¶ 145.) Bankers markets and sells its annuity products through a network of more than 4,600 independent sales agents located in over 200 nationwide sales offices. According to Rowe, using standardized recruiting techniques, Bankers hires sales agents without regard to their skills or ethics. She contends that despite the fact that its annuities are complex products, Bankers does not require that its prospective sales agents have prior annuity sales experience. Further, once Bankers hires sales agents, Rowe alleges, it does not require them to complete any substantive, written training on the features of its annuities or the suitability of such products for seniors.*fn2 Rowe also asserts that despite its large network of independent sales agents, Bankers does not have a nationwide program to determine when an annuity is suitable for a senior. Nor does Bankers supervise or review the sale processes of its independent agents.

What Bankers does require, according to Rowe, is sales technique training. Rowe alleges that Bankers teaches its sales agents "aggressive, predatory sales practices designed to threaten, intimidate and scare seniors," (2d Am. Compl. ¶ 32), and that it provides lavish incentives, bonuses, and commissions to its sales agents that successfully target seniors for annuities, regardless of their suitability. Rowe also contends that Bankers instructs its agents to use marketing and sales materials that contain omissions and misrepresentations. According to Rowe, Bankers' sales materials do not disclose the fact that (1) its annuities contain loads and other expenses; (2) it uses a cadre of untrained, unsupervised, and inexperienced agents to sell its annuities; (3) its annuities are poor-performing assets; and (4) deferred annuities in general are illiquid and ill-suited for seniors.

Rowe asserts that in order to effectuate the scheme described above, Bankers and its co-conspirators have committed numerous acts indictable as mail or wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343, respectively. Rowe points to a number of annuity-related forms that she claims contain material omissions and that, "on information and belief," Bankers sent to each of its customers nationwide. "[M]ost egregious" among them, according to Rowe, is a statement in the Annuity Disclosure Form that specifically states that Bankers does not charge for any loading. (2d Am. Compl. ¶ 164.) Rowe contends that despite this statement, there is a loading expense charge inherent in its annuities.

B. Rowe's Allegations

Rowe asserts that in July of 2007, she and her late-husband, Samuel Rowe ("the Rowes"), both of whom were over sixty-five years old at the time, fell victim to Bankers' scheme. According to Rowe, two sales agents working for Bankers made an unsolicited telephone call to the Rowes to arrange an in-home meeting to discuss the Rowes' long-term care insurance. The Rowes agreed to meet with the agents. During their meeting, the agents learned that the Rowes had a variable annuity with another company that had a cash value of approximately $105,000.00. The agents recommended that the Rowes liquidate that annuity and purchase one of Bankers' annuities instead and, at their second in-person meeting with the agents, the Rowes agreed to do so. The Rowes purchased the annuity with a lump sum payment of $101,985.92.

The equity-indexed deferred annuity that the Rowes purchased started with a ten percent surrender charge. It also had a maturity date of July 16, 2025, meaning that the Rowes would not receive any payment or return on the annuity until Samuel Rowe was ninety-nine years old. In December of 2007, however, because the Rowes needed money, they surrendered their annuity and incurred a charge of more than $10,198.59. Rowe claims that the sales agents never discussed with the Rowes the relative strengths and weaknesses of the Rowes' existing annuity compared to the annuity that they bought from Bankers. Nor did the agents discuss the tax implications of Bankers' annuity. According to Rowe, had she and her husband known all of "the undisclosed and concealed risks and infirmities of their investment," they would not have purchased one of Bankers' annuities. (2d Am. Compl. ¶¶ 133-35.)

Believing that through the pattern of alleged racketeering activities described above, Bankers has violated and conspired to violate §§ 1962(c) and 1962(d) of RICO, Rowe sued Bankers on behalf of herself and all others similarly situated. Rowe also alleges that Bankers has violated the California Elder Abuse Code, Cal. Welfare & Inst. Code §§ 15600, et seq.; the California False and Misleading Advertising Act, Cal. Bus. & Prof. Code §§ 17200, et seq.; and the California Unfair Trade Practices Act, Cal. Bus. & Prof. Code §§ 17500, et seq.; has breached and aided and abetted the breach of fiduciary duties owed to the potential class members; and has been unjustly enriched. In her second amended complaint, Rowe seeks injunctive relief; disgorgement and restitution; compensatory, special, and general damages; punitive and exemplary damages; treble and double damages; the imposition of a constructive trust; and reasonable attorneys fees and costs.

Now before the Court is Rowe's motion to certify two classes pursuant to Federal Rule of Civil Procedure 23. The first is a nationwide class relating to Rowe's RICO claims ("the nationwide class"):

All persons in the United States [who], while 65 years of age or older, purchased one or more Bankers Life and Casualty Company equity-indexed deferred annuities, form numbers LA-07A, LA-07C, or LA-07G, after January 1, 2004.

The second class Rowe seeks to certify is a sub-class of California residents that relates to Rowe's California statutory and common law claims ("the California subclass"):

All California residents [who], while 65 years of age or older, purchased one or more Bankers Life and Casualty Company equity-indexed deferred annuities, form numbers ...

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