Knox v. Anderson, Civ. No. 1382.

• Decision Date: 18 April 1958
• Docket Number: Civ. No. 1382.
• Citation: 162 F. Supp. 338
• Parties: Roger I. KNOX, Plaintiff, v. J. Leland ANDERSON, Defendant.
• Court: U.S. District Court — District of Hawaii

162 F. Supp. 338

Roger I. KNOX, Plaintiff, v. J. Leland ANDERSON, Defendant.

Civ. No. 1382.

United States District Court D. Hawaii.

April 18, 1958.

Smith, Wild, Beebe & Cades, J. Russell Cades, William B. Borthwick, Honolulu, Hawaii, for plaintiff.

Robertson, Castle & Anthony, J. Garner Anthony, William F. Quinn, Honolulu, Hawaii, Tannenbaum, Steinberg & Shearer, Bertram Fields, Beverly Hills, Cal., for defendant.

April 18, 1958. See also, 159 F.Supp. 795.

McLAUGHLIN, Chief Judge.

This cause came on regularly for trial before the court sitting without a jury, on the 30th day of January, 1957, J. Russell Cades, Esq., Milton Cades, Esq., and William B. Borthwick, Esq., appeared as counsel for the Plaintiff, and William F. Quinn, Esq., and Bertram Fields, Esq., appeared as counsel for the Defendant, and the court having heard the testimony and having examined the proofs offered by the respective parties, and the cause having been submitted to the court for decision, and the court being fully advised in the premises and having filed its Opinion herein now makes its findings of fact as follows:

Findings of Fact

1. That Roger I. Knox, Plaintiff herein, was at the time this action was filed in the United States District Court for the Territory of Hawaii, and at all times hereinafter mentioned, a resident of Waikapu, County and Island of Maui, and a citizen of the Territory of Hawaii.

2. That J. Leland Anderson, Defendant herein, was at the time this action was filed in the United States District Court for the Territory of Hawaii, and at all times hereinafter mentioned, a resident of the County of Los Angeles and a citizen of the State of California.

3. That at all times hereinafter mentioned Defendant represented himself to Plaintiff to be an expert insurance and annuity counselor and a specialist in the so-called "bank loan plan" for the purchase of life insurance contracts; Defendant further represented to Plaintiff that he had an expert knowledge in the field of life insurance programs (particularly under the "bank loan plan"), in taxation incident to such insurance plans including income, inheritance and estate taxation, and that he possessed special skill and knowledge not possessed by insurance solicitors in the Territory of Hawaii engaged generally in the business of selling life insurance contracts.

4. Plaintiff disclosed to Defendant when Defendant first contacted Plaintiff that he had no knowledge or skill in the matters set forth in paragraph 3 above; that Defendant did in fact have experience, skill and knowledge in the matters set forth in paragraph 3 above which was vastly superior to that possessed by Plaintiff.

5. That in August, 1952, when Plaintiff was in the process of altering his insurance program so as to reduce his total annual premiums, Frank M. Kreidler, acting as a "bird dog" for and on behalf of Defendant and under his direction called upon Plaintiff and represented to Plaintiff that Defendant could set up for him an integrated life insurance program under the so-called "bank loan plan" which would be suitable for and fit the needs of Plaintiff and his family. Kreidler strongly intimated that under such a plan one might be able to carry at least twice as much insurance as he was then carrying at no increase in cost; that the said "bird dog" obtained from Plaintiff for Defendant information concerning Plaintiff's income, existing insurance program, family status, family obligations and related matters; that Plaintiff made a full disclosure to said "bird dog" of all such information and affairs of which inquiry was made which information was communicated by said "bird dog" to Defendant.

6. That at all times hereinafter mentioned Defendant sought to obtain the complete trust and confidence of Plaintiff and to have Plaintiff rely upon Defendant's skill, experience and knowledge; that to obtain such trust, confidence and reliance Defendant presented and caused to be presented to Plaintiff testimonial letters and a letter of introduction from E. E. Bodge, a prominent member of the Territory's business world, and had one Frank M. Kreidler, an insurance agent working with and under the direction of Defendant, give to Plaintiff a build-up of Defendant which caused Plaintiff to eagerly anticipate a visit from Defendant; that as a result of such testimonials, introduction and build-up, Plaintiff in fact did repose complete trust and confidence in Defendant and rely upon Defendant's skill, experience and knowledge in those matters set out in paragraph 3 above and upon the representations set forth under paragraph 8 hereafter in purchasing the New York Life Insurance Company policies, making the conversions of his New England Mutual, John Hancock and Prudential policies and borrowing upon his insurance policies as set forth in paragraph 7 hereafter, which trust, confidence and reliance were known to Defendant at the times said policies were sold, said conversions made and said borrowing effectuated.

7. That on November 6, 1952, acting under the advice of Defendant, Plaintiff purchased Policy No. 22 400 740 on his life issued by New York Life Insurance Company in the face amount of $100,000 being a 10 Pay Life policy with an annual premium for 10 years of $7,265 and authorized Defendant to change Plaintiff's policy in the face amount of $5,000 with John Hancock from Endowment Age 60 to 25 Pay Life, Plaintiff's policy in the face amount of $10,000 with New England Mutual from Ordinary Life to 10 Pay Life and Plaintiff's policy in the face amount of $10,000 with Prudential from Modified Life 3 to 20 Pay Life said purchase and said conversions forming part of an integrated program of "bank financed insurance"; that on May 27, 1953, acting under the advice of Defendant that it would fit his program, Plaintiff added to and completed said program by purchasing Policy No. 22 534 715 on the life of his wife, Ellen W. Knox, issued by New York Life Insurance Company in the face amount of $50,000 being a 10 Pay Life policy having an annual premium for 10 years of $3,758; that at the time these purchases were made Plaintiff's net worth was not in excess of $25,000 and he had a salary of $8,100 per year and investment income of not in excess of $1,500 per year thus placing him in the 26% tax bracket; that Plaintiff had expectations of being raised to assistant manager of his plantation at $12,000 per year; all of which facts were known to Defendant; that the annual premiums on the New York Life Insurance Company policies and the policies comprising Plaintiff's original insurance program prior to the purchase of the New York Life Insurance Company policies were to be paid from the proceeds of a gradually increasing bank loan upon the security of Plaintiff's insurance policies and Plaintiff was only to pay interest on such loan; that the first annual premiums on the New York Life Insurance Company policies and the conversion costs for the alterations in the forms of the New England Mutual, John Hancock and Prudential policies were paid from the proceeds of loans made upon Plaintiff's insurance policies.

8. (a) That Plaintiff was induced to buy the integrated program of "bank financed insurance" and to purchase the New York Life Insurance Company policies, to make the conversions of the New England Mutual, John Hancock and Prudential policies and to borrow the money upon his insurance policies as set forth in paragraph 7 above in reliance upon the representation to Plaintiff by Defendant that the program was within his financial means, was a suitable program for Plaintiff and his family and fitted their needs because by entering into said insurance program, Plaintiff would greatly increase his and his wife's life insurance coverage at all times during the term of the program at a cost to Plaintiff which was not substantially in excess, if at all, of the cost of the premiums then being paid by Plaintiff under his existing life insurance contracts; that this greatly increased coverage at approximately the same annual cost as the old program would be accomplished by a combination of the following:

1) By a saving in federal income taxes because the interest payable to the bank under the proposed "bank loan plan" would be a deductible expense for tax purposes;

2) By reason of the fact that Plaintiff's annual cash outlay during the early years under the new program would be less than the annual gross amount of premiums due under his old program, which difference could be invested and the income from such investment be available to reduce the annual cash outlay of the new program; and

3) By reason of the fact that the cash values of, and the dividends on the new insurance program would build up and thereby would further reduce the actual annual cost of the new insurance program and could be borrowed against, if necessary, to reduce actual annual cash outlay due under said new program so as to be less than the annual gross amount of premiums due under the superseded program;

that this representation of suitability was known or ought to have been known to Defendant to be false and fraudulent and was made by Defendant to Plaintiff with the intent that he rely upon it in buying said integrated program of "bank financed insurance", and had Plaintiff known that it was false he would not have purchased said integrated program.

(b) That certain other material...