Tabares v. Equitrust Life Ins. Co.

• Decision Date: 28 September 2015
• Docket Number: B254409
• Court: California Court of Appeals Court of Appeals
• Parties: DANIEL TABARES et al., Plaintiffs and Appellants, v. EQUITRUST LIFE INSURANCE COMPANY, Defendant and Respondent.

DANIEL TABARES et al., Plaintiffs and Appellants, v. EQUITRUST LIFE INSURANCE COMPANY, Defendant and Respondent.

B254409

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

September 28, 2015

ORDER MODIFYING OPINION AND DENYING REHEARING (NO CHANGE IN JUDGMENT)

THE COURT:

The court has read and considered respondent's request for modification of opinion and appellants' petition for rehearing filed on October 13, 2015. It is ordered that the opinion filed herein on September 28, 2015 be modified as follows:

On page 4, section 2 of the Factual and Procedural Background, the first full paragraph is deleted and the following paragraph is inserted in its place:

The named plaintiffs purchased different EquiTrust annuities. According to the operative complaint, Daniel and Rhodora Tabares were approached by defendant Joseph Sackey at their worksite, the Los Angeles County Metropolitan Transportation Authority (MTA). Sackey held himself out as a financial planner and annuity specialist who had assisted more than 100 MTA retirees find profitable investments for their government pensions. In May 2006 Sackey convinced Daniel, a 23-year employee of the MTA, to retire early and roll his entire government pension of more than $395,000 into a MarketValue Index annuity issued by EquiTrust. Based on Sackey's representations, Daniel understood he would begin to receive monthly interest payments of $2,500 shortly after issuance of the annuity. Contrary to that representation, the annuity purchased by Daniel did not provide for commencement of immediate payments. Further, instead of the high returns promised by Sackey, the annuity bore a minimum guaranteed interest rate ranging from 1.5 to 2 percent, and only 87.5 percent of Daniel's investment was guaranteed from loss. Any withdrawals from the annuity within the first 10 years of purchase were subject to substantial surrender charges of up to 12 percent. Daniel was never shown a sample contract before the sale. He never incurred a surrender charge or MVA.

There is no change in judgment. Appellants' petition for rehearing is denied.

/s/_________

PERLUSS, P. J.

/s/_________

ZELON, J.

/s/_________

SEGAL, J.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC390195)

APPEAL from orders of the Superior Court of Los Angeles County, Anthony J. Mohr and Lee Smalley Edmon, Judges. Affirmed.

Law Offices of Robert S. Gerstein, Robert S. Gerstein; Gianelli & Morris, and Robert S. Gianelli, for Plaintiffs and Appellants.

Amy R. Bach and Daniel R. Wade for United Policyholders as Amicus Curiae on behalf of Plaintiffs and Appellants.

Reed Smith, Margaret M. Grignon, Robert D. Phillips, Jr., James C. Martin, Zareh A. Jaltorossian, Kathy J. Huang and Thomas A. Evans, for Defendant and Respondent.

____________________ This class action was filed in 2008 by purchasers of EquiTrust Life Insurance Company's deferred equity-indexed annuities. Named plaintiffs Daniel and Rhodora Tabares, Judy L. Taylor, Elizabeth Young and Judith Gilbert appeal from orders granting EquiTrust's motion for summary adjudication of their contract claims, denying class certification of their claim under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.) (UCL) and denying their request to add Young and Gilbert as class representatives on the cause of action for declaratory relief. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Financial Products Sold Here

The EquiTrust annuity products challenged in this action include the MarketValue Index, the MarketPower Bonus Index, the MarketBooster Index and the MarketTen Bonus Index. All are equity-indexed annuities, meaning that some portion of the premium may be allocated to one or more accounts that link the crediting of interest to the performance of the Standard & Poor's 500 stock index. Annuity purchasers may also allocate premiums to a fixed rate account, which credits interest to the annuity according to a preset fixed rate reset at the beginning of each year. EquiTrust sets a new renewal rate each year depending on a number of factors, although the annuity contracts identify a guaranteed minimum interest rate below which the fixed rate will never fall. Equity-indexed accounts include "index caps," which cap the interest rate a purchaser can accrue. Initial index caps are fixed for the first year of each annuity but are reset monthly or annually depending on the account selected by the purchaser. As with the fixed rate accounts, renewal index caps are calculated based on a number of cost factors and may not fall below a guaranteed minimum during the life of the contract. The contracts specify that at no point may the interest rate be a negative figure, even if the equity index suffers a loss (negative growth). Thus, when a purchaser allocates premiums to an equity-indexed account, the account is contractually guaranteed a return between zero percent and the index cap.

Three of the four annuity contracts also provided bonuses tied to the amount of premiums paid into the annuities. The contracts defined "Premium Bonus" as "the amount, if any, equal to the Premium (the amount deposited by the purchaser within the relevant time period, usually one year) multiplied by the Premium Bonus Percentage shown in the Contract Data Page." Premium bonuses were added to the premiums to increase the total Accumulation Value (defined as the premiums paid as augmented by any premium bonuses, plus interest credited and less any withdrawals) of the annuity. As EquiTrust admits, it treats the bonuses it pays as a fixed cost factored into its calculation of the initial rate and the index caps. Based on these contracted rates, which are usually lower than the rates provided in a non-bonus product, EquiTrust recoups the cost of the bonus over time.

EquiTrust sold its annuity products through independent sales agents compensated by commissions that were calculated as a percentage of the premiums paid into the annuity contracts sold. Commissions were not deducted directly from purchasers' premium funds but, like premium bonuses, were considered fixed costs and were factored into the initial rates and caps.

Annuities carry an early withdrawal penalty known as a surrender charge. A surrender charge is calculated as a percentage of the Accumulation Value that decreases over time, typically 10 to 12 years, sometimes as long as 15 years. The longer an annuity holder waits to withdraw his or her funds, the smaller the withdrawal penalty becomes; when the annuity reaches maturity, the surrender charge disappears. Until then, with limited exceptions, an annuity holder only has access to the Cash Surrender Value of the annuity.¹ Under the terms of the contracts, the Cash Surrender Value is the greater of either (1) the Accumulation Value less a surrender charge multiplied by a Market Value Adjustment (MVA), a figure derived from a preset formula linked to the starting and current value of United States Treasury bonds,² or (2) a Minimum Guaranteed Contract Value, which is calculated as a percentage of the premiums actually paid, excluding any premium bonuses and withdrawals.

The cover page of the annuities sold by EquiTrust contained a number of advisory statements, including the following "important notice to owners age 60 or older": "This contract may be returned within 30 days from the date you received it for a full refund by returning it to the insurance company or agent who sold you this contract. After 30 days, cancellation may result in a substantial penalty, known as a surrender charge. The surrender charges associated with this contract can be found on the contract data page." Also on the cover sheet, below the EquiTrust signatures, was the following caution: "Cash surrender values may increase or decreased based on the equity index and market value adjustment features of this contract. . . ." The contract data page in turn disclosed the premium paid, the premium bonus percentage and amount, the minimum interest rate applicable to the plan, the duration of the MVA in years and the applicable percentage of the surrender charge over time. A cover sheet from one of the EquiTrust annuities is reproduced as an appendix to this opinion.

2. The Named Plaintiffs

The named plaintiffs purchased different EquiTrust annuities. According to Daniel and Rhodora Tabares, they were approached by defendant Joseph Sackey at their worksite, the Los Angeles County Metropolitan Transportation Authority (MTA). Sackey held himself out as a financial planner and annuity specialist who had assisted more than 100 MTA retirees find profitable investments for their government pensions. In May 2006 Sackey convinced Daniel, a 23-year employee of the MTA, to retire early and roll his entire government pension of more than $395,000 into a MarketValue Index annuity issued by EquiTrust. Based on Sackey's representations, Daniel understood he would begin to receive monthly interest payments of $2,500 shortly after issuance of the annuity. Contrary to that representation, the annuity purchased by Daniel did not provide for commencement of distribution payments until 2061 when Daniel would be more than 100 years old. Further, instead of the high returns promised by Sackey, the annuity bore a minimum guaranteed interest rate ranging from 1.5 to 2 percent, and only 87.5 percent of Daniel's investment was guaranteed from loss. Any withdrawals from the annuity within the first 10 years of purchase were subject to substantial surrender charges of up to 12 percent. Daniel was never shown a sample contract before the sale. He never incurred a surrender charge or MVA.

Judy Taylor...