The sale of the annuity occurred three days after Louis Jochim, Schuber's 82-year-old boyfriend, brought her to Neasham's office. Jochim was living with Schuber in her home, and he had bought such an annuity from Neasham several years earlier. Jochim was named the primary beneficiary of Schuber's annuity, and Jochim's daughter was named the contingent beneficiary. Schuber's son, who Jochim claimed was estranged from Schuber, was not named a beneficiary. The first-year premium for the annuity was $175,000, and no further premiums were contemplated. The funds were taken from a maturing certificate of deposit owned by Schuber.
When Jochim brought Schuber to the bank to obtain a check payable to Allianz for the $175,000 premium, bank employees were concerned that Schuber did not understand what she was doing. They issued the check, but filed a report of possible elder financial abuse. The report led to investigations by the Lake County Adult Protective Services, the California Department of Insurance (CDI), and the Lake County District Attorney.
The Trial and the Appeal
In December 2010, criminal charges were filed against Neasham and he was arrested. In October 2011, after a ten-day trial in the Lake County Superior Court, the jury found Neasham guilty of felony theft with respect to the property of an elder and dependent adult. Neasham was sentenced to 90 days in the Lake County jail. The sentence was stayed pending appeal.
Neasham appealed his conviction to the California Court of Appeal. On October 8, 2013, a three-judge panel reversed the conviction. Justice Stuart Pollak wrote the opinion. Justices William McGuiness and Matthew Jenkins concurred. (The People v. Neasham, Court of Appeal, State of California, First Appellate District, Division Three, Case No. A134873.)
I agree with the appellate panel's finding that one of the trial court judge's jury instructions was incorrect. The instruction failed to make clear that the jury had to find not only that the defendant committed theft but also that the defendant intended to commit theft. However, I doubt the jury verdict would have been different if the instruction had been correct.
I disagree with--and am surprised by--at least six of the appellate panel's findings. First, the panel said "there was no evidence that [Neasham] appropriated [Schuber's] funds to his own use or to the benefit of anyone other than [Schuber]." Although the panel mentioned Neasham's 8 percent commission (amounting to $14,000), the panel did not consider it an appropriation of Schuber's funds to Neasham's benefit. I disagree. Also, although the panel mentioned surrender charges generally, the panel did not mention the first-year surrender charge of $19,578.
Second, the panel said there was no evidence that Neasham "made any misrepresentations or used any artifice in connection with the sale." The panel ignored the "Annuity vs. CD" form the CDI had found misleading. For a detailed description of the form, see my June 2012 article.
Third, the panel found persuasive the fact that the CDI had approved the annuity contract form for sale to persons up to age 85. Yet the fact that a contract form is approved by a regulator does not mean it is suitable. I am reminded of a case where a woman with advanced emphysema converted her $1.3 million retirement accumulation, virtually her entire estate, to a straight life annuity with no refund. Her illness resulted in her death six months later. The annuity was an approved contract form but surely was not suitable. See "An Unsuitable Life Annuity from TIAA" in the January 2010 issue of The Insurance Forum.
Fourth, the panel accepted the idea that it was appropriate for Jochim to be the primary beneficiary of the annuity and for his daughter to be the contingent beneficiary. The panel also referred to Schuber's son as "largely estranged," a characterization Jochim used. Yet Jochim had a strong financial interest in promoting the so-called estrangement.
Fifth, the panel said there was "conflicting evidence as to [Schuber's] ability to understand the nature of the transaction." Jochim and Neasham's office assistant said Schuber knew what she was doing, but I think the panel should have given much more weight to comments by the bank employees, the various investigators, and Schuber's son.
Sixth, the panel gave significant weight to the "CYA" letter Neasham had handwritten. I think the letter should have been given no weight. Although Schuber and Jochim signed it, no one else witnessed it.
Lessons To Be Learned
It is natural for insurance agents to feel relieved by the reversal of Neasham's conviction. The case attracted so much attention that the Society of Financial Service Professionals submitted an amicus brief to the appellate court on Neasham's behalf. Yet the case ruined Neasham: the CDI revoked his agent's license, the legal expenses were enormous, and he was forced to accept financial help from friends. Moreover, the case provides important lessons for agents and insurance companies who deal with elderly prospects.
First, it is important to examine a prospect's estate planning documents, such as a will, a power of attorney (POA), a living will, and the appointment of a health care representative. For example, if there had been a POA in this case, it would have been appropriate to consult with the holder of the POA. As I said in my June 2012 article, Schuber had asked a lawyer to prepare a POA years before the purchase of the annuity. However, the lawyer felt Schuber was not legally competent to execute a POA and therefore refused the assignment.
Second, it is important for the agent to be diligent about whether the prospect is cognitively impaired. It requires neither medical training nor rocket science to ask the prospect to count backward from 20 or to ask a few routine questions: What year is this? What day of the week is this? What are the names of your brothers and sisters? What is your spouse's name? What are the names of your children? How many grandchildren do you have? Who is the President of the United States? In the Schuber case, nine months after the sale, she told an investigator her husband had bought the annuity, when in fact her husband had died in the 1980s.
Third, it is important for the agent to bring the prospect's family into the picture. In this case, Jochim, who was not a family member and was not a disinterested party, seemed to be the only one present and seemed to answer all the questions for Schuber in discussions with Neasham, with the bank employees, and later with the investigators.
In short, an agent should not make a sale unless the agent is convinced that the product is suitable for the prospect. Further, the agent should not sell an annuity with life contingencies unless the agent is convinced that the prospect is not suffering from a cognitive impairment or other major illness affecting life expectancy. To sell an unsuitable product or deal with a cognitively impaired prospect is asking for trouble.