In No. 249 (January 17, 2018) I described a case illustrating how the actions of an insurance agent led to a dispute over who should receive the proceeds of two annuities. While preparing that post, I learned of an earlier case in which an insurance agent used outrageous practices to victimize two elderly widows. Here I discuss the earlier case.
Richard Klinkner
Richard J. Klinkner (Two Rivers, Wisconsin) received his agent's license in 1983. He worked for New York Life Insurance Company (NYL) until 1992, when he became an independent agent. His victims were Mrs. Mildred Kaufman and Mrs. Janet Hlinak (both of Manitowoc, Wisconsin).
Mrs. Mildred Kaufman
Mildred was born in 1914. She and her husband had three children and five grandchildren, and were longtime Klinkner clients. Mildred paid the bills and mostly handled finances when her husband was alive and after he died in 2000. For a number of years Klinkner handled Mildred's investments and financial affairs. He also prepared her tax returns, for which she paid him. In 2003 Mildred appointed her daughter-in-law her power of attorney (POA) for finances. In 2006 Mildred moved into an assisted living facility. She died in 2008 after the hearing in this case.
In 1990 Klinkner sold Mildred a whole life insurance policy issued by NYL. In February 2006 Klinkner hand wrote a beneficiary change letter for the policy. The letter asked that her "friend" Klinkner be named beneficiary. NYL recorded the change effective on the date of the letter. Klinkner later testified that Mildred wanted him to be the beneficiary, that she signed the letter, that he took it to his office to make a copy, that he mailed it back to Mildred to send to NYL, and that he did not know whether NYL received the letter until an attorney representing Wisconsin's Office of the Insurance Commissioner (OIC) contacted him. A few days after the proceedings in this case began, Mildred named her daughter-in-law and grandchildren beneficiaries of the NYL policy.
In 2002 Klinkner sold Mildred, who was aged 88 at the time, a deferred annuity issued by National Western Life Insurance Company (NWL). It was funded by surrendering four annuities issued by Jackson National Life Insurance Company (JNL) and five annuities issued by a Conseco company. Mildred incurred substantial surrender charges.
Mrs. Janet Hlinak
Janet was born in 1923. She and her husband had no children. Her husband handled finances until he died in 1999. Shortly before her husband died, Janet appointed her husband's brother her POA for finances. Janet and her husband were longtime clients of Klinkner. He prepared tax returns for them, and for Janet after her husband died. They paid Klinkner for that work.
Janet has an 8th grade education and has always had difficulty with basic math skills. She does not know what bills to give the cashier to pay for a $15 lunch, and she generally does not understand what things cost or are worth. She does not know how to write checks, and she signs her name after someone writes the checks for her. She takes care of herself and her home, and lives by herself.
After Janet's husband died, Klinkner, at his own suggestion, came to her house each month to write checks to pay her monthly bills. She signed the checks and Klinkner mailed them. Each month she paid Klinkner $100 in cash (or by checks Klinkner wrote) for that work.
Klinkner sold Janet two life insurance policies issued by NYL (and was servicing another), one policy issued by a Conseco company, and three annuities issued by JNL. One of the JNL annuities was paid for by surrendering the Conseco policy. On the JNL application, which Janet signed and Klinkner mailed, Klinkner named himself the beneficiary.
On another JNL annuity, Klinkner typed a letter to JNL from Janet stating that she "would like Mr. Richard J. Klinkner listed as beneficiary on this annuity" and that her "husband before he passed away on April 10, 1999 had asked Mr. Klinkner to act as my caretaker until the day I die." Janet signed the letter and Klinkner sent it to JNL. At various times Klinkner typed letters asking NYL to list her "friend/caretaker" Klinkner beneficiary on the NYL policies.
In October 2000 Janet signed a will making bequests of $4,000, naming Klinkner beneficiary of the rest of her estate, and naming him her personal representative. She later testified she put Klinkner in her will because she thought he would handle her finances but did not want him to have all her money when she died. She later signed a new will.
In January 2001 Janet revoked the appointment of her brother-in-law as her POA for finances. Two weeks later she appointed Klinkner her POA for finances. In 2007, after the proceedings in the case began, she appointed her sister-in-law her POA for finances.
The Complaint
In August 2006 Mildred's daughter-in-law filed a complaint about Klinkner with the OCI. In June 2007 OCI issued a hearing notice alleging that Klinkner violated insurance laws by naming himself beneficiary on multiple life insurance policies he had sold to two different consumers, that he made false or misleading statements to OCI when asked whether he was named beneficiary on any customers' insurance policies, that he made false or misleading statements to consumers, and that he made unsuitable sales of life insurance policies and annuities to two elderly consumers. Klinkner generally denied the allegations.
The ALJ's Proposed Decision
In 2008, after amended hearing notices and pre-hearing conferences, an administrative law judge (ALJ) held a six-day hearing—three days in late May and three days in early July. In April 2009 the ALJ issued a proposed decision to be considered by the Wisconsin insurance commissioner. The ALJ recommended that the insurance commissioner issue an order that would revoke Klinkner's license as an insurance agent, require him to forfeit $7,000 for naming himself beneficiary on life insurance policies and for other violations, require him to pay Janet and her current POA $6,513 as restitution for the net loss on surrender charges she incurred when he replaced her JNL annuities, and require him to pay Mildred $67,000 as restitution for his profit from the sale of the NWL annuity.
Commissioner Dilweg's Final Decision
In August 2009, after he considered the objections filed by Klinkner and by the OCI, then Commissioner Sean Dilweg issued his final decision. He discussed the parties' objections and made numerous findings of fact. He ordered that Klinkner's license be revoked, that Klinkner pay $8,000 to the state of Wisconsin for six violations of insurance laws, that Klinkner pay $10,000 to the state of Wisconsin for repeated violations of another insurance law, that Klinkner pay $27,137 to Janet and her current POA for the surrender charges she incurred when Klinkner replaced her JNL annuities, that Klinkner pay Mildred's estate $17,592 for the surrender charges she incurred when Klinkner replaced her JNL annuities and Conseco annuities, and that Klinkner pay $67,000 to the state of Wisconsin for the profit he made from the sale of the NWL annuity to Janet.
Klinkner's Appeals
Klinkner appealed Commissioner Dilweg's decision to a Wisconsin circuit court. The judge affirmed the commissioner's decision except for reimbursement of the surrender charges Mildred incurred in the surrender of her Conseco annuities. The judge remanded that portion of the decision to the commissioner with the request that the commissioner either remove that requirement or explain further why the replacement was unsuitable.
Klinkner appealed the circuit court judge's ruling to the Wisconsin Court of Appeals. A three-judge panel affirmed the ruling.
Commissioner Nickel's Final Decision on Remand
In July 2011 then Commissioner Ted Nickel issued his final decision on remand. He explained why replacement of the Conseco annuities was unsuitable, and he retained the requirement that Klinkner reimburse Mildred for the surrender charges she incurred when Klinkner replaced her Conseco annuities.
General Observations
I am deeply troubled by the Klinkner case, for two reasons. First, the facts of the case describe outrageous actions by Klinkner. Second, the amount of time and effort expended by numerous regulatory employees, by numerous court employees, and by all the others involved in this case must have been staggering. Cases like this one and the one described in No. 249 cause me to ask how there can ever be enough resources to protect the public adequately against wrongdoing in the insurance business.
Available Material
I am offering a complimentary 19-page PDF consisting of Commissioner Dilweg's August 2009 final decision (10 pages) and Commissioner Nickel's July 2011 final decision on remand (9 pages). E-mail
jmbelth@gmail.com and ask for the January 2018 package about the Klinkner case.
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