Wednesday, January 17, 2018

No. 249: Beneficiary Designations and How an Insurance Agent's Actions Can Create a Dispute

On December 29, 2017, the Milwaukee Journal Sentinel carried an article by reporters Cary Spivak and Mary Spicuzza entitled "Who gets $1.6 million inheritance—relatives of a virtual hermit or his financial adviser?" The case focuses on Blanche Berenzweig, an insurance agent in Wisconsin, and illustrates how an agent's actions can lead to a major dispute over who should receive annuity proceeds.

The Berenzweig Case
LeRoy Ern, a Wisconsin resident, purchased an annuity from Lincoln Benefit Life Company in October 1993 with an initial deposit of about $33,000. He named his estate the primary beneficiary. Berenzweig signed the application as agent. Less than two weeks later Ern made an additional deposit of about $67,000 into the annuity.

In May 2006 Ern applied for an annuity with Integrity Life Insurance Company. He named his sister the primary beneficiary, and Berenzweig was the agent. Less than two weeks later he transferred about $166,000 from an ING annuity into the Integrity annuity as an initial deposit.

In November 2009 Berenzweig faxed a Broker Dealer Change of Record form to Lincoln Benefit. On the fax cover sheet, she hand-wrote: "Please make me agent of record for [this contract]. I have tried repeatedly to become the agent on this contract. My insurance license is attached w/this fax."

Less than two weeks later Ern executed three estate planning documents: a last will and testament, a durable power of attorney for property and finances, and a durable power of attorney for health care. Attorney Susan M. Drewitz drafted, witnessed, and notarized the estate planning documents. At the time Drewitz shared office space with Berenzweig, who referred Ern to Drewitz and accompanied him on his first meeting with Drewitz.

In the last will and testament, Ern named Berenzweig his personal representative and beneficiary of all tangible personal property and the residual estate. In the durable power of attorney for property and finances, Ern appointed Berenzweig his attorney-in-fact. In the durable power of attorney for health care, Ern designated Berenzweig his primary health care agent.

In April 2010, when Ern was aged 86, he transferred about $315,000 from a bank account to the Lincoln Benefit annuity. About two weeks later a request for beneficiary change was submitted to Lincoln Benefit naming Berenzweig primary beneficiary, identifying her as "friend," and naming Ern's estate contingent beneficiary. Two days later a request for beneficiary change was submitted to Integrity naming Berenzweig primary beneficiary, identifying her as "friend," and naming no contingent beneficiary. In April 2015 Berenzweig faxed the durable power of attorney for property and finances to Lincoln Benefit.

Ern's Death
Ern died on April 13, 2016 at age 92. According to the death certificate, the cause of death was "failure to thrive due to or as a consequence of advanced dementia." The interval between onset of the dementia and death was listed as "years." He died at a hospice facility. On May 12 Berenzweig submitted a death claim to Integrity. On May 26 she submitted a death claim to Lincoln Benefit. On May 27 Integrity issued a check for about $277,000 to Berenzweig. On June 15 Lincoln Benefit issued a check for about $734,000 to Berenzweig.

The Dispute
On August 3, 2017 an attorney for some of Ern's surviving family members filed a complaint with the Office of the Commissioner of Insurance (OCI) of Wisconsin. On September 1, based on an agreement among the parties, a Milwaukee County Circuit Court judge issued a temporary injunction that prevented Berenzweig from spending the remaining funds from the proceeds of the annuities.

OCI investigated the case and made the findings that are summarized briefly above. OCI alleged it is an unfair trade practice and a violation of a Wisconsin statute for an agent to knowingly be listed as a beneficiary of a life insurance policy or annuity unless the agent has an insurable interest in the life of the customer. OCI further alleged it had grounds to revoke or suspend Berenzweig's license as an agent and to order forfeiture in the amount of twice the profit gained from the violations.

On September 18 OCI announced a two-day public hearing to be held November 28 and 29 before an administrative law judge (ALJ). The hearing was held.

On December 8 OCI filed its initial brief. OCI requested a seven-part order: (1) permanent revocation of Berenzweig's license as an insurance agent, (2) payment of restitution of $2,022,232.62 (twice the profit from the violations), (3) forfeiture of $3,000 ($1,000 for each of three violations of insurance law), (4) bar of Berenzweig from receiving or retaining any proceeds of the Lincoln Benefit and Integrity annuities, (5) return of the full annuity proceeds to Lincoln Benefit and Integrity, (6) change of beneficiary on the Integrity annuity to provide for the proceeds to be paid to Carole Carter per stirpes (she was the original beneficiary), and (7) change of beneficiary on the Lincoln Benefit annuity to provide for the proceeds to be paid to the brothers and sisters of Ern and the issue of any deceased brother or sister of Ern per stirpes.

On December 29 Berenzweig's attorney filed a response brief. Here are the two concluding paragraphs:
There is no dispute but that Blanche Berenzweig was perhaps the only person in LeRoy Ern's life since the death of his long time girlfriend and her son. Ms. Berenzweig gave him the time of day when others did not. He obviously eschewed his family. She was deemed by Mr. Ern to be the worthy beneficiary of his entire estate. He was a frugal man who amassed significant wealth. Nevertheless, he was fully aware of his financial status and dictated the terms of his investments. Blanche Berenzweig simply carried out his wishes. She also undertook the rather onerous duties associated with his durable power of attorney and health care power of attorney. She looked after LeRoy Ern until his death. She did not violate any of the prohibited practices described under Wisconsin's Administrative Code. Moreover, her actions were excepted from the Code requirements because of the lapse of time, the arms-length nature of the transactions and Mr. Ern's natural affinity towards her. It must not be forgotten that Susan Drewitz and Blanche Berenzweig urged him to find different beneficiaries of his estate. He rejected that and insisted upon Blanche Berenzweig. His knowing intentions must be carried out.
Blanche Berenzweig is a good and honest woman. She has never had a single blemish on her record. The character evidence was unequivocal. This case should be dismissed.
On January 12, 2018 OCI filed its reply brief. Here is the concluding paragraph:
Respondent has placed herself in a dire position. Because she has admitted the conduct constituting three violations of insurance law and faces license revocation and a significant financial penalty, she hopes the reputation testimony from her friends and her time invested in Ern will mitigate the penalty for her conduct. However, the substantial evidence supports the maximum penalty. Respondent abused the trust of Ern and acted in her own self-interest in naming herself the beneficiary of two annuities that she sold and was servicing for Ern. Respondent obtained the financial power of attorney for the purpose of isolating Ern and preserving Ern's finances for the eventual transfer to herself. Respondent's conduct violated the ethical obligations of an insurance agent and she was unjustly enriched $1,011,116.31. The maximum financial penalty and permanent insurance license revocation are warranted.
The ALJ is expected to issue her recommendation within 30 days. Wisconsin Commissioner of Insurance Ted Nickel will then rule on the case. If he rules against Berenzweig, she could appeal the ruling to the Milwaukee County Circuit Court.

General Observations
This is a troublesome case. Ern's relatives did not keep in close touch with him, and it is not known exactly when the dementia set in. The briefs are more detailed than my summary under "The Berenzweig Case" at the beginning of this post. My summary was based on OCI's hearing notice. Berenzweig's attorney portrays her as someone who befriended and aided a lonely, elderly person.

The Wisconsin law prohibiting an agent from being the beneficiary of a client's life insurance policy or annuity in the absence of an insurable interest cannot be ignored. Berenzweig claimed ignorance of the law, but the conflict of interest was obvious. Attorney Drewitz should have refused to prepare the estate planning documents. Berenzweig should have contacted family members and obtained their assistance in caring for Ern. I plan to report further developments in this case.

Available Material
I am offering a complimentary 60-page PDF consisting of OCI's hearing notice (6 pages), OCI's initial brief (16 pages), the response brief prepared by Berenzweig's attorney (21 pages), and OCI's reply brief (17 pages). E-mail and ask for the January 2018 package relating to the Berenzweig case.