Insurer to Refund Annuities to Seniors

A Baltimore insurer that sold annuities through Alliance for Mature Americans said Tuesday it will refund as much as $18 million to about 400 Californians who were allegedly pressured into purchases or were sold unsuitable investments.

The settlement with Fidelity & Guaranty Life Insurance Co. is the first among insurers and others who provided annuities for the retirement plans marketed by Alliance, said Matt Ross, spokesman for the state attorney general’s office.

The state agency is negotiating with other insurers, he said, but he wouldn’t provide further details. It already has sued Fremont Life Insurance in Orange and its parent company, Fremont General Corp. in Santa Monica.

In several lawsuits, Alliance for Mature Americans in Lake Forest is accused of fraudulently marketing its living trust investment packages and selling clients more than $200 million worth of annuities that were risky enough to make them unsuitable investments for senior citizens. Annuities are prepaid insurance policies that pay the beneficiaries guaranteed monthly sums.

Alliance settled with the state last April, agreeing to pay $1 million in restitution and a $100,000 civil penalty. It did not admit any wrongdoing. Other litigation is pending.

Fidelity “came forward to us” after learning in July 1996 that the state had sued Alliance, its lawyers and others, Ross said. “They wanted to work this out.”

The insurer will send information packets within 30 days to those who bought its annuities through Alliance during a four-month period in 1996, said Mark Stone, a Fidelity spokesman. Customers will then have 60 days to decide whether to keep their annuities or seek reimbursement of the premiums, plus interest.

Stone said the company won’t make any verbal sales pitches to customers.

“We want to make sure that they have the most information they can have” to decide whether to keep the annuities or seek refunds, he said. “The decision is completely up to them.”

Fidelity’s total payout will depend on how many customers seek refunds, Stone said.

The insurer also will give the State Bar of California $150,000 for programs to help educate senior citizens on estate planning matters and to protect them from estate planning abuses.

Stone said Fidelity didn’t know about high-pressure tactics that Alliance allegedly used to persuade customers to liquidate other investments and put all the money into annuities that were part of the company’s living trusts.

The lawsuits accuse Alliance of failing to warn customers that they could incur early-withdrawal penalties and capital-gains taxes by liquidating other investments.

The state also had alleged that the company was engaged in the unauthorized practice of law because sales agents provided legal advice in preparing and selling living trusts.

The average age of its customers was 73, the state alleged, and some suffered from debilitating diseases, including Alzheimer’s.

The company denied the allegations. In settling with the state, it agreed to stop selling and preparing living trusts, to stop dealing with those not competent to make investment decisions and to halt other practices that deceive investors about the company and the investments.

Alliance for Mature Americans is still in existence, but its operations are extremely limited, according to two employees.