Misrepresentation

  • Material Misreprentation
  • (p5) – It is not clear whether deliberate misrepresentations are made in the sale of these policies, or whether consumers need to be better educated about the product they are purchasing.
  • In any event, the hearing this morning will serve to educate us about these issues, and to raise public awareness so that consumers themselves will be more knowledgeable.

—  Statement by Senator Strom Thurmond (R-S.C.)

1992 0623 – GOV (Senate) – Consumer Disclosure of Insurance, Howard Metzenbaum (D-OH)  —  [BonkNote] 

  • (4) At what stage do projections become misrepresentations?  (Report – p750)
  • The classic case of misuse, which called the problem to our attention, had to do with a disclosure form given a policyholder or applicant and sent to us in what appeared to be horror by an agent of another company.
    • On this form the insured was a girl, age five. Deposits were illustrated as accumulated at 9% for sixty years.
    • The company does not earn 9% and has no investments with sixty-year maturities.

—  W. Keith Sloan, Life Actuary, Arkansas Insurance Department

1975-1, NAIC Proceedings

  • 2. Standardized Assumptions.
  • Lester Dunlap (La.) also expressed interest in the idea of standardized assumptions to show how the policy works.
    • He said projections far into the future can border on misrepresentation.

1994-3. NAIC Proc. 

  • A misrepresentation is judged to be “material” if “a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question

…. (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 332 [120 Cal.Rptr.3d 741, 246 P.3d 877] – [link-GoogleScholar]

  • PROPOSED TO THE MARKET CONDUCT OF CONSUMER AFFAIRS (EX3) SUBCOMMITTEE BY THE IOWA DEPARTMENT OF INSURANCE
  • RE:  LIFE INSURANCE/ANNUITIES PROPOSED MODEL AMENDMENT TO BE CIRCULATED PRIOR to the DECEMBER, 1984 NAIC MEETING
  • Introduction
    • The Iowa Department of Insurance submits the attached proposed Model Amendment to the Life Insurance Companies Act as a preventive response to the problems which have arisen in regard the sale of life insurance policies combined with annuities.
  • Background and Definition
    • Within the  past five years, a growing number of concerned state insurance departments have undertaken investigations of life insurance companies involved in the sale of various types of life insurance  policies couple with annuities.
    • These companies have marketed a product under the spurious name, “Estate Conservation  Plan,” or similar variations.
    • The plans were represented as a means to shelter money from federal estate taxes and to provide immediately available funds, at the time of the purchaser’s death, for estate preservation and burial expenses.
    • The major target group for the purchase of these plans were farmers, in particular, elderly rural people.
    • The investigations revealed that the agents who sold these plans underwent extensive sales training prior to the marketing of the product.
    • In the sales presentation of these “Estate  Conservation Plans,” emphasis was placed on the annuity portion of the package.
    • The life insurance aspect of the product was underscored as an incidental “Death Benefit,” when, in fact, the first year’s premium was applied entirely for the establishment of the life policy.
    • The fact that it was not until the second year that a portion of the annual premium paid would be placed in the interest-bearing annuity was not highlighted.
    • Additionally, unless one-third to one-half of the original investment was paid annually, the policy would not be maintained, the entire first year’s premium would be lost and the value of the life insurance benefit would be substantially reduced.
    • In a nutshell, the investigations of these plans revealed that factually they provided no particular tax advantages and, generally, they were blatantly misrepresented to consumers.

—  Iowa Department of Insurance

1985-1, NAIC Proc.