L
ake County, California,
is said to be known for
a few things besides
having the state’s
largest freshwater
contained lake—pear
production, bird watch-
ing, wineries, recent meth lab busts
and Glenn Neasham, the convicted
insurance agent who thought, he
claims, he was selling a good product
to a competent senior.
In the wake of Neasham’s felony
conviction for theft, a jail sentence
to go along with it, and his ongoing legal battle to get that conviction
overturned, financial advisors and
insurance agents are wondering if
they might also fall into the same
legal hole that Neasham cannot seem
to escape. While the chances are slim
for a replication of all of the factors
and personalities in Neasham’s case
to reassemble themselves elsewhere,
there is no safe harbor in current law
to prevent a jail sentence for an agent
who sells an annuity to a customer
who may turn out to have dementia or
Alzheimer’s at the time of the sale.
As most readers who have followed
the case know, a 12-person jury found
former insurance agent Neasham,
now 52, guilty of felony theft on Oct.
23, 2011 for selling an annuity to a
then 83-year-old woman named Fran
Schuber.
As Producers WEB writes, Judge
Richard Martin denied the motion for a
new trial in February, refused to drop
the felony charge to a misdemeanor
and sentenced Neasham to probation
and 300 days in jail. Martin stayed all
but 90 days of the sentence. Neasham,
out on bail, plans to appeal.
While the incident occurred in
February 2008, an updated suitability
model law passed by the National As-
sociation of Insurance Commissioners
(NAIC) in March 2010 and passed in
some 20 states so far remains broad
on suitability and does not mention
National Underwriter Life & Health • May 2012 44
any litmus test for mental capacity.
Meanwhile, suitability itself becomes a circular argument—it must
be suitable, there must be “
reasonable” efforts to confirm suitability,
“reasonable” procedures must be
maintained, and there must be
“reasonable” grounds to believe the
transaction is suitable.
The model law establishes a regulatory framework that holds insurers
responsible for three things. One, for
ensuring that annuity transactions
are suitable. Two, for requiring that
producers be trained on the provisions
of annuities in general and the specific
products they are selling. And three,
for making these suitability standards
consistent with the suitability standards imposed by the Financial Industry Regulatory Authority (FINRA).
The law requires insurer reviews of
every annuity transaction, and clari-fies that insurers are responsible for
compliance with annuity protection
provisions—even when insurers contract with third parties.
“In general terms,” an executive
summary of the updated model law
states, “prior to recommending a par-
ticular annuity to a consumer, an in-
surer or producer must make ‘reason-
able efforts’ to obtain the consumer’s
‘suitability information’...Based on the
suitability information gathered in the
transaction, the producer, or insurer
if no producer is involved, must have
reasonable grounds to believe the
transaction being recommended to
the consumer is suitable.”
Put another way, this time from an
unofficial statement from 2012 by the
chair and vice chair of the NAIC’s Life
Insurance and Annuity Committee,
“an insurer shall maintain reasonable
procedures to detect recommenda-
tions that are not suitable. This may
include, but is not limited to, confir-
mation of consumer suitability infor-
mation, systematic customer surveys,
interviews, confirmation letters and
programs of internal monitoring.”
The NAIC Suitability of Annu-
ity Transactions Model Regulation,
however, is not required to become
law in each state under Section 989J
of the Dodd Frank Wall Street Reform
and Consumer Protection Act until
June 16, 2013. Moreover, violation of
suitability laws does not appear to trip
any felony statute. According to the
model regulation’s summary, a viola-
tion “may result in an insurer, gen-
eral agency, independent agency or
insurance producers being ordered to
take reasonably appropriate corrective
action for any consumer harmed by
the violation.”
There is no “safe harbor” within the
law to protect agents who sell an-
nuities, if those agents are going to
be held accountable after the fact for
having to ascertain the mental com-
petence of an applicant, says financial
advisor and estate planner John L.
Olsen of Olsen & Marrion, LLC, pub-
lisher of “Index Annuities: A Suitable
Approach,” with his St. Louis-Based
firm’s partner Jack Marrion.
