Confidential
Settlement – $1,000,000Judge
Court
L.A. Superior Central
Attorneys
Plaintiff
Defendant
John L. Viola
(Thompson Coburn LLP)
Experts
Plaintiff
Frank Caliri III
(technical)
Facts
In July 1997, the defendant convinced the plaintiff, an 83-year-old, to sell five single premium whole life insurance policies he had purchased years earlier. The single premium whole life policies owned by the plaintiff were purchased from 1985 to 1989 for a total purchase price of $233,000. These single premium whole life policies permitted the plaintiff to earn interest, tax-free and to obtain loans from his life insurance policies without incurring any tax liability. By 1993, the plaintiff's life insurance policies had appreciated to a cash value of $408,000. The defendant owner of the brokerage house, approached the plaintiff at his home and represented to him that, by selling his five single premium whole life policies and purchasing three "new" policies, the plaintiff would obtain higher death benefits and higher interest on his principal. The plaintiff agreed to transfer his five policies to the three new insurance policies recommended by the defendant. The policies sold by the defendant were not single premium whole life policies but, rather single premium universal life policies. These policies had very high mortality charges (premium charges) and, rather than increasing in asset value as his prior policies had, the insurance policies sold by the defendant began deducting approximately $8,000 per month from the plaintiff's principal amount. Although there was a slightly higher death benefit received during the first several years of the new policies, that death benefit has equalized in light of the continuing appreciating amount on his old policies. The plaintiff began to contact the defendant on a weekly basis asking that he fulfill his obligations to protect the plaintiff's principal and increase his death benefit amount. The defendant wrote to the plaintiff and assured him that he would "not lose any money since it would be unjust for him to do so" and continued to assure the plaintiff that the policy "rate-ups" could be corrected. The high mortality charges were never corrected and, at the time of trial, the plaintiff's actual cash value of the policies had diminished to $142,000. The plaintiff brought this action against the defendant based on broker negligence and emotional distress theories of recovery.
Settlement Discussions
The plaintiff made a settlement demand for $1 million (policy limits). Per the plaintiff, one week prior to trial, the defendant offered $225,000 (new money), but the defendant requested that the plaintiff turn over his current life insurance policies. Per the defendant, one week prior to trial, the defendant offered $525,000, of which $300,000 would be received from the sale of existing policies. At the voluntary settlement conference, the plaintiff demanded $1 million but was willing to exchange the existing life insurance policies providing a $300,000 credit to the defendant as well as guarantee the defendants a $700,000 sliding scale recovery against other defendants plaintiff's counsel intended on suing. The defendant would not increase its offer above $225,000 new money. On the day of trial, the defendant offered $650,000 new money plus $300,000 to be received from the sale of the policies, for a total of $950,000. The plaintiff continued to demand the policy limit and refused, at that time, to turn over the existing insurance policies to the defendant.
Damages
The plaintiff claimed damages for emotional distress, for loss of cash value and for the loss of future cash value growth.
Other Information
On the second day of trial, the defendant agreed to pay the $1 million policy limit and allow the plaintiff to keep his existing policies. Per the defendant, trial counsel for the defendant was substituted in three days before the trial commenced and after discovery was closed.
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