Facts

In 2002, plaintiff Ernst Hammermueller was residing in a retirement
community with his wife, who had been diagnosed as suffering from Alzheimer's disease. At trial, plaintiff contended that in early 2002 he also suffered from the early stages of dementia, even though there was no medical diagnosis of his condition at that time.

Manfred was an independent life insurance sales agent for defendant American Equity in
early 2002. Manfred worked with or through defendant Roster Financial, a national marketing organization or "wholesaler" of annuities issued by American Equity, North American and others.

In April and early May 2002, Manfred convinced Hammermueller to liquidate a poorly
performing stock portfolio and to purchase three annuities from defendant American Equity. On May 14, 2002, prior to becoming contracted with North American, Manfred had plaintiff complete three applications for North American annuities. Manfred then submitted those applications plus his own agent application to North American. In his application, Manfred failed to disclose a pending federal indictment for scamming seniors. North American's background check of Manfred did not uncover that very recently filed indictment, and it appointed Manfred as an agent. However, the appointment was for this sale only, due to North American's other concerns about Manfred's poor credit history.

The annuities issued by both companies totaled $600,000 ($350,000 in North American
annuities) and imposed surrender charges for the early withdrawal of more than 10% of the funds per year. The surrender charges started at 22 percent and progressively declined each year over the span of 15 years after which there would be no surrender charges. At trial plaintiff presented evidence that he did not understand the surrender charges because he was suffering from mild dementia at the time he bought the annuities.

Plaintiff's daughter did not suspect that her father suffered from dementia in 2002, so she and her husband took an extended trip to Europe leaving plaintiff and his wife alone for several weeks. While the daughter was in Europe, plaintiff's wife's health deteriorated badly. At the same time, plaintiff apparently became confused about his finances when he needed to pay for his wife's 24-hour care. He forgot about the $80,000 he had in a savings account and he thought that he was "out of money." He made two early withdrawals of some of the funds in his American Equity annuities and he paid surrender charges for those early withdrawals.

Plaintiff testified that for several months he was distraught about the fact that he thought he didn't have enough money to pay his wife's medical bills.
When plaintiff's daughter returned from Europe she learned for the first time that her
father had purchased the annuities. Plaintiff told her he could not remember buying the annuities and that he did not understand what an annuity was. Plaintiff's son-in-law then sent separate letters to each insurance company asking for a refund, but the letters did not mention plaintiff's alleged dementia, did not mention that plaintiff had purchased annuities from both companies and did not mention that he was seeking a refund from both companies.

Both companies declined to rescind the transactions based on the information in the
letters. Both companies pointed out the options available under the contracts, and both
companies invited additional information regarding the request for a refund. There was no further communication from plaintiff to the defendants prior to service of the lawsuit.
Plaintiff sued in 2003, alleging economic and emotional distress damages. Within 90
days after receipt of the lawsuit, and after learning of Manfred’s dishonesty as well as all of the facts surrounding the annuity sales, both North American and American Equity returned 100 percent of plaintiff's annuity funds, with interest. Nevertheless, the litigation continued. American Equity settled with plaintiff at the first trial call in September 2005. Roster Financial settled with plaintiff on the last day of trial, after the general damages verdict but before the punitive damages phase of the trial. Roster's share of the original verdict was 25 percent, or $1,125,000.

PLAINTIFF'S CONTENTIONS:
Defendant Manfred intentionally deceived plaintiff,
who was suffering from dementia. North American was reckless in appointing Manfred as an agent and acted with callous disregard of plaintiff's rights when it initially refused to rescind the annuities. Plaintiff's rights were violated because he was sold a product that did not properly meet the needs of someone his age. Roster was partly at fault because it facilitated the transactions.

DEFENDANTS' CONTENTIONS:
Deferred annuities can be appropriate financial tools
for seniors and at the time of these transactions nothing alerted North American to any
improprieties with these sales. North American conceded that it had erred in hiring Manfred as an independent broker and that Manfred had sold too many deferred annuities to plaintiff. However, at the time of the sales North American did not know about, and Manfred actively concealed, the other annuity sales and any mental impairments of plaintiff. When Manfred's dishonesty and the true, complete facts were revealed to North American, it rescinded the annuities and returned 100 percent of plaintiff's funds, with interest.

Result

The jury found for plaintiff and awarded him $4.5 million in compensatory damages. The jury also found that Roster Financial was liable for 25 percent of the compensatory damages, and that North American was liable for 75 percent. The jury assigned zero percent comparative liability to Manfred and zero percent to American Equity. American Equity settled prior to trial. Roster settled with plaintiff the day after the compensatory verdict. The following day the jury returned with a verdict of $14 million in punitive damages against North American. The trial judge granted North American's motion for new trial, but then denied that motion when plaintiff accepted a remittitur reducing the compensatory damages verdict to $2 million ($1.5 million for North American) and reducing the punitive damages verdict to $6 million. Both sides have filed notices of appeal.

Deliberation

one-half day on compensatory damages, one-half day on punitive damages

Length

eight weeks