Mahan v. Charles W. Chan Ins. Agency, Inc.
A147236A
Cal. Ct. App.Aug 23, 2017Background
- Frederick (86) and Martha Mahan (79) owned two long-standing second-to-die whole‑life policies (≈ $1,000,000 death benefit) placed in a revocable trust for their children; daughter Maureen was trustee and owner of the trust policies. The policies had accumulated cash value and low annual premiums (~ $14,000 combined).
- In 2013 defendants (insurance agents/brokers Chan, Chan Agency, Kaddoura, Thai, ABN) met with the Mahans, learned of their cognitive decline, and proposed restructuring the life insurance to obtain new coverage that produced large commissions.
- Defendants allegedly prepared and submitted misleading/incomplete applications, concealed policy ownership, pressured Maureen, had Fred sign blank forms, and arranged surrender/borrowing against existing policies to fund a new single‑life Transamerica term policy on Fred with a large up‑front payment and very high annual premiums (~$101,500).
- As alleged, the Trust was drained (initial Transamerica payment and higher ongoing premiums), tax advantages were lost (no qualified 1035 exchange), commissions (~$100,000) were paid to defendants, and the Mahans were compelled to contribute substantial personal funds and sell assets to keep the Trust/policies afloat.
- Plaintiffs (the Mahans individually and the Trust via Maureen) sued for Elder Abuse (financial abuse), negligence, breach of fiduciary duty, fraud, and UCL violations. The trial court sustained demurrers as to the Mahans (but not the Trust) concluding the Mahans lacked an alleged deprivation of “property of an elder.” The Court of Appeal reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Mahans sufficiently alleged a "deprivation" of "property of an elder" under the Elder Abuse Act (Welf. & Inst. Code §15610.30) | The Mahans say defendants’ scheme destroyed the value of their chosen estate‑planning asset (the joint whole‑life policies and their cash value), forced them to pay large sums into the Trust (premiums and commissions), and thus deprived them of property rights | Defendants say the Trust, not the Mahans, owned the policies and paid commissions; any transfers to the Trust were voluntary gifts and therefore not a statutory deprivation of the Mahans’ property | Reversed: the FAC adequately alleged a deprivation of property rights (estate‑plan value, funds used for initial payment and increased premiums, commissions traceable to the Trust) cognizable under §15610.30(c) including via donative transfer |
| Whether the alleged conduct constituted "wrongful use" or "undue influence" (statutory culpability) | Plaintiffs allege defendants knew of elders’ vulnerability, used authority/expertise, secrecy/haste, and produced an inequitable economic result — enough to show defendants knew or should have known the likely harm and that undue influence occurred | Defendants dispute the causal link and assert transfers were voluntary and inure to the Trust/children | Held: FAC alleges facts supporting both wrongful use (knew/should have known likely harm; churning‑style conduct) and undue influence under §15610.70 (vulnerability, apparent authority, tactics, inequity) sufficient to survive demurrer |
| Whether commissions or fees paid by the Trust preclude Mahans from alleging they were deprived of property | Plaintiffs allege the Trust was drained as a result of defendants’ scheme and commissions are traceable to the harm to the Mahans; some damages may be unique to the Mahans (e.g., lost estate‑plan value, personal funds spent) | Defendants argue commissions were paid by the Trust (owner) so Mahans did not lose property to defendants directly; any recovery belongs to the Trust | Held: Who ultimately bears recovery or apportionment is a proof issue; at pleading stage Mahans plausibly allege damages traceable to them and not duplicative, so dismissal was error |
| Whether dismissal of other tort/UCL claims was proper for lack of injury | Plaintiffs say the same alleged deprivation and financial harm supports negligence, fiduciary breach, fraud, and UCL claims | Defendants argued lack of injury to the Mahans compelled dismissal of those claims as well | Held: Because the Elder Abuse claim survived on the deprivation/injury theory, the court erred in dismissing the negligence, fiduciary duty, fraud, and UCL claims as to the Mahans; remand for further proceedings |
Key Cases Cited
- Winn v. Pioneer Medical Group, 63 Cal.4th 148 (2016) (statutory construction principles and remedial‑statute interpretation)
- Bounds v. Superior Court, 229 Cal.App.4th 468 (2014) (deprivation of property right for purposes of Elder Abuse Act where manipulative conduct interfered with trust assets/alienability)
- Tameny v. Atlantic Richfield Co., 27 Cal.3d 167 (1980) (pleading and demurrer review principles)
- Zimmer v. Nawabi, 566 F.Supp.2d 1025 (E.D. Cal. 2008) (insurance agents’ churning and commissions can support elder financial abuse claim)
- Negrete v. Allianz Life Ins. Co. of N. Am., 927 F.Supp.2d 870 (C.D. Cal. 2015) (commissions/churning as elder abuse theory)
- Lincoln Nat’l Life Ins. Co. v. Gordon R.A. Fishman Irrevocable Life Trust, 638 F.Supp.2d 1170 (C.D. Cal. 2009) (insurability/insurance interest and consequences of policy exchanges)