Mahan v. Charles W. Chan Ins. Agency, Inc.
14 Cal. App. 5th 841
| Cal. Ct. App. 5th | 2017Background
- Fred (86) and Martha Mahan (79, diagnosed with Alzheimer’s) owned two joint second‑to‑die whole life policies placed into a revocable children’s trust (the Trust) in the 1990s as part of their estate plan; the Trust (Maureen as trustee) owned the policies and had cash to pay premiums.
- In 2013 insurance advisors (Chan, Chan Agency, Kaddoura, Thai, ABN) allegedly exploited Fred’s and Martha’s cognitive impairments to replace one policy, surrender another, and obtain a single‑life Transamerica term policy on Fred with a very large up‑front payment and much higher ongoing premiums; commissions of roughly $100,000 were paid to the advisors.
- The scheme allegedly required the Trust (and ultimately the Mahans personally) to provide large sums (initial payment and ongoing premiums, totaling hundreds of thousands) and destroyed the value/features of the original whole‑life coverage the Mahans intended to gift to their children.
- Plaintiffs: Fred and Martha (individually) plus Maureen for the Trust; the FAC pleads elder financial abuse under the Elder Abuse Act and related torts (negligence, breach of fiduciary duty, fraud, UCL). Respondents demurred, arguing the Trust—not the Mahans—owned the property and the Mahans suffered no compensable deprivation.
- Trial court sustained demurrers as to Fred and Martha (dismissed with prejudice), allowing only Trust claims to proceed; the court held the Mahans failed to allege deprivation of property belonging to an elder under Welf. & Inst. Code §15610.30. The Court of Appeal reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pleaded a statutory “deprivation” of “property of an elder” under §15610.30 | Mahans: Respondents’ scheme indirectly deprived them of property rights — damage to their estate plan, loss of cash value/initial payment, and compelled payments (premiums/commissions) — including by donative transfer to the Trust | Respondents: The Trust (not the Mahans) owned the policies and paid commissions; any transfers to the Trust were voluntary gifts after the scheme, so Mahans suffered no deprivation of their property | Reversed: FAC alleges deprivation. §15610.30(c) covers deprivations by agreement or donative transfer; Mahans plausibly alleged indirect deprivation and some unique damages to them |
| Whether the taking was for a “wrongful use” (knowledge of likely harm/churning) | Mahans: Defendants knew elders’ vulnerabilities and estate structure, pursued a high‑commission replacement (churning), and concealed material facts; they knew or should have known harm was likely | Defendants: Actions served legitimate insurance/estate goals; no wrongful taking of Mahans’ property because Trust owned policies | Reversed: FAC sufficiently alleges defendants knew/should have known of likely harm (wrongful use/churning inference) |
| Whether “undue influence” supports liability under §15610.30 and §15610.70 | Mahans: Defendants used expertise, secrecy, haste, and the elders’ vulnerability to overcome free will and cause inequitable result (loss of intended estate value) | Defendants: Transactions were voluntary, and any influence did not amount to undue influence causing deprivation | Reversed: FAC alleges factors in §15610.70 (vulnerability, authority, tactics, inequity) sufficient at pleading stage |
| Whether other tort claims (negligence, fiduciary duty, fraud, UCL) fail for lack of injury | Mahans: Same deprivations/wrongful conduct that support Elder Abuse Act also supply injury for these torts | Defendants: Because Trust suffered the loss, Mahans lack injury/standing for these claims | Reversed: Court held allegations of deprivation/injury suffice to survive demurrer on these causes as well |
Key Cases Cited
- Winn v. Pioneer Medical Group, Inc., 63 Cal.4th 148 (Cal. 2016) (statutory interpretation principles for the Elder Abuse Act)
- Bounds v. Superior Court, 229 Cal.App.4th 468 (Cal. Ct. App. 2014) (deprivation by agreement/donative transfer under §15610.30 can state elder‑abuse claim)
- Wood v. Jamison, 167 Cal.App.4th 156 (Cal. Ct. App. 2008) (finder’s fee/commission payments in abusive transactions can support elder financial abuse)
- Zimmer v. Nawabi, 566 F.Supp.2d 1025 (E.D. Cal. 2008) (insurance agent churning can constitute financial elder abuse)
- Negrete v. Allianz Life Ins. Co. of N.A., 927 F.Supp.2d 870 (C.D. Cal. 2013) (commissions from churning insurance policies sufficient to allege elder abuse)
- Delaney v. Baker, 20 Cal.4th 23 (Cal. 1999) (legislative history and purpose of the Elder Abuse Act and its remedial nature)
- California Apartment Assn. v. City of Fremont, 97 Cal.App.4th 693 (Cal. Ct. App. 2002) (standard of review on demurrer)
- Balikov v. Southern Cal. Gas Co., 94 Cal.App.4th 816 (Cal. Ct. App. 2001) (pleading standards; reasonable inferences on demurrer)
- Tameny v. Atlantic Richfield Co., 27 Cal.3d 167 (Cal. 1980) (acceptance of inferences and standards for pleading ultimate facts)