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Company Liability for a Life Insurance Agent's Financial Abuse of an Elderly Client Johnny Parker

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Company Liability for a Life Insurance Agent's Financial Abuse of an Elderly Client Johnny Parker University of Tulsa College of Law TU Law Digital Commons Articles, Chapters in Books and Other Contributions to Scholarly Works 2007 Company Liability for a Life Insurance Agent's Financial Abuse of an Elderly Client Johnny Parker Follow this and additional works at: http://digitalcommons.law.utulsa.edu/fac_pub Recommended Citation 2007 Mich. St. L. Rev. 683. This Article is brought to you for free and open access by TU Law Digital Commons. It has been accepted for inclusion in Articles, Chapters in Books and Other Contributions to Scholarly Works by an authorized administrator of TU Law Digital Commons. For more information, please contact [email protected]. COMPANY LIABILITY FOR A LIFE INSURANCE AGENT'S FINANCIAL ABUSE OF AN ELDERLY CLIENT Johnny Parker" 2007 MICH. ST. L. REv. 683 TABLE OF CONTENTS INTRODUCTION ........................................................................................... 684 1. THE PERFECT STORM ........................................................................... 687 A . The Econom y ............................................................................... 687 B. Technology and Information Sharing ......................................... 688 C. An Aging Population ................................................................... 689 D. The Proliferation of Titles Used by Investment Professionals ....690 E. Life Insurance Agent's Advantages ............................................ 690 II. THE EXTENT OF THE PROBLEM ............................................................ 691 III. A LIFE INSURANCE AGENT'S FINANCIAL ELDER ABUSE STORY ........ 695 IV. THE LEGAL BASIS FOR HOLDING A COMPANY LIABLE FOR AN AGENT'S T ORT .................................................................................................... 699 A. Respondeat Superior .................................................................... 699 B. Apparent Authority or Aided by Existence of the Agency Relationship ................................................................................. 7 10 1. Apparent Authority............................................................... 710 2. Aided by the Existence of the Agency Relationship.............. 714 C . D irect Liability ............................................................................ 716 1. D uty ....................................................................................... 7 17 a. Foreseeable Risks ........................................................... 717 b. Limited Duty/Special Relationship ................................ 718 2. Proximate Cause ................................................................... 719 D. Non-Delegable Duty .................................................................... 720 C ON CLU SION .............................................................................................. 72 1 * Professor of Law, University of Tulsa College of Law; B.A., 1982, University of Mississippi; J.D., 1984, University of Mississippi College of Law; LL.M., 1986, Columbia University College of Law. Michigan State Law Review [Vol. 2007:683 The characterof a society is measuredby how it treats those of its members who are at the dawn of life, its children, how it treats those of its members who are in the shadows of life, its poor, its sick, its handicapped,and how it treats those of its members who are in the twilight of life, its elderly. -Tom Lantos1 INTRODUCTION The elderly represent a rapidly increasing percentage of the American population. In July 2003, 35.9 million people-12 percent of the country's total population-were age 65 and older.2 Among those age 65 and older, 18.3 million people were age 65 to 74; 12.9 million were age 75 to 84; and 4.7 million were 85 and older in 2003.? The fastest growing age group be- tween 1980-1990 was 85 to 90 years.4 For the period between 1990-2000, the fastest growing age group was 90 to 95 years.5 According to actuarial predictions, by the year 2010, 39 million Americans will be over age 65; and, by 2050, 10 percent of the United States population will be over 85.6 Consider also that in the United States alone, a citizen turns 50 once every seven seconds.7 On January 1, 2006, the first of an estimated 77 mil- lion baby boomers, Americans born between 1946 and 1964 celebrated their 60th birthday. By 2030, the number of elderly is expected to nearly double to 72 million people-a whopping 20 percent of the total U.S. population.' Currently, people over 50 control 70 percent of the nation's wealth and with 1. Physicaland FinancialAbuse of the Elderly: Hearing Before the Subcomm. on Retirement Income & Employment of the Select Comm. on Aging, 97th Cong. 8 (1981) [here- inafter Physical and FinancialAbuse of the Elderly] (testimony of Tom Lantos, Rep.). 2. WAN HE ET AL., U.S. CENSUS BUREAU CURRENT POPULATION REPORTS, 65+ IN THE UNITED STATES: 2005, at 1 (2005), http://www.census.gov/prod/2006pubs/p23-209.pdf. 3. Id. 4. RONALD J. SCHWARTZ, LAW AND AGING: ESSENTIALS OF ELDERLY LAW 2 (2005). 5. Id. 6. Id. at 1-2. 7. Longevity Archives, Boomers' Power: A Baby Boomer Manifesto, http://- www.nextfiftyyears.com/longevity/ (Aug. 7, 2006). 8. Protecting Senior Citizens Against Investment Fraud: Hearing Before the Spe- cial Comm. on Aging, 109th Cong. (2006) [hereinafter Protecting Senior Citizens Against Investment Fraud] (testimony of Patricia D. Struck, Wisconsin Securities Division Adminis- trator, President, North American Securities Administrators Association, Inc.), available at http://www.nasaa.org/Issues Answers/LegislativeActivity/Testimony/4503.cfm. 9. WAN HE ET AL., supra note 2, at 12. Fall] Company Liabilityfor a Life InsuranceAgent's FinancialAbuse 685 continued longevity are destined to become the targets of choice for scam artists and con men. 0 Seniors" are not immune from the evils that plague society at large. Like their child counterparts, they too often find themselves the victims of abuse. Elder abuse and neglect can take many forms, including physical, psychological, and financial. 2 Financial abuse is the most common form of elder abuse. 3 The elderly have become the victims of choice for con men because (1) they are most likely to have a "nest egg," own their homes, and/or have excellent credit; (2) they are polite and trusting; (3) seniors are less likely to report fraud because they do not know to whom to report it, are too ashamed at having been defrauded, or do not know they have been defrauded; and (4) when they do report fraud, they often make poor wit- nesses, due to the effect of age on memory. In summary, the elderly are prime targets of scam artists because they are perceived as more trusting, less aware of their surroundings, and easier to handle. The National Center on Elder Abuse estimates that there are five mil- lion cases of financial elder exploitation annually, with most going unre- ported by seniors who are either too embarrassed about being duped or are unaware that the theft is happening. 4 This dilemma is further accentuated by the fact that baby boomers possess more than $8.5 trillion in investable assets and are expected, over the next forty years, to inherit at least $7 tril- lion from their parents. 5 Thus, financial abuse of the elderly has become a dilemma of epic proportions. Financial abuse of the elderly can take many forms and can be catego- rized on the basis of a number of distinct characteristics. In an attempt to draw attention to the problem, the range of potentially abusive activities has been classified into four main categories: (1) theft; (2) fraud; (3) intentional 10. Susanna Schrobsdorff, FinancialFraud of the Elderly on the Rise, NEWSWEEK, July 19, 2005, http://www.msnbc.msn.com/id/8631060/site/newsweek/print/l/displaymod- e/1098/(1of4)5/8/26. 11. I define senior citizens as those ages sixty-five and older. I use the term "sen- iors," "elder," "elderly," "older population," and "older Americans" interchangeably. 12. Margaret F. Hudson, Elder Mistreatment:A Taxonomy with Definitions by Del- phi, 3 J. ELDER ABUSE & NEGLECT 1, 14 (1991). Physical violence, including negligence, is the most common form of abuse, followed by financial abuse, the abrogation of basic consti- tutional rights, and psychological abuse. Physical and FinancialAbuse of the Elderly, supra note 1, at 3. 13. Duhaime Law, Elder Abuse, http://www.duhaime.org/LegalResources/Poli- ceStation/tabid/334/articleType/ArticleView/articleld/55/Elder-Abuse.aspx (last visited Dec. 27, 2007). 14. Schrobsdorff, supra note 10. 15. Protecting Senior Citizens Against Investment Fraud, supra note 8. See also Kathy Chu, FinancialScams Expected to Boom as Boomers Age, USA TODAY, May 17, 2006, available at http://www.usatoday.com/money/perfi/retirement/2006-02-05-baby- boomers-usat x.htm. Michigan State Law Review [Vol. 2007:683 breach of duty by a fiduciary or caregiver; and (4) negligence. 6 Though these categories constitute distinct forms of financial abuse, a certain amount of overlap exists. 7 For example, misuse of an elder's assets by a fiduciary can overlap with fraud, theft, or embezzlement. This type of fi- nancial abuse is amorphous because its parameters are defined by the rela- tionship of the abuser and the victim, rather than by the type of conduct involved. It is also possible to further refine financial elder abuse into two classi- fications. The first refinement is typically committed by someone with a personal relationship to the victim, such as a family member, friend, or care- taker who has gained the victim's trust in order
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