Aviva fleeced in church scam, suit claims

Aviva Life and Annuity Co. late last month filed suit in federal court against a handful of life insurance agents, claiming that they fraudulently sold coverage to some 119 church members. The suit, filed in the U.S. District Court for the Central District of California, alleges that the six agents sold life insurance to a group of church parishioners in 2009 and last year under false pretenses. Aviva claimed that the insured individuals were told that their death benefits would be split among their beneficiaries, the church and a third party, which wasn't named in the suit.

TRANSFERRED OWNERSHIP

The alleged scheme came to Aviva's attention last fall when the insurer discovered that the insured individuals who bought policies from the six agents had transferred ownership of their policies to Wilshire Coast Consultants Inc., according to the suit. The transfer of a life insurance policy — particularly if it is more than $1 million — into an irrevocable life insurance trust often raises red flags with insurers. In the past, trusts were one way for insured people to transfer the beneficial interest of a policy's death benefits to an investor while avoiding scrutiny from the issuing insurance company. Indeed, in follow-ups with each of the insured individuals, Aviva claimed that some of the parishioners had indicated on their applications that a third party wouldn't be paying for the premiums and that they had no intent to sell the policies. Wilshire Coast, a named defendant in the case, is the trustee for 119 irrevocable life insurance trusts, each of which owns an Aviva policy over the parishioners, according to the suit. Aviva claimed that the agents breached their producer agreements and that Wilshire Coast and the insurance trusts lacked an insurable interest over the parishioners. It isn't known if Wilshire is — or has any relationship with — the third party mentioned in the suit. Aviva claimed that the parishioners were solicited at church to attend a seminar for an “endowment program,” which involved taking out a life insurance policy on a church member and splitting the death benefits between that person's beneficiaries, the church and an unknown third party. The insurer claimed that some parishioners who contacted the insurer said that they either never paid premiums on the policy or that they paid only the initial premium, and another entity made the subsequent payments.

HELPING THE CHURCH

Two of the churchgoers contacted confirmed the assertion, noting that the program had been presented to them as a way to assist the church financially. “Basically, it was a way to support the church in case of your death,” said church member Jerome A. Gage, 49. He said he first heard about the program about two years ago at the Tabernacle Community Baptist Church in Los Angeles. Mr. Gage said that he doesn't recall the names of the agents presenting the program but acknowledged that the congregation was told that a third party would pay the premiums. “According to [the agents], someone else would provide the premiums,” he said. The participants had to take a medical exam, Mr. Gage said. Melvin Hammond, who attends Greater Emmanuel Missionary Baptist Church in Inglewood, Calif., said that he saw the program presented last year and that the agents explained that the death benefits would be split three ways. “How they break it down is that 25% goes to the people who funded the premiums, 25% goes to the church and 50% goes to the beneficiary,” he said. According to Mr. Hammond, who claims to be between 25 and 40, the policies ranged from $100,000 to $600,000 in death benefits. Although the application did require that he indicate his income, he said that he didn't have to provide any proof. Mr. Hammond declined to reveal the size of his policy. Both he and his mother, Bertha Hansbrough, were among the parishioners in the program, he confirmed. None of the churchgoers are defendants in the lawsuit. Aviva is suing to rescind coverage on all 119 policies and has demanded that the agents disgorge “millions of dollars” in sales commissions. The agents named in the suit are Cheralynne Bridgewater, Candice H. Hobdy, Napoleon B. Kinney, Kazimir Patelski, Glenda Smith-Lee and Rene Williams. In addition, the insurer also listed 10 defendants whose identities it hasn't ascertained. Mr. Patelski is an agent with DesignLife Insurance Services LLC, which is also a named defendant in the suit. Ms. Smith-Lee is a principal of the firm. Ms. Smith-Lee, who is also president of the Reach Me Foundation, a faith-based organization for at-risk youth, declined to comment about the complaint. “I don't have anything to say,” she said. “We'll deal with it; we'll have to get a lawyer.” Ms. Hobdy, Mr. Kinney and Mr. Patelski, didn't return calls seeking comment. A call to Ms. Williams went unanswered. Phone numbers for DesignLife and Wilshire officials weren't available. Although Aviva doesn't wish to provide coverage on the parishioners, it asserted that it is entitled to hold on to the premiums paid on the questionable policies as payment for expenses related to underwriting and issuing the insurance. “Aviva is entitled to retain the premiums paid by defendants of the policies at issue by way of disgorgement and/or offset of damages incurred by Aviva as a result of defendants' misrepresentations, omissions and concealment,” the insurer claimed in the suit. Kevin Waetke, a spokesman for Aviva, confirmed that it has filed suit to begin the process of rescinding these policies. “Multiple misrepresentations were made to Aviva as part of these transactions,” he said. E-mail Darla Mercado at dmercado@investmentnews.com.