Alabama’s Act Aimed at Prohibiting Financial Abuse of Elders – Should It Be Expanded to Cover Insurers and Insurance Agents?Alabama’s Elder Abuse Act attempts to protect financial abuse of elders. But by not including insurance companies and insurance agents, does the Act go far enough?

Following up on the blog post from late June concerning the intersection of elder abuse laws and long-term care litigation, this post concerns an Alabama statute aiming to prevent financial abuse of elders in the financial advisory context: “Protection of Vulnerable Adults from Financial Exploitation Act,” Ala. Code § 8-7-170, et seq. (2016) (the “Act”).  Specifically, section § 8-6-172 of the Act requires “qualified individuals” to “promptly notify” the Alabama Department of Human Resources and the Alabama Securities Commission if he or she “reasonably believes that the financial exploitation of a vulnerable adult may have occurred, may have been attempted, or is being attempted . . . .”  The Act’s definition of a “vulnerable adult” includes persons 65 year of age or older, and the Act broadly defines “financial exploitation” to include the “wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a vulnerable adult.” The definition of “financial exploitation” also includes using a power of attorney or guardianship to take advantage of a vulnerable adult’s property.

Notably, the Act currently only applies to “qualified individuals,” which it defines as any “agent, investment adviser representative, or person who serves in a supervisory, compliance, legal, or associated member capacity of a broker-dealer or investment adviser.” It gives such individuals that make a disclosure “in good faith and exercising reasonable care” immunity from administrative or civil liability as a result of making the disclosure. It also gives such individuals the authorization to delay a disbursement from an account of the vulnerable adult if there is a belief that such a disbursement “may result in financial exploitation of a vulnerable adult” and immunity for such delays, if such a delay is made based on a good faith belief.

Insurance agents and insurance companies are often in similar positions as financial advisors vis-à-vis their insureds, particularly with respect to changing beneficiaries (either at the request of the owner/insured or his or her power of attorney or guardian) and disbursing policy proceeds. So should the Act also cover insurance companies and insurance agents?

An argument can certainly be made that without this addition, the elderly could still fall victim to a whole segment of financial issues. The insurance industry frequently faces the challenges of a change in beneficiary, especially late in life for insureds. Sometimes such a change is unauthorized or results from undue influence on an elderly insured. While there is no one solution to combating such abuses, a long-term agent may have a close enough relationship to the policy owner to question or prevent such a change.

In any event, by expanding the Act in the future to include reporting obligations and accompanying immunity for insurance companies and agents that make such disclosures, the elderly might be better protected and insurance companies would have better direction and protection in these scenarios.

Long-Term Care and Elder Abuse: Do They Intersect?In at least one state, California, the answer to the question of “Do issues related to long-term care and elder abuse intersect?” is yes. The California Welfare and Institutions Code defines “financial abuse” of an elder adult to include an “entity” depriving an elder adult “of any property, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.”

In Crawford v. Continental Casualty Co., the district court found that the plaintiff had stated a claim for financial elder abuse under California law and denied the insurer’s motion to dismiss.  The insured made a claim for benefits under a long-term care policy for benefits related to a hip injury. When the benefits were denied, the insured alleged that Continental Casualty denied his claim in bad faith and in breach of the policy. Continental moved to dismiss the insured’s claim for financial abuse of an elder, brought pursuant to Cal. Welfare & Inst. Code § 15610.30, stating that the statute “simply [did] not apply to standard breach of contract claims.”  In reaching its decision that the insured had stated a claim, the court found that the California Elder Abuse Act was broad enough in scope to encompass breach of contract and bad faith claims.  In reaching its decision, the court also noted that if the breach of contract was in bad faith, then the insured “could [also] show that [he] had an entitlement to policy benefits which Continental unlawfully withheld—or in the language of the statute, improperly ‘retained’” (noting that “the statute is not limited to just the wrongful ‘taking’ of property, but also includes the wrongful retention of such property”).

Not all California courts are in agreement with the Crawford court’s interpretation of California law on the issue, and the court itself recognized that not all courts analyzing the California statute agreed with this interpretation (citing cases going both ways). For example, the district court in O’Brien v. Continental Casualty Co., concluded that the insured plaintiff had not stated a claim for financial elder abuse under the California statute. The point though is that until this issue is settled by the California Supreme Court there is a risk that an insurer could be found to be in violation of California’s elder abuse statutes when there is a denial of long-term care benefits.

For long-term care insurers, there are certain factors that should be considered in the claims handling process:

  • What is the basis for the interpretation leading to the denial of benefits?
  • Has the interpretation changed over time and, if so, why?
  • Is the interpretation of the policy provision leading to the denial of benefits more favorable to the policyholder or to the company?
  • If there is something the policyholder could do to remedy the basis for the denial, such as changing facilities, and has that possible solution been brought to the policyholder’s attention? If not, then why not?

We will continue to update the blog as this area of the law continues to evolve.