Frederick McMenimen, III won $1.4 million with a Megabucks ticket in 2005, but that was the end of his luck. In 2009, after a 12 day jury trial, judgment entered against him for over $1.5 million for misrepresenting the terms of a life policy to his uncle. See “Agency Checklists’ January 13, 2012 post: “Life Agent Loses $1,500,000 Appeal on Misrepresentation Suit over Policy Sold to Uncle; SJC Makes First Ruling on Life and Annuity Rescission Statute.”
At approximately the same time, while working for Prudential Securities, he convinced three unsophisticated elderly widows who had a longstanding relationship with his family to liquidate existing annuities and other investments. The victims, believing Mr. McMenimen that they were making better investments, gave him $1,383,000. Instead of investing the money Mr. McMenimen used their money to pay for $134,000 to his home mortgage, $120,000 for tuition payments, $350,000 for credit card payments, and $31,000 for his yacht’s costs.
When representatives of his uncle trust tried to collect on the $1.5 million judgment and the widows sued to get back their money, Mr. McMenimen filed for bankruptcy. When a federal grand jury indicted him for stealing from the three widows he claimed mental incompetency. Eventually, however, a federal judge found him mentally competent to stand trial and he pleaded guilty on November 4, 2014. He is scheduled for to be sentenced on February 11, 2015, under a plea agreement with a 42 month jail sentence and an order of restitution for the three widows of $968,500, $185,000, and $230,000, respectively.
Nationwide Insurance found liable for McMenimen’s misrepresentation to his uncle
Shortly after Mr. McMenimen entered his guilty plea on November 4, 2014, in federal court, the Massachusetts Appeals Court affirmed a jury verdict totaling over $1.5 million against Nationwide Insurance for Mr. McMenimen’s actions involving his uncle.
Nationwide never employed Mr. McMenimen directly. Mr. McMenimen worked as an in-house broker for Provident Mutual Life Insurance Company (Provident) and, after losing that position, became self-employed. Provident was acquired by Nationwide after McMenimen was discharged from his Provident in-house position.
By virtue of its acquisition, Nationwide acquired successor liability for Provident’s agents including Mr. McMenimen.
Agent misrepresented face amount of policy for six years before suit brought
Nationwide’s troubles began when Mr. McMenimen’s uncle, Samuel Pietropaolo, Sr., (Sam, Sr.) retired from the Revere school system in 1997, and used a substantial portion of his retirement benefits to the upkeep of a life insurance policy that he purchased in 1998 through his nephew. Frederick McMenimen was, at that time, an insurance agent who claimed he was an expert in insuring public sector retirees. Mr. McMenimen advised Sam, Sr. and his wife that they should choose a retirement plan that would forgo death benefits in favor of higher lifetime distributions, and use the difference to fund a life insurance policy on Sam Sr.’s life for $500,000 that would provide better death benefits than the Commonwealth’s plan. Based upon this advice Sam Sr.’s wife signed a waiver of her survivorship rights on the understanding that she would receive a $500,000 distribution from the life insurance trust should Sam Sr. predecease her.
Mr. McMenimen allegedly advised Sam, Sr. that had been approved for $500,000 of coverage and that he should cancel two other policies and use the cash surrender value of the latter policy towards payments on a new Provident Mutual policy (Now Nationwide).
In fact, Provident never approved any such $500,000 policy because of medical underwriting issues. Mr. McMenimen nevertheless told Provident Mutual to issue a $200,000 policy with a premium 250 per cent higher than the standard rate apparently without the consent or knowledge of Sam, Jr.
The insurance company sent the insured correct notice after correct notice about the policy for six years
Sam, Sr. and his wife received a letter from Provident Mutual informing them that the application for a $500,000 policy had been declined and that they received repeated, accurate policy statements, first from Provident Mutual, and later from Nationwide, reflecting the $200,000 death benefit. However, they claimed that they credited Mr. McMenimen’s explanations that the $200,000 figure was just a base component and that a secondary benefit in the policy would make up the difference.
Sam Sr. finally received a telephone call from a Nationwide agent who had been newly assigned to handle the policy who insisted that the policy provided death benefits of only $200,000. After another year of questions and explanations from Mr. McMenimen Sam, Jr. and his wife filed suit in 2004, just about six years after the policy was issued.
Nationwide dismissed from suit against Mr. McMenimen but Supreme Judicial Court reverses dismissal
When suit was brought in 2004, on behalf of Sam, Sr. both Nationwide, Mr. McMenimen and a brokerage Mr. McMenimen had worked for at the time were named as defendants.
Several years prior to the 2009 trial, Nationwide moved successfully for dismissal of the plaintiffs’ claims on the basis that all were time barred under a special two-year statute that only applied to insurance companies.
However, after Mr. McMenimen’s jury trial and appeal, the Supreme Judicial Court ruled that the question of whether the claim under M.G.L. c. 93A against Nationwide was time-barred was still open and remanded that claim for trial.
Jury and judge’s reject Nationwide’s claim that a reasonable person should have known there was not $500,000 in coverage
The main issue during the nine-day trial against Nationwide was the question whether the case was time-barred. The jury was asked, based on the date when the plaintiffs brought suit, “Should the plaintiffs have known before July 1, 2000 that they did not have $500,000 in death benefits?”
The jury answered, “No.”
After that question was answered in favor of the plaintiffs, the jury answered a number of special questions that resulted in an award of multiple damages totaling some $720,000. Because the verdict was under M.G.L. c. 93A, the plaintiffs received attorney fees in excess of $700,000 plus costs and interest at 12%. The final amount due after trial exceeded well over $1.5 million.
Nationwide’s defense was that the suit against it was time-barred because any reasonable person would have known that there was no coverage notwithstanding Mr. McMenimen’s fraudulent misrepresentations.
Nationwide emphasized that the plaintiffs received a series of quarterly statements explicitly reciting that the policy provided $200,000 in death benefits. The main problem for Nationwide was that it continued to send quarterly statements to the plaintiffs stating:
“If you have any questions, feel free to contact your representative at the address indicated below or our Customer Service Center at [phone number].” (Emphasis added).
The representative’s name that appeared on these statements was that of Mr. McMenimen long after he had been discharged by Provident.
The Court found that the jury were entitled to find that contacting McMenimen was a reasonable response when he was identified as the “representative,” had been the plaintiffs’ agent from inception, and was a trusted member of the family and therefore the jury could find that the plaintiffs were reasonably lulled into believing Mr. McMenimen’s repeated evasions and false explanations to the effect that the $200,000 in death benefits set forth on the statements issued by Provident, and then by Nationwide, was merely a first level of coverage, that clerical error is responsible for the statements, that everything was “fine,” and that the plaintiffs were “all set.”