After unsuccessfully moving to dismiss and then unsuccessfully moving for summary judgment on a complaint brought by a long-time life insurance client, a Leominster life agent, James M. Javaras (“Mr. Javaras”) and his insurance agencies are scheduled for a final pretrial conference in the Business Litigation Session of Suffolk Superior Court on August 27, 2018. This conference will set a trial date on this insured’s claim Mr. Javaras and his insurance agencies “churned” life insurance policies bought by the insured and his life insurance trust to maximize the agent and his agencies’ commissions in violation of an alleged fiduciary duty.
Superior Court suit by insured and trustee of life insurance trust against life agent
On October 28, 2014, Marc A. DiGeronimo and Elisha Erb, as Trustee of the Marc A. DiGeronimo Irrevocable [Life Insurance] Trust sued Mr. Javaras, his insurance agencies, BHR Life & Group Insurance Agency, Inc and BHR-ESL Group Insurers Agency, Inc in Superior Court alleging four claims:
- Breach of fiduciary duty (Count I).
- Fraud and Misrepresentation (Count II).
- Negligence against the defendants other than Mr. Javaras (Count III); and.
- Violations of the Unfair Business Practice Act, G.L.c.93A (Count IV).
The complaint, as filed, also sued the Guardian Life Insurance Company (“Guardian”) and the Guardian Trust, FSB (“Guardian Trust”) were also sued along with another unrelated Guardian agency and agent. These defendants’ motions to dismiss were allowed by a Superior Court judge in 2015 when Mr. Javaras and his agencies’ motions to dismiss were denied.
A twenty-five-year relationship turns sour with charges of breach of fiduciary duty
As alleged in the complaint Mr. Javaras and his agencies were agents for Guardian Life, and over the course of twenty-five years, Mr. Javaras acting as a mentor and close friend to Mr. DiGeronimo and his family advised them on all aspects of Mr. DiGeronimo’s business and finances.
Mr. Javaras also managed all aspects of Mr. DiGeronimo’s life insurance transaction, and Mr. DiGeronimo purchased all the life insurance policies through Mr. Javaras that he recommended.
During the course of that twenty-five years, Mr. Javaras and his agencies on behalf of Guardian sold Mr. DiGeronimo and his immediate family over twenty life insurance policies including fourteen policies since 2008.
Life insurance trust with Mr. Javaras as a trustee and a claimed “unsuitable” $2 million whole life policy
In 2002, Mr. Javaras recommended Mr. DiGeronimo set-up an irrevocable life insurance trust, the Marc A. DiGeronimo Irrevocable Trust (“trust”). The co-trustees included Mr. Javaras and Guardian Trust.
In 2010, Guardian Trust resigned as a co-trustee administrator of the trust because of its intended liquidation by its owner, Guardian. The liquidation followed an Office of Thrift Supervision cease-and-desist consent decree based upon the Guardian discovering, in July 2009, to its surprise, that a Guardian Trust officer had secretly taken in $100 million in two trusts for Bernie Madoff’s “investment” company.
In April 2010, Guardian Trust, Guardian, Mr. DiGeronimo, and the trust beneficiaries all entered into an agreement titled “Resignation of Co-Trustee, Appointment of Successor Co-Trustee, and Release Agreement.” One provision of that document stated that DiGeronimo and the trust beneficiaries agreed “to hold harmless” Guardian and “its affiliates… for all liabilities, claims or demands that may be made against the Trust Agreement or Guardian” concerning “any distribution, exchange, surrender and/or policy loan” made by Guardian or its affiliates.
In 2012, Mr. DiGeronimo sought to refinance a mortgage for an apartment complex he owned. As part of the transaction, the lender required Mr. DiGeronimo to obtain an insurance policy on his life as additional security for the loan. When Mr. DiGeronimo asked Mr. Javaras for his advice, he recommended that Mr. DiGeronimo purchase a $2 million whole life policy from Guardian to satisfy this loan condition.
Mr. Javaras continued to serve as trustee of the trust until he resigned on March 25, 2013. Mr. Javaras was succeeded as a trustee of the trust by Elisha Erb, an attorney. According to the complaint, Attorney Erb began investigating the trust’s finances, and soon after notified Mr. DiGeronimo that the $2 million policy was unsuitable and that there were other questions relating to the other insurance transactions involving the policies that Mr. Javaras had recommended or recommended to lapse or exchange.
Question for trial will be whether Mr. Javaras and his agencies assumed a fiduciary duty
In the complaint, Mr. DiGeronimo and his trustee claimed Mr. Javaras and his insurance agencies engaged in a “churning” scheme by misleading Mr. DiGeronimo and the trust into repeatedly buying unnecessary, unsuitable, and expensive life insurance policies to increase Mr. Javaras and his agencies’ commissions.
On the $2 million whole life policy, the complaint alleged that Mr. Javaras had made the recommendation to obtain a $20,000 commission rather than properly advising Mr. DiGeronimo to obtain a term of insurance policy which would have required a lesser premium and a substantially lower commission to Mr. Javaras.
Also, Mr. DiGeronimo and his trust claimed that many of the policies in question were sold based on applications that unknown to Mr. DiGeronimo contained false information overstating his earnings and net worth and were funded by surrendering lower cost pre-existing life insurance policies.
Mr. Javaras and his insurance agency first moved to dismiss the complaint in its entirety, but the court denied that motion. After discovery completed, Mr. Javaras and his agencies moved for summary judgment alleging:
- Most of the claims were barred by the applicable statute of limitations.
- On the $2 million whole life policy, Mr. Javaras had no duty to ensure that Mr. DiGeronimo purchased any particular type of life insurance policy that would have been less expensive than the ones he proposed.
On the first claim, Mr. DiGeronimo claimed that the actions were timely filed because Mr. Javaras and his insurance agencies were fiduciaries and that the existence of a fiduciary relationship extended the statute of limitations until he discovered the alleged “churning” scheme in 2013. He also alleged that Mr. Javaras and his agency had actively concealed the necessary information.
Under Massachusetts law, a fiduciary would have a legal duty to disclose that these financial products were unsuitable, and the failure to make that disclosure would constitute fraudulent concealment stopping the running of any statute of limitations.
The court ruled in denying Mr. Javaras’ summary judgment motion, that if in the circumstances of this case, a jury were to find that Mr. Javaras was acting in a fiduciary capacity when he urged Mr. DiGeronimo or the trust to buy the disputed policies, then the statute of limitations clock would have begun to run only when Mr. DiGeronimo or the trustee had “actual knowledge of the unsuitability of the” insurance policies and annuities.
The judge ruled that “summary judgment is not appropriate where, as here, ‘a reasonable jury could return a verdict for the nonmoving party [Mr. DiGeronimo].’”
The court finds jury question on whether Mr. Javaras claimed “particular skill” in obtaining appropriate insurance
On the $2 million whole life policy, Mr. Javaras argued that he is entitled to summary judgment concerning this “Collateral Policy” because “Mr. DiGeronimo received the product that he purchased and there is no allegation that the policy has not performed as advertised.”
The court, however, disagreed stating that an insurance broker who holds himself out as possessing “particular skill” in obtaining appropriate insurance has a duty to exercise reasonable care in recommending that a client purchase a particular policy, and may be held liable for breach of that duty if they recommend the purchase of an inappropriate policy.
The court ended its decision by stating “A reasonable jury could find that Javaras breached his duty to recommend an appropriate policy. It is no defense to assert that DiGeronimo knew what product Mr. Javaras had recommended, and that DiGeronimo got what he paid for.”
Agency Checklists will monitor the results of this case
Unless the parties settle, Agency Checklists would expect, where this a Business Litigation Session case, the court will likely schedule this suit for a jury trial in early 2019. Agency Checklists will monitor the docket and update its readers as to whether Mr. DiGeronimo’s allegations stand up at trial.