SAN FRANCISCO – A California appeals court has reversed a lower court’s ruling to dismiss an elder abuse case, saying the couple had grounds to file the lawsuit.

In the 1990s, Frederick and Martha Mahan purchased two life insurance policies with a cash payout amounting to $1 million that was put into a trust for their children. Decades later, the Mahans began suffering from dementia and Alzheimer’s.

According to court documents, Charles W. Chan Insurance Company allegedly carried out an elaborate scheme that involved arranging the surrender of one of the life insurance policies and the replacement of the other with a policy providing more limited coverage, at massively increased cost, which would significantly cut into their $1 million payout.

The Mahans sued under the Elder Abuse Act. The trial court ruled that the Mahans could not file the lawsuit because the life insurance policy was held under a trust for their children, and the trust was never owned by the Mahans. The respondents argued that the only proper plaintiff is the Children’s Trust, which does not have an Elder Abuse Act claim “because it is not 65 years old.”

The trial court agreed and ruled that the Mahans had not alleged any “deprivation” of “property” owned by them under the statute. The court also ruled that Mahans could not claim negligence, fiduciary duty, fraud or violation of business and professional code because they did not own the policy. The court invited the Mahans to amend their claim, alleging harm, which they had not included in the initial lawsuit, and dismissed the case.

Judge Jon Streeter, in writing the opinion for the California First District Court of Appeal, said the Mahans have property rights to the policy.

"Respondents argue that an 'estate plan' cannot be a property right, and strictly speaking, they are correct, but what they overlook is that the estate plan alleged here was simply the vehicle by which the Mahans sought to convey assets by gift to their children,” Streeter said in the decision. “…It can be fairly inferred from the allegations of the FAC [first amended complaint] that the Mahans suffered at least some damages unique to themselves.”

The court also found that the insurance company “knew or should have known” of the “likely” harm their scheme would have on the Mahans and that they used undue influence to persuade the Mahans to pay more premiums into the new policies.

"We think the FAC sufficiently alleges that the Mahans' felt need to pay more into the trust to keep it afloat was brought about by 'undue influence,’” Streeter said.

As to the other causes of action, negligence, fiduciary duty, fraud and violation of business and professional code, Streeter ruled that the trial court "erroneously sustained the respondents' demurrers as to these other causes of action."

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