The lawsuit alleges that Blattmachr and his firm failed to disclose a host of conflicts of interest and to act in the clients' best interest in doing due diligence on the insurance the Benensons purchased. Also at issue is the nearly $5.5 million in fees and commissions the Benensons paid, and the fact that the policy is now underfunded by $1.5 million. An expert insurance agent the Benensons and their attorneys hired says private placement of the $60 million insurance policy that is at the heart of the lawsuit would have cost the Benensons $600,000 in commissions, rather than the $4.4 million they paid. Blattmachr and his firm were paid an additional $970,000 to render a tax opinion on the arrangement.
"It's fair to say that the clients feel they've been had," says their attorney, Eugene Anderson, of Anderson Kill, a national law firm that specializes in representing insurance policyholders (and which once employed former New York mayor Rudolph Giuliani). "The New York Times article was probably the nail in the coffin for them," Anderson says.
Blattmachr referred a request for comment to Steve Blauner, an attorney at his firm. "The lawsuit against Jonathon Blattmachr and Milbank Tweed is patently absurd," Blauner says. "It will of course be vigorously defended, and we are completely confident that we will prevail in court. The Benensons' complaint falsely characterizes Mr. Blattmachr as having played the role of an insurance salesman, and then complains about the insurance product that the Benensons acquired. Neither Milbank nor Mr. Blattmachr had anything to do with the Benensons' choice of insurance product. The allegations in the complaint as to Mr. Blattmachr and Milbank are totally false."
Blauner declined to comment when asked if the firm's attorneys regularly recommend insurance providers and agents, or perform due diligence on policies, when they put insurance-based estate plans in place.
Eugene Anderson, one of the Benensons' attorneys, says Blauner's take on the situation "simply does not fit the facts. The family was sold a package that was put together and sold by packagers including Mr. Blattmachr."
"This case is about the marketing and sale of the policy and the disclosures not made," adds the Benensons' co-attorney, Virginia Miller, also of Anderson Kill.
The Benensons approved the purchase of a $60 million life insurance policy on Jane Benenson, age 81, in August 2000. The lawsuit states the Benensons were supposed to pay approximately $23.5 million in premiums in the first three years of the policy, and get back $3.7 million as a partial surrender. The death benefit was due to decrease from $60 million to a constant $48.5 million in year four.
What could go wrong? To obtain lower premiums and meet MassMutual's requirements (the company does not issue such policies on those over age 80 and Jane was age 81 at the time the policy was being underwritten), the policy was backdated more than one year. MassMutual underwriters made a note of the request for backdating in the Benensons' file, ultimately approving it. The plaintiffs, however, are alleging that backdating the policy, a practice more common in the insurance industry than many would admit, changed the amount the policy would cost and pay out. For instance, the backdating triggered the need for an additional two years worth of premium payments that the Benensons maintain they were never told about. They also allege that the backdating, and the costs associated with it, was not in the policy illustrations they were given.
As a result, the Benensons contend, the defendants misrepresented the future annual cash values and death benefits of the policy. In addition, they were not able to take the $3.7 million partial surrender allegedly promised them without seriously impairing the policy, according to the lawsuit. To keep the policy from lapsing, the need for additional premiums of $1.5 million also surfaced. The Benensons maintain they were not aware of any of these issues until one of their agents, Louis Kreisberg, asked for an additional $577,616 premium in June 2001. The suit maintains that "despite being on notice of the discrepancies with the Benensons' policy, the defendants did not fully investigate or respond to the material discrepancies" that were brought to their attention.
The Benensons are also claiming that spreadsheets they were given, which were supposed to detail competing policies, instead contained underwriting information that was advantageous to MassMutual in a manner that effectively violated California's insurance code, according to the lawsuit. (The Benensons are California residents, but Benenson is chairman emeritus of Benenson Capital Partners LLC, based in New York City. Since 1933, he has been actively engaged in the development, ownership and rental of residential, commercial and industrial property in the United States, Canada and Europe.)