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Death Takes a Policy: We Answer Questions From Readers

Joseph Caramadre made a profit dealing in insurance products that paid out when someone died. Prosecutors charged him with identity theft and fraud, but Caramadre said he just used a legal loophole. His story moved dozens of ProPublica readers to debate the ethics of insurance and corporate behavior.

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The story of Rhode Island lawyer Joseph Caramadre moved dozens of ProPublica readers to debate the ethics of insurance and corporate behavior. (Matthew Healey for ProPublica)

Readers reacted strongly — and thoughtfully — to our story about how a Rhode Island man recruited terminally ill people so he could cash in on lucrative annuity contracts offered by life insurance companies.

A few scorned Joseph Caramadre, now facing a 66-count criminal indictment, for what they saw as his exploitation of the terminally ill. Most saved their ire for the insurance companies and took less moral offense at Caramadre, noting that the dying participants received money, even if it was much less than Caramadre and his investors made.

Readers also raised some good questions; here are our answers. We will update as we get more.

How is this different from "Dead Peasant” insurance policies? via Dean Muller

So-called "dead-peasant” policies, or corporate-owned life insurance policies (COLI), involve companies taking out life insurance on their employees. This practice landed a number of companies in court a few years ago when employees complained that they didn't know what their employer was doing. More recently, Louisiana's legislature considered allowing the state retirement system to take out life insurance on state employees — as a way to reduce pension debt. The bill appears to have been dropped.

Regular life insurance covers an individual and is paid out when that person dies. Caramadre worked with variable annuities, which are different than life insurance. There are three players in a variable annuity contract: an investor, a beneficiary and someone called an annuitant. The annuitant acts as a "measuring life,” whose death triggers a payout — either the return of an original investment or the value of the investment account, whichever was greater — to the beneficiary. In Caramadre's case, the investor and the beneficiary were one and the same.

One potential similarity to the dead peasant policies involves the allegations made by prosecutors against Caramadre. They maintain that the terminally ill annuitants whose deaths triggered the payouts did not fully understand Caramadre's scheme or their role in it.

How did investors other than Caramadre make money on the scheme? via Justin Burke

There were two ways to profit. Caramadre's investors would put money into a variable annuity, which would then be invested in one of the funds offered by the insurance company. If the fund's value rose, so would the investment. Potentially it could grow to be worth more than the death benefit. But many of the companies also offered death benefit sweeteners, such as bonuses or ratchets. These could make the death benefit worth more than the original investment. For example, if the company offered a 6 percent bonus, investors who put in $1 million would automatically have $60,000 added to the death benefit. When the annuitant died, if the death benefit was greater than the amount of the investment account, the investor would pocket the bonus.

What exactly do prosecutors allege was illegal about this? via Chris

The indictment asserts that Caramadre and his associates obtained the identity information of terminally ill people without their knowledge or consent through misrepresentations and in some cases forgery. They then used this identity information to obtain millions of dollars from insurance companies and bond issuers. The indictment does not allege that the terminally ill people were defrauded of any money themselves. Rather, their identity information was misappropriated so that Caramadre and his associated could profit from their deaths.

Where did Caramadre come up with the $2,000 figure? via Zach

I don't know how Caramadre arrived at $2,000 for the initial payment. In an effort to identify people with terminal illnesses, Caramadre in 2008 advertised that he would give $2,000 to every dying person who contacted him whether or not they agreed to become an annuitant. According to court records, more than 150 received the $2,000. If they wished to participate, they received even more money, typically between $3,000 and $10,000 depending in part on how many contracts they did.

With regard to the criminal case against Caramadre, unless they can prove the forgery AND that he knew it was a forgery, their criminal case is garbage. WIth regard to the “misrepresentation” aspect, every salesperson in the United States should lawyer up if the standard is now that a misrepresentation during the course of what in essence was a “sales pitch” is a federal criminal offense. 

I suspect that DOJ got their indictment based on the totality of the description of Cramadre’s business model to the grand jury. The grand jurors probably were offended.  It is unsavory to basically ‘bet’ and then ultimately profit on the death of anybody, especially strangers.  There’s an old saying that a prosecutor can get a grand jury to indict a cheese sandwich, and that appears to be the case here. 

However, the insurance contracts allowed this, as well as apparently state law in Rhode Island and, assuming no other criminal activity, I am aware of no federal statutes that directly prohibit his business model.  This conclusion is further supported by the results in civil court, where Caramadre has been winning and the insurance companies have been losing. 

The only thing that I can conclude is that, for some reason, the US Attorney in Rhode Island is trying to look out for the insurance industry, and brought this indictment for no other reason than to financially bury Caramadre by having to defend himself in criminal court.  As I said in previous posts, I would expect this from a Bush DOJ, but not necessarily this one.

I would agree that if “Caramadre and his associates obtained the identity information of terminally ill people without their knowledge or consent through misrepresentations and in some cases forgery” then his behavior was criminal.

If not, not…insurance companies have shown too much facility at dropping people who have wrecks or get sick - and denying coverage under subsection C clause 4 subclause W4 - to cause me to sympathize with them against someone who managed to use their contracts to benefit themselves rather than the corporate/its executives/shareholders.

(Although I would add that this tale does nothing to dissuade me from thinking that the historical ratio of doctors and lawyers to population given in the chart here http://www.pbs.org/fmc/book/2work4.htm are horribly reversed.)

One of the bottom lines is—-if signatures were forged—he’s guility.
based on his operation that seems to be the case

While I don’t condone Mr. C’s business plan, he well could have gotten his brilliant idea by looking at the equally clever strategies that the insurance companies have been devising for many years. Variable annuities sales kits, in particular, are chock full of glossy illustrations suggesting benefits which disappear in the fine print. Now that some companies are choking on their own clever complexity, sympathy for their case is difficult to muster.

Dennis Stansell, MSW

Aug. 29, 2012, 7:35 p.m.

I am a retired hospice social worker and can see no harm to the informed terminally ill person or family.  In fact, I can remember many patients who would have signed up regardless of the financial reward just to screw the insurance company.  Dying does not rob you of your sense of humor.
And by the way, pain medications do not impair cognition in most cases but under treated pain does!

Sincerely,
Dennis Stansell, MSW

Daryl Northrop

Aug. 29, 2012, 8:39 p.m.

Having worked in the life insurance and annuity industry for the past 15 years, I can attest to agents engaging in unscrupulous behavior, and selling policies that were not in the best interest of the client. Insurance companies either looked the other way, or put in rules that made the regulators feel better, but did little in reality to change bad sales practices.

This is the inherent contradiction in the for-profit life insurance and annuity sector: conflict of interest. Companies are beholden to: investors/Wall Street, their clients, and their commissioned sales agents who bring in the business. Very often, they put the interests of the clients last.

A good financial advisor is worth their weight in gold, but most members of the public simply aren’t financially savvy enough to be able to separate the good advisors/advocates from the charlatans and scam artists.

Ah, the Kevorkian of bottom feeders.  One claimed that a dignified “death is not a crime” while the other found another way to game the system and turned death into a most profitable and unethical if not immoral deed.
  Who is the criminal?

As a person with advanced colon cancer myself, I wish this loophole had not been closed.  I fully understand it and would be happy to participate.  Research has shown that the average cancer patient with health insurance has over $700. a month in non covered health related expenses (stuff not covered in the fine print Mr. C had time to read).
  I wish they would take the Mortgage industry to task like they are here, where it is well known they didn’t play by the rules and on a much larger scale hurting many people.  The Insurance company’s wrote the rules and as best I can see Mr. C tried to follow them.

I can empathize with the grieving family members who are in an uproar about Caramadres’ “scheme”.  However, for them to only feel this way after the fact and miraculously be enraged and disgusted once FBI question them is ridiculous.  My question is, why so furious now but so willing when given the two thousand dollars?  Simple answer, they were blinded by the money just like everyone else and are only having another fit because they think they can make even more money from another lawsuit.  In my eyes these individuals are simply being opportunistic because of greed or fear of the FBI.  In my opinion these individuals are the ones who are disgusting.  Show some integrity and be accountable for your actions and stop trying to blame others.  If people were smart enough to do this and make millions they would have done it too.
Many companies take out life insurance plans on employees.  The employee, your family member, dies and you do not make a dime from that policy, do you still hate the company or yourself because you did not take out your own policy?  Your ignorance is not another persons fault.
My last point is that the only way Caramadre and company is at fault is if full disclosure wasn’t made.  If people knew what he was planning and still went along then nobody is at fault.

Me, I don’t expect terms like “moral” and “ethical” to apply to anyone in the American business community any longer.  In America, the obsolescence of those terms was codified by Reagan and the Republicans’ “flood-up/trickle-down” economics, which officially replaced morality and ethics with “Greed is good!”.  Then the tool set required to put that shift in moral paradigms into effect was unveiled with the Republicans’ and neoliberal Democrats’ deregulation.

So rather than throw hissy fits about the disgusting practices of business, you have to be pragmatic about it.  In any such scheme all involved parties should be required to let all other parties know precisely what sums are at stake.  As pertains to this particular scheme, if the payoff comes at the death of one of the involved parties then that party should be given a choice of some percentage of the estimated total payout before death or some percentage of the actual payout at their death should be remitted to their estate.

Face it:  American business wants to be scum.  They own the politicians required to ensure that they are allowed to be scum.  So accommodate them, and work to get the legislation required to ensure that all participating parties get a “fair” share of the payout - and define “fair” as the importance of that participant’s role in the scheme.

Given that the person who is dying/dies plays a key role, the payout they or their estate receives should reflect the significance of their role.

For those of you who find your stomach turning over the immoral and unethical scent of such schemes, consider that it is highly unlikely that those who originate such schemes are going to be honest with their planned partners about the true size of the payout.

Thus a legal requirement that all involved parties make a “good-faith” effort to apprise all other parties of the exact sums at stake would ensure that the originators of such schemes could indeed be prosecuted for “something”.

That would provide society with a stop-gap for those (increasing number of) situations wherein the law - seriously weakened and handcuffed by deregulation and political corruption - is unable to keep up with the (likewise increasing) scheming of lawyers and accountants.

A prosecutor’s - and society’s - fail-safe, as it were.