More than $17 million was distributed recently to 3,274 California senior citizens who purchased National Western annuities as part of a class action fraud law suit.

The case began in 2005, when Ezra Chapman, then a licensed life insurance agent, sold an annuity to an 83-year-old widow. Chapman failed to disclose to the woman that National Western would charge penalties if she withdrew money or died during the 15-year surrender penalty period. The woman passed away during the penalty period, and National Western deducted 25 percent as a penalty to the beneficiary.

Upon investigation, the California Department of Insurance discovered that National Western's business plan involved targeted selling of annuities to seniors. The suit alleged the company set up an unlawful group annuity policy that was issued through an out-of-state group created by National Western, and the company sold the annuity to individual senior citizens, rather than to members of any groups.