Professional Documents
Culture Documents
& ASSOCIATES
International Place Drive, Suite 400
Memphis, TN 38120
Prepared for:
Reminger, Attorneys at Law, representing Dr. Geoffrey VanderPal
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Summary of Opinions
Ill. Dr. VanderPal cannot be held responsible for violating any standard of
care to the insurer unless he knew that the Tomlinson financial
information submitted to the underwriter was false. Based on his unrefuted
testimony, he had no basis to dispute the accuracy of the financial
information submitted on behalf of Tomlinson.
N. The life insurance purchased in this case for Tomlinson does not meet the
test for STOLl, a substantial premise in the arguments against Dr.
VanderPal.
V. It can be reasonably argued that the purpose in placing this policy was not
a transaction for the benefit of those with no insurable interest, and Dr.
VanderPal did not violate any obligation to American General, as it
alleges.
VI. Given many of the STOLl/lOLl indicia American General describes and
alleges as the basis for voiding the policy, its underwriting guidelines in
effect at the time the policy was written, and changes in American
General's own underwriting standards during a time of extensive
regulatory reform efforts being undertaken, American General had ample
opportunity to review its decision to accept this risk during the two year
conte stability period following the issuance of the policy.
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Introduction:
Daryll W. Martin JD, IVIBA,President of Martin Hollingsworth & Associates, LLC has
been retained by Reminger, Attorneys at Law, counsel for defendant Dr. Geoffrey
VanderPal, in the matter brought against him and others by American General Insurance
Company (hereinafter referred to as "American General"). My opinions presented below,
as relate to allegations made against Dr. VanderPal, are based upon the review of items
listed in Exhibit A. My opinions are also based upon my education and 24 years of
experience in the insurance industry. That experience includes serving as senior litigation
and corporate counsel to two of the world's largest insurance brokers, and also as an
insurance executive deeply involved in life insurance operations for a number of
international, national and regional brokers. Exhibit B summarizes my professional and
educational qualifications, as well as compensation to be paid for study and testimony in
this case.
Ireserve the right to update or modify my opinions expressed below at any time based
upon any new and additional information brought to my attention.
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appointed by American General, were paid commissions by American General, and
communicated with American General at various times.
The principal duty of a life insurance intermediary is to assist the insured in providing an
application for insurance in order to assist the insurer in making an underwriting
determination to accept the risk or not. An intermediary (like an individual or company
seeking insurance) must exercise good faith in completing applications of insurance, and
assure that his knowledge of information is consistent with that being presented by the
prospective insured to the insurer. In this case American General's application did not ask
for the purpose of the insurance. The only portion somewhat relevant to an inquiry of
purpose is the "Business Coverage" section of the application. American General alleges
that this section was intentionally and deceptively not completed.
While acknowledging that this insurance coverage was intended to meet a business need
to protect CMG in the event of the death of Tomlinson, Dr. VanderPal has testified that
he did not believe that this business need met the traditional description of either "key
person" insurance or a "buy/sell" arrangement as described in the American General
application. In his testimony, he stated that based on his experience, traditional key man
insurance is geared more toward employees and on a multiple of salary. (Brotherton
confirms in his testimony that in his 30 years of experience as an underwriter that key
man insurance is income derivative.) Since Tomlinson was neither an employee nor paid
a salary, he did not complete nor assist the insured in completing that section of the
application. In addition, he testified that in his opinion, the described business need did
not meet the traditional definition of buy/sell insurance because he was unaware of the
existence of any agreement on the part of CMG and Tomlinson where CMG would be
required to purchase her stock in the event of her death.
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Opinion: Dr. VanderPal met his obligations to American General by assisting the insured
in completing American General's application consistent with his knowledge and
experience, thereby giving the insurer, its underwriters and the investigators operating on
its behalf an opportunity to continue exploring whether Tomlinson and the Trust qualified
for insurance. Not until his deposition was Dr. VanderPal asked for the first time by any
representative of American General what the purpose of the insurance was. At that time
he testified that it served not a single purpose, but a multitude of needs, consistent with
his financial planning and insurance experience. One of those purposes stated, financial
preservation was consistent with the statement made by Tomlinson to Worldwide. There
is no evidence in the record to demonstrate any intent on the part of Dr. VanderPal to
deceive American General.
II. Allegations Made by American General Against Dr. VanderPal in its Complaint:
A) Dr. VanderPal stated the Tomlinson trust was the owner and sole beneficiary of
the trust and that the purpose of the life insurance was estate planning. It is also
alleged that AIG relied on these statements to its detriment.
Based upon my review oftestimony in this case, Dr. VanderPal made no statement in the
application to American General as to use of the policy. The statement relating to the use
of the policy for estate planning purposes, while supported by Dr. VanderPal, appears to
have come from the interview by Worldwide in telephone interview with Tomlinson after
the policy was submitted.
The existence of the trust was accurately portrayed in the application for insurance.
However, there is no indication in the record that Dr. VanderPal had involvement in the
formation of the trust or knew the details of the trust documents at the time they were
originated. In fact, it appears that at least two other intermediaries were involved, which:
1) were appointed by American General; 2) received commissions from the insurer in this
case; 3) were involved in the creation of the trust; and 4) at times were communicating
directly with American General. (See Exhibit 20 listing Elliott A. Cobb ofECA
Marketing and Michael Cavalier of Advantage Insurance Network and Cavalier
Associates as producers. Also see Exhibit 69 implying there may have even been a third
additional intermediary involved and receiving commissions, CAI Financial, also known
as Coventry). Yet for reasons unknown, American General has elected to only sue Dr.
VanderPal for recovery.
It is also clear that at no time in the application process, or prior to and after the issuance
of the policy did the insurer ask to see the trust documents. A simple request for that
document by American General would have resolved any current concern about the
purpose of the insurance.
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Opinion: There is no evidence in the record that Dr. VanderPal intentionally omitted any
information in the application. ill addition, multiple other AIG intermediaries had more
significant roles than Dr. VanderPal in the creation of the Trust and confirmation of
CMG's insurable interest, through the trust, in the life of Tomlinson.
ill the course of assisting the customer in applying for insurance, the intermediary relies
upon the prospective insured for information necessary to make an application of
insurance. In this case, Dr. VanderPal, as requested by the underwriter, requested the
information from the insured, received it from her or her designee, and presented it as
requested to the insurer. It is not the agent's responsibility to research and validate this
information. To violate any standard of care in this regard, the agent must have mown
the information provided to the underwriter was false or inaccurate.
Opinion: Dr. VanderPal cannot be held responsible for violating any standard of care to
the insurer unless he knew that the Tomlinson financial information submitted to the
underwriter was false. Based on his unrefuted testimony, he had no basis to dispute the
accuracy of the financial information submitted on behalf of Tomlinson.
C) This is a STOLl transaction for the benefit of those with no insurable interest.
STOLl (referred to as Stranger Owned or Stranger Originated Life Insurance) and rOLl
(Investor Owned or Investor Originated Life Insurance) are acronyms that have emerged
in the life insurance business within the past 10 years. Both concepts are derivative of an
earlier emerging life insurance vehicle commonly referred to as viatical, or life
settlements. Whereas life settlements are still acceptable, permitting the owner of a life
insurance policy needing the proceeds of the policy to fund some other financial need by
assigning the insurance policy to a third party for an immediate present value as agreed to
by the parties, STOLl and lOLl have been heavily regulated over the past few years. This
regulation has occurred because their attributes were deemed not to reflect the legal
concept of insurable interest and allegedly promoted illegal wagering on the lives of
those insured.
Opinion: The life insurance purchased in this case for Tomlinson does not meet the test
for STOLl, a substantial premise in the arguments against Dr. VanderPal.
This insurance does not meet the STOLl criteria for the following reasons:
First, the trust whose beneficiary is CMG, is not a stranger to the life of Tomlinson and
had an insurable interest in the continued life of Tomlinson at the time this policy was
applied for and issued. JB Carlson has testified, as have others, that Tomlinson held a
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number of key roles at CMG. Testimony states she served as a director, an investor, a
share/option holder, and an integral business development person for the company. Based
on this information provided to Dr. VanderPal, clearly CMG, as the owner and
beneficiary of the policy through the trust, has an interest in the survivability and
longevity of Tomlinson and would have suffered a loss at the time of her death. There
appears to be no evidence in the record refuting Tomlinson's relationship with CMG.
Second, companies of all sizes throughout the country have long been acknowledged as
having insurable interests in the lives of their key leaders, directors and employees. This
follows a number of accepted practices where a considerable number of companies and
banks have what are referred to as COLl (Corporate Owned Life Insurance) and BOLI
(Bank Owned Life Insurance) programs; where companies of all sizes buy life insurance
to meet key man needs in the event of the death of a seemingly indispensable person;
and, where life insurance is purchased to fund the purchase of shares from a key
shareholder's estate upon death.
While in this case I understand that a legal dispute exists as to the applicability of Indiana
statute 27-12-1-17 and 17.1 because ofCMG's corporate domicile, the principle of
employers having an insurable interest in the lives of those described is generally
acknowledged in the business of insurance.
It is also important to note that Dr. VanderPal relied on the legal department of at least
one of the other American General appointed intermediaries to this transaction, which
found an insurable interest on the part ofCMG in the life of Tomlinson.
Third, a third party or investor, which had no interest in the continued life of Tomlinson,
did not initiate or originate this policy. The policy was in fact initiated by CMG, which
had an insurable interest in the life of Tomlinson.
Fourth, one of the definitional components of STOLl has always been at odds with the
permissible practice of selling life insurance policies through the viatical and life
settlement process. That potential indicator of STOLl suggests that the policy be initiated
with the sole purpose of selling the policy on the secondary market. That is to be
distinguished from the possibility that the policy could be sold on the secondary market.
In this case, testimony, if believed, supports the proposition that sale of the policy to the
secondary market was an option, but not the initial and driving intent of the purchase of
insurance on the life of Tomlinson.
Fifth, another one of the definitional components of STOLl is that the premium is
financed solely for the purpose of selling the policy to a secondary market. In this case,
while the policy was financed, the co-trustee of the policy's owner has acknowledged that
the company could have opted to allow the policy to lapse at the end of the initial policy
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finance period, the premium and interest charges due could have been refinanced, or the
policy could have been sold. It does not appear that the single intent at the time of
purchase was to sell to the secondary market.
Opinion: It can be reasonably argued that the purpose in placing this policy was not a
transaction for the benefit of those with no insurable interest, and Dr. VanderPal did not
violate any obligation to American General, as it alleges.
The insurer casts blame on Dr. VanderPal's alleged failure to disclose certain information
as a means to deflect the inadequacies in its own underwriting obligations. It has become
more convenient, in retrospect, for the insurer to ask questions which if asked and
explored prior to the issuance of the policy, the insurer alleges it would have relied upon
in reaching a decision to not issue the coverage.
By its own witness' admission, in 2006 circulars began being distributed within
American General on the subject of STOLl/lOLl. However, it appears little, if any
information solicited in the Tomlinson underwriting process focused on what was
emerging within the industry, and within American General, as key informational
indicators that a STOLl/lOLl case was possibly being presented. For example, please
refer to the Lincoln Benefit Life application (Exhibit 66) completed at about the same
time coverage was being applied for from American General. The questions American
General now seems to have wanted answered, but were never asked, are asked and
truthfully responded to in the Lincoln Benefit application. For instance, Question 4B on
the Intent Form asks whether the loan terms or trust provisions allow transfer of
ownership of this policy as an alternative to continuing the loan in the future; to which
"yes" is answered. Question 4D asks to indicate the names of the program administrator
and the entity providing the financing; to which "Lasalle" is the response. Question 5
asks whether any funds other than your own are being used to pay the premiums for the
applied for life insurance; to which "yes" is answered.
While on one hand American General identifies these and other key indicators as
possibly reflective of a STOLl/lOLl transaction (e.g. a large value/limit case, an older life
insured, a high net worth reflected with heavy investment in stock, but with little salary
or dividend income; and a trust owned policy), on the other hand, not only did American
General not ask relevant questions, until presented with a claim, it failed to meaningfully
explore the responses to any of the questions it did ask. Not until after the claim was
made did American General choose to ask what it could have and should have asked
prior to, or at the inception of the policy. In his deposition, Brotherton concedes that the
post-death investigation by American General was more thorough than during the
underwriting stage. Moreover, American General acknowledges in the Cicchi deposition
that today it would engage in a more detailed and thorough underwriting exercise. (e.g. to
include property searches, internet searches, heightened financial review, request for trust
information, and greater review of private company financials).
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It is 'also significantto note that at or about the time of the issuance of the .insurance
policy, both the National Commission of Insurance Legislators (NOOIL) and the National
Association of Insurance Commissioners (NAIC) were embarking on a well-publicized
campaign to proposeinsurancelaw reform to prohibit S'I'Ol.Land.Ktl.I'transactions. In
the: course of drafting model legislation, those regulating entities sought and-received
considerable input from insurers and their various trade associations. It is difficult to
imaginethat American General's own underwriting practices did not undergo review and
revision during this period. It is also unlikely that American General was not
participating in these significant reform activities, and if so, Would riot be working to
amend-its underwritingpractices.
By 2007 and 2008 model acts were being proposed by the NeOlL arid the NAIC, and a
number of states, including Indiana, were undertaking legislative reform. This period
coincided with the two-year contestability period of this policy issued in January 2006.
Given the high profile of this reform activity, there is nothing that would haveprecluded
American General from reviewing its book of business and essentially re••underwriting
any risk it was concerned may be a STOLIIIOLl risk=-especially after acknowledging
that the size' of this case was atypical for their protfolio. Incontestability provisions
generally bar an
insurer's effort to void a policy after a period of time.
Opinion: Given many of the STOLIIIOLI indicia American General describes and
alleges as the basis for voiding the policy, its underwriting guidelines in effect at the time
the policy was written, and changes in American General's own underwriting standards
during .atime of extensiveregulatory reform effortsbeingundertaken, American General.
hadample opportunity to review its decision to accept this risk during the two year
contestability period following the issuance of the policy.
CJSectfu ly submi
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Depositions:
Brotherton, Jim
Carlson, JB
Clcchi, Bob
Hilbert, Tomisue
Mason, Thomas
Maust, Harry
Rutherford, Kathy
Schultz, Thomas
VanderPal, Geoffrey
Wickes, Sarah
Pleadings:
Exhibits:
Statutes:
News Releases:
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Aon Risk Services, Inc. June 2002-November
2002-
Managing Director, National Healthcare Practice
In all Aon roles, Martin introduced a number of clients and prospects to corporate owned
life insurance products through Aon Consulting services.
In this role, Martin oversaw all professional liability litigation against the company's
brokers in North America, including its life and health brokers, which were part of its
Sedgwick Noble Lowndes subsidiary.
In this role, Martin served as senior counsel, overseeing claims against all of Alexander &
Alexander's North American subsidiaries, including Alexander &Alexander Consulting,
which was A&A'slife and health brokerage operation. Martin first learned the principles of
corporate owned life insurance as a result of guiding his clients through the insolvency of
Executive Life Insurance Company and Mutual Benefit life Insurance Company, two
significant insurers of A&A's significant life insurance practice.
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Education
Professional Licenses
Maryland Bar
Tennessee Resident Agent/Broker (Property, Casualty, Life and Health)
Non-Resident Agent/Broker Licenses in a number of other states
Professional Memberships
My billing rate is $300 per hour for study and testimony in the American General
Insurance Company v. VanderPal, et al. case.