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M-I

April 29, 2010

MARTIN HOLLINGSWORTH & ASSOCIATES
International Place Drive, Suite 400 Memphis, TN 38120

Telephone: 901-818-3131 Fax: 901-767-4441

Expert Report of:
Daryll W. Martin, JD, MBA President Martin Hollingsworth & Associates, LLC

e

In the Case of:
American General Insurance Company v. Germaine Tomlinson Insurance Trust, dated January 23, 2006, by and through its Trustees; J.B. Carlson, as Trustee of the Germaine Tomlinson Insurance trust, dated January 23, 2006; The Carlson Media Group, as the beneficial owner of the Germaine Tomlinson Insurance Trust, dated January 23, 2006; and GeoffreyA. VanderPal, et ale United States District Court; Southern District of Indiana; Indianapolis Division Cause No.: 1:08-cv-01747-SEB-JMS

Prepared for:
Reminger, Attorneys at Law, representing Dr. Geoffrey VanderPal

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Summary of Opinions I. Dr. VanderPal met his obligations to American General by assisting the insured in completing American General's application consistent with his lmowledge 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. There is no evidence in the record that Dr. VanderPal intentionally omitted any information in the application. In 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.

n.

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. 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. 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.

V.

VI.

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Pagel

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.

I. The relationship of Dr. VanderPal to American General Life Insurance Company and the Application for Insurance:

In the life insurance business, licensed professionals acting as intermediaries that approach companies on behalf of their clients seeking insurance are referred to in various ways, including agents, producers, or brokers. States regulate the licensing of these professionals, in some cases calling them brokers, in others agents, and in a growing number, producers. American General Insurance Company refers to Dr. VanderPal as a broker in its Complaint against him. In nearly all instances the professional must be licensed and must be appointed by the company before business can be written and commissions paid. The appointment by the insurer of the intermediary permits that intermediary to present those insurers' products to the insurance buying public, subject to insurer underwriting acceptance and pricing. The intermediary's authority is typically limited to soliciting customers on behalf of the insurer, submitting applications of insurance to the insurer, and in some cases accepting premium on behalf ofthe insurer. The duties of an insurance intermediary to an insurer, as well as the scope of the agency/principal relationship, if any, are defined in both contract and common law. While in this case Dr. VanderPal's request for an appointment from American General is an exhibit, his actual appointment document is not; therefore, I cannot state what contractual status he has through his appointment with American General. Nor can I state the appointment status of ECM, CAr, and perhaps others that appear to have been

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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. It is understood that an application of insurance is a document to be relied upon in the underwriting process. The application is the document that begins the process of enabling the underwriter/insurer to determine the insurability/suitability of the applicant for the insurance sought. It is recognized in the industry that an application is a starting point for a more exploratory underwriting process. Representations made in the application are not warranties, and an underwriter typically solicits and relies on significantly more additional information that may not be requested in the application, before making a final determination as to whether to issue coverage. Validating and supplementing information contained in the application provided by the prospective insured and intermediary is typical in large cases such as the one at issue in this litigation. That additional validation and investigation comes from a variety of sources acting on behalf ofthe insurer outside of the intermediary submitting the risk. These sources can include inside or contracted investigative services, and inside or contracted medical reviewers. As reflected in American General's retention of and reliance upon the report of Worldwide in this case (see Exhibit 4 which contains inquiry far beyond the scope of the application), the application is not the exclusive source ofinformation available to an underwriter in assessing whether to go forward with a risk.

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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:
In its Complaint, American General contends the following:

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.

B) Dr. VanderPal submitted false and misleading financial information Tomlinson net worth and income.

regarding

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.

m.

The Insurer's

Underwriting

Obligation and the Period of ContestabiIity:

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•• nderwriting u 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 insurer's effort to void a policy after a period of time.

an

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

Daryll . MartinJD, MBA President Martin Hollingsworth & Associates, LLC

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Exhibit A: Information Depositions: Brotherton, Jim Carlson, JB Clcchi, Bob Hilbert, Tomisue Mason, Thomas Maust, Harry Rutherford, Kathy Schultz, Thomas VanderPal, Geoffrey Wickes, Sarah Pleadings:

considered

in forming

opinions

American General Complaint CMG - Declaration ofJB Carlson (Doc 91-2) CMG Brief in Support of Partial SJ (Doc 90) CMG Motion for Partial SJ (Doc 89) CMG Reply for Partial SJ (Doc 103) Estate Brief in Support of Partial SJ (Doc 94) Estate Motion for Partial SJ (Doc 93) Estate Reply for Partial SJ (Doc 102) PI's MSJ - Brief in Support (Doc 116) PI's MSJ (Doc 115) Exhibits: Ex-l through 100,124,125 Statutes: IN IC 27-1-12-17 News Releases: NCOIL November 20,2007: NCOIL CLOSES IN ON ILLEGALSTOLl, UNANIMOUSLYADOPTS AMENDED MODELACT NAIC June 4,2007: REVISIONS NAIC ADOPTS VIATICAL SETTLEMENTS MODEL ACT and 17.1

NAIC December 11, 2006: NAIC COMMITTEE ADOPTS AMENDMENTS TO VIATICAL SETTLEMENTS MODEL REGULATION

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Aon Risk Services, Inc. 2002Managing Director, National Healthcare Practice

June 2002-November

In all Aon roles, Martin introduced a number of clients and prospects to corporate owned life insurance products through Aon Consulting services.

Aon Risk Services, Inc. of Maryland 2002 Director, Healthcare, Northeast Region

May 2001-November

Aon Risk Services, Inc. of Maryland 2002 Senior Vice President

Baltimore, MD

Dec. 1998-November

Sedgwick of Tennessee, Inc. Managing Executive

Nashville, TN

August 1997 -Dec.1998

Sedgwick, Inc. Memphis, TN 1997 Assistant General Counsel Vice President, Director of Professional Liability Risk Management

June 1993 - August

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.

Alexander & Alexander Inc. 1993 Senior Attorney

Baltimore, MD

October 1986 - June

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

1994 1984 1978

M.B.A.

Loyola University in Maryland University of Kentucky College ofLaw Centre College

Baltimore, MD Lexington, KY

J.D.
B.A.

Danville, KY

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

Maryland State Bar Association

Compensation to be Paid for the Study and Testimony in the Case:
My billing rate is $300 per hour for study and testimony in the American General Insurance Company v. VanderPal, et al. case.

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