2014 0423 - DOC 812 - Trial Transcript - Day 10 - 194p

  • Day 10 - 2014 0423 -
    • (p13- ) - Matthew DeSantos - LSW’s Senior Vice-President of Distribution and Business Development (himself a former insurance agent) - DOC 792 p27>
    • Portions of Videotaped Depositions Read
      • p171Donna Morgan - Vice President and Chief Life Product Officer at National Life
      • p172 Michael Tivilini  - LSW primarily designing products, product design
    • Jury Instructions - The Court
    • DOC 812 – Trial Transcript - Day 10 – Walker v LSW – 194p
    • DOC 762 - MINUTES OF Jury Trial
    • Subjects: Agent Training, Marketing Materials

THE WITNESS: Matthew Lawrence DeSantos - <Continued from Day 9>

(p13)

Q We were talking yesterday about the ability to use the Provider and Paragon products as supplemental retirement income sources. Do you remember that?
A Yes -- one of the benefits of life insurance.
Q And you testified that LSW refers to the Provider and Paragon products as providing supplemental retirement income normally in those types of marketing pieces; correct?
A We do have marketing pieces that refer to the ability
to be supplemental retirement income, yes.

(p15-16)

A It is not the marketing strategy. It is a marketing strategy. That's a nuance that's an important one to us.
Q So the important nuance is that it is a marketing strategy, not the marketing strategy? That's your testimony?

(p35)

MR. FOSTER: The responsibility for ensuring that a policyholder or a prospective policyholder understands the tax risks associated with taking policy loans.
THE WITNESS: I don't know that there's any way an insurance company could actually make sure that every policyholder understands every aspect of the tax implications in a policy. But again, we do provide the information and have responsibility to do that.

(p60)

Q Why do you say the death benefit is first and foremost with the product?
A If there isn't a need for a death benefit, then there is no need to sell life insurance, period.

(p60)

Q Now, I assume that the agents who sell your products are receiving some type of compensation; is that fair?
A Yes.
Q And what's the method by which they are compensated?
A Well, they're salesmen. In my organizations what they are compensated is dictated by the principal or owner of the agency. So they are paid in relation to sales that are
made.

(p78-79)

Q Do the illustrations even without optional page that itemizes the expenses, does the standard illustration reflect in some way the costs of a policy?
A Yes.
Q How is that?

A You can see premium and you can see what happens in terms of expected, in the case of an IUL, return. But then you also see what is the expected cash value inside the contract year to year, understanding the fact that you're paying for insurance first and foremost, life insurance, and that there is cost to that. But there is also the ability to get a return on the contract as well in terms of cash value.

(p63-64)

Q Now, are you familiar with something known as the
target premium?
A Yes.
Q Does LSW have a target premium that's associated with its IUL products?
A We do. A target premium is really used to help calculate what the commission would be paid on a particular sale.
Q Is it a limit on the commission?
A You can look at it that way. It actually allows you to get a full commission or payment up to a particular level of premium being put into a life insurance contract. So in many cases the premium may be beyond what we call the target, and they would only get commission on what the target would be on a particular sale.

(p64) - Training

Q How big a deal is training of agents in the culture of National Life and LSW?
A It's critical. It's part of what we do every day.
Q Could you give us a sense of what percent of employees at National Life are involved in helping train agents.

(p65)

A It's -- you might have an agent call in to the customer service area who is looking for information on in-force policies, and you educate an agent on that. I have the entire marketing department, and all the distribution channels are constantly providing that support. Even our actuaries get involved and provide training and help to agents and agencies and clients. It's part of what we all do.

(p68)

Q Now, to make sure these agents are familiar with the products and how to describe them to potential policyholders, did you make any efforts to determine that your training programs would be best suited to adult learning?
A We actually did. We have hired people and utilized consultants. We actually -- the industry that has done a good job of that is the educational space, higher education.
We utilized some folks who had experience there to work on putting that together.
Q Is it fair to say you're trying to make sure agents understand your products so that they can fully describe them to potential customers?
A Yes.

(p72)

A Well, we run all materials through compliance, you know, whether it's training material or anything else. We work with them, like I said, to make sure that we're compliant with regulations and rules that are out there when it comes to our material, make sure the correct disclosures are there.

We try to balance that against making sure that we're bringing our marketing and product information to the training to make sure they can understand, both the agents and consumers.

(p73-74) - Baker's Dozen

A This one, in the format that it's presented, is more of
an oral-type presentation.
Q And this one is entitled the baker's dozen. Do you see that?
A Yes.
Q Can you read what it says just under that.
A A sampling of the most commonly asked questions.
Q And these are questions that agents are getting
routinely?
A Yes. What we do regularly is understand the types of questions that are coming in to our internal sales desk and then proactively try to provide that information so we don't always get the same questions coming in.
Q So if we turn to the next page of Exhibit 96, page 5,
baker's dozen number one, do you see what the question is there?

(p75)

Q So it would be fair to say that LSW is affirmatively training agents to be sure your client understands the indexed crediting strategies?
A Yes, based on what their needs are.

(p76-77) - COI - Baker's Dozen

A My client is asking about the COIs and expenses. What do I tell them?
Q Now, are you familiar with the acronym COI?
A Cost of insurance.
Q And is that what covers the death benefit portion of an insurance policy?
A Yes, the mortality.
Q So if a client were to ask what are the COIs and expenses, what is LSW training agents to say? Could you read that answer for us.
A Sure. Answer: The ICS illustration system allows for you to print detailed information about the mortality charges and expenses associated with the product you are illustrating. This information shows the annual costs associated with the contract. COIs are cost of insurance charges otherwise known as mortality costs. Expenses are charges that represent additional costs associated with the insurance contract. Be sure that you understand how the charges inside the contract work so that you are well prepared to address your client's questions.

(p77) - Hidden Information

  • Q Have you ever seen any evidence that LSW is trying to hide the expenses of its IUL products from potential customers?
  • A No.

(p77-78) - Optional Form, 

Q Are you familiar with something known as a supplemental or an optional form on illustrations?
A Yes.

Q Is that an optional form that details, itemizes the particular expenses associated with the policy?
A We have a number of supplemental type illustrations, and that would be one of them.
Q Is that a default supplemental illustration, or do you have to specifically select it?
A I believe you have to select it.
Q Why don't you just throw everything into the illustration right up front instead of having to select that?
A Well, I think there's a couple reasons. One is in my experience it's very rare that you would get a question like: Give me all the detailed, nuts-and-bolts expenses so I can look at them in that sort of detail. I have found that the illustration itself at that high-level snapshot gives you enough information to understand what's happening at least at a high level, which is what most all clients would be looking for.
Q So let me go back to something you said there a second ago. You said in your experience most clients aren't looking for the itemization?
A Yes.
Q Why is that? Do you have any view on why that is so, given your experience?

A Because in my experience the illustration tells the story at the level where most consumers are able to understand what's happening inside the contract, and there isn't a need to get down into more detailed information.  But we provide it when it comes up.

(p80-82)

  • re: e-mail on there from Jeff Stemler (Exh 408?)
  • THE COURT: I'm going to refuse 408, potential for jury confusion, prejudice.

(p83)

  • MR. MARTENS:  There is a fight about the versus a and whether this was the marketing strategy.

(p85-87)

Guaranteed Interest Rates - Baker's Dozen - Exhibit 96

  • Answer: Provider has a two percent guarantee over a five-year segment. Two percent compounded over five years is 10.4 percent. The owner of a Provider policy is guaranteed a crediting rate of 10.4 percent at the end of the five-year segment. Paragon offers a 2.5 percent guarantee at termination. Termination means cash surrender or death. Please call the sales desk if you have questions about the guaranteed interest rates.

baker's dozen number 13 - 

A Do I need to explain all of the language in the
illustration to my client?
Q Could you read the first sentence of an answer to that.
A Sure. Answer: The language in the contract includes definitions for the terms contained within the illustration
as well as NAIC required language.

(p88) - NAIC - Illustration Language

(p89-90) - 

Q Just briefly what is an illustration?
A An illustration is something that's used -- it's a tool. I call it a tool to use with both agents and clients so they can understand or start to understand how a contract might work.
Q When you say might work, what do you mean by that?

A Unless it tells me it's guaranteed, it's a non-guaranteed illustration, example.
Q And as the name suggests, is it meant to illustrate?
A Yes.
Q An example?
A Yes.
Q Are there various assumptions that go into the illustration?
A Yes.
Q Are there various scenarios that are shown in the illustration?
A Yes.
Q In particular looking at Exhibit 4, are you familiar with the three scenarios -- current basis A, current basis B, and guaranteed?
A Yes.
Q So do you see on this page of Exhibit 4, page 16 or 21, current basis A and B?
A Yes.
Q And then going back to page 13 of 21, guaranteed values in current basis B?
A Yes.
Q Is that typical in illustrations as you've seen them?
A Company to company they are pretty similar, yes.

(p92-93)

Q In your experience is the illustration meant to predict how the market will perform in the future?
A No.
Q Why do you say that?
A Because we can't predict how the market is going to perform in the future.
Q Does the illustration make some assumptions in determining the indexed crediting strategies nonetheless?
A Yeah. It looks historically -- there's assumptions that go into it, so we provide options in terms of how you're able to illustrate. But normally with the agents you are also going to spend some time understanding what the client feels in terms of what the expectation should be, and that's where you might actually show them multiple illustrations as well with different interest rates that may or may not ever actually happen.

(p94)

Q Now, are there any efforts to train potential agents working for LSW or selling LSW products regarding how to use the illustration system?
A Yes. We hold regular just purely illustration training.

Q In particular the guaranteed and current basis A and current basis B columns that we looked at, would those various columns be explained as part of that training process?
A Well, they're pretty standard from company to company, so likely with most of the agents we bring on, they do have experience in the industry. We would show them how it works in our illustration, but generally there is a level of experience there.

(p96) - Compliance / Training Approval

(Exhibit No. 59 received in evidence)
BY MR. MARTENS:
Q Now, just starting with the front page here, do you see that it says approved as outlined below?
A Yes.
Q What does that mean?
A It goes back to the compliance process that we were talking about. Normally the process is something's submitted. There will be comments or additions or subtractions that we would need to make to a particular piece. Once it gets to the final stage, they would give their final approval and then we can use it as dictated by the compliance department.

(p96)

Q And can you read for us -- well, let me ask it this way. When it says ICS tutorial, do you know what ICS is?
A That's our proprietary illustration system.
Q And this training is for agents rather than the public?
A Yes.

(p97)

A Sure. The National Association of Insurance Commissioners created a model regulation designed to ensure that customers are not misled.
Q Then can you read the next slide. We will pull it up here.
A But life insurance illustrations are complex and still need further explanation. A sound understanding of illustrations and how they are constructed is important in every sale.
Q Is this training material designed to provide that sound understanding?
A Yes.

We know and your client should also be aware that over long periods of time, both interest rates and other factors change. The illustration represents an estimate based upon what we know now, but actual results may be worse or better than those illustrated.
Q Is the fact that interest rates change over time a
secret that LSW holds?
A No.

(p99) - Performance, results

A Sure. Remember we said the illustrations are actually estimates. In fact, illustrations contain three different estimates, each one based upon different assumptions about premiums, interest rates, and policy charges.
Q And those three different estimates, are those the three different scenarios that we saw in the illustration -- guaranteed basis, current basis A, and current basis B?
A Yes. It includes all of those.

Q Would you read that narration for us.
A The guaranteed basis shows how the policy will perform and the interest rate and maximum policy charges that are guaranteed by the company. This is the most conservative way to calculate the values.
Q And continuing to page 13, the top slide, if you could read the narration there for us, Mr. DeSantos.
A Illustrating the policy on the current basis shows results using assumed interest rate and charges currently in effect. These values are higher than the guaranteed values. But as we noted before, they may change over time.

(p100)

Q If we could go over to page 30 of this training material, I would like to look at the top two slides on page 30.

..

A Sure. Every policy has certain administrative expenses associated with it, and all companies have multiple tables that they use to calculate expense values when designing new products. But trying to itemize comparative expenses to a client is unnecessary and can only confuse the issue. In fact, sometimes the policy with the lowest expense load isn't even the best deal. As we've seen, there are other factors also in play.
Q Keep going.
A Everything that is going on behind the scenes with expenses will very quickly be reflected in the policy's premiums and its resulting cash values. So rather than getting tangled up in individual expense comparisons, concentrate on the policy's results. Results are, after all, the bottom line for your client.

(p102)

Q Is it fair to say that the company is making efforts, significant efforts to ensure that agents know how to discuss illustrations with clients?
A Yes.

(p103) - Exhibits 19 and 59

Q And are these types of documents made by people with knowledge of the information reflected therein?
A Yes.

(p104) - Exhibit 18

Q And it's about how to read an IUL illustration?
A Yes.
Q And going to page 3, do you see discussion there of the NAIC model regulation?
A Yes.

(p103) - Who designs Training Documents for Agents?

  • Q And are these types of documents made by people with knowledge of the information reflected therein?
  • A Yes

(p107) - Compliance Department Reviews

(p108-109) - Alan Hanson, e-mail, Compliance, Tax-free Retirement

Q I'm not sure if you were shown this, but I think the jury has seen Exhibit 38. So if you can flip there and we can put it up on the screen. I think it's already in evidence.
Do you recognize this as an e-mail exchange that you had with Alan Hanson about a marketing campaign for some company products?
A Yes.

(p112)

  • A Well, it's what it is. If I say life insurance, there has to be a need for death benefit. If there isn't that threshold question answered, then you don't have a need for a life insurance policy, period. That's also part of the underwriting process where, as a company, we make sure that there is a need for that.
  • Q When you say you make sure that there is a need for that in the underwriting process, what do you mean by that?
  • A Well, understand, you know, it's an application process you go through. Internally we'll look at it and understand who the beneficiaries are and is there a real need for insurance, what's the purpose of it, all as part of an analysis of how we underwrite or, you know, put a contract through the process of being approved.

(p113) - tax-free retirement - 

Q Are you at all concealing or concerned about the fact that the company offers as one of the features of the IUL product the fact that it could be used for tax-free retirement?
A No. All six companies I have worked at use the same approach to permanent life insurance and the tax advantage values and benefits that you're able to gain from it, you know, assuming things are structured the way to allow you to do that.

(p114-5) - zero percent floor concept

A So with a policy like an IUL, if the S&P 500, like, say, you know, in 2008 had negative return, an IUL provides a guarantee that you are not actually going to lose money due to investment risk in the product. So it has a zero percent floor.

Q Was there a phrase that would be used to explain this zero percent floor concept to potential customers to make sure they understood it?
A Well, there's a phrase I use.
Q Which is what?
A Zero can be your hero.
Q What does that mean?

(p115) - Exhibit 835 - Marketing Brochure

Q And then the second paragraph says: In addition to a death benefit, indexed universal life insurance also offers the potential to build cash value on a tax-deferred basis which may be accessed income-tax free during your lifetime through withdrawals and loans. Is that what it says?
A Yes.

Q So is it fair to say it's no secret that the company markets this product for, among other things, the tax-free retirement potential?
A Yes.

(p118) - Exhibit 831 - Marketing Brochure
Q Again, does permanent life insurance include things such as IULs?
A Yes.

(p120)

Q Do you know whether agent pieces like this would be shown to the company, Mr. DeSantos?
A Yes. I can tell by the -- there is what we call a TC number at the bottom, which means that our company would have reviewed it from a compliance and review standpoint and made sure that it met the requirements that we'd look for in terms of what it was saying and how it was being said.
Q So in the bottom left-hand corner where it says TC50829(0809), that would indicate that it was approved by LSW?
A Correct -- by the compliance and review area.

(p123) - other ways that potential policyholders could learn .. Tax Benefits <General Info>

A I think there are many ways out there if you just speak
to generally what happens within an insurance contract. But as far as the company goes, we also provide customer service internally, and we do answer a lot of questions there as it relates to the impact that withdrawals or taking money out of all our contracts would have on a particular contract.
Q Could a potential policyholder talk to their agent?
A Yes.
Q Could they call LSW or National Life customer service?
A Yes.
Q Could they discuss the issue with a tax advisor?
A Yes.
Q Or an accountant?
A Yes.
Q Or a lawyer?
A Yes.

(p124) -

Q I would like to show you Exhibit 792. Do you recognize that as the SecurePlus Provider buyer's guide for the IUL policy offered by LSW?

..

Q And are they created, the content of them, by people with knowledge of the matters reflected therein?
A Yes.

  • (p125) - Exhibit 634 -Surrenders / Taxes / TEFRA
    • A It's a brochure to provide information, the tax information actually to a client regarding policy surrender.
    • Q Is this a document again provided by National Life for use by agents with potential policyholders?
      A Yes.
  • (p127) -
    • A TEFRA, Tax Equity and Fiscal Responsibility Act, important tax information on policy surrender.
  • (p129)
    • Q Is that because every policyholder is different in terms of their wants and desires with regard to policies like Paragon and Provider?
      A Yes.

(p129-131) - Lapse

Q Are you familiar with something known as a policy lapsing?
A Yes.
Q And what does it mean for a policy to lapse?
A To me it means that it's no longer in force, meaning it's no longer a policy that is viable, is on the books, pays a death benefit. It no longer exists.
Q And no longer has any value?
A Correct.
Q Is it possible for a Paragon or Provider IUL policy to lapse?
A Yes.
Q Can you tell us why a policy could lapse.
A There is a lot of reasons why. Individuals might not be putting in enough premium to cover the cost.  Sometimes people put in very small amounts of premium because they maybe only need the policy for a small period of time. Sometimes things change in a person's life and they no longer need the policy, so you may see them cancel or surrender it or stop paying for it.
Sometimes a situation arises where someone might really need the money, you know, something they didn't anticipate that's in the contract. Maybe it's to cover medical bills or to put a kid through college.
Q I don't want to talk about that.
A Okay.

A Yeah. It doesn't have to be for retirement. It could be for any needs. We don't dictate as a company what you can take money out for. It's your decision to do that.
Q And if you take too much out in the way of loans, could that cause the policy to lapse?
A It could cause it to lapse.
Q For example, if the policy has a $500,000 accumulated value and you take out $500,000 in loans, what will happen to that policy?
A It's going to lapse.
Q Is that true of just Paragon and Provider policies?
A It would be true of any policy with cash value if you took all the cash value out of it generally.
Q Is that true of just the policies that LSW sells?
A No.
Q That's the typical way a policy works?
A You have to keep paying premium in most cases to cover the cost associated with buying an insurance policy.

(p131) - Defective, lapse prone

Q Have you ever heard in your 20 years of experience in the industry of the phrase "a policy defect"?
A Only in relation to this proceeding.
Q To this lawsuit?
A Yes.
Q Have you ever heard of a policy being referred to as a defective product?
A Only in relation to this proceeding.
Q How about the phrase lapse prone?
A No.
Q Do you have any reason to believe that the Paragon and Provider products, given your experience with them, are in any way defective or lapse prone?
A No.

(p133) - REDIRECT EXAMINATION, BY MR. FOSTER:

(p134) - Q So LSW had a marketing concept for these policies called million dollar baby; correct?
A Yes.
Q And if you take a look at LSW-E8999734 --

(p138) - we all share the same concerns.

(p138-139) - 

THE COURT: Well, let me tell you what I plan to do. With regard to the provisions in the insurance code, I'm going to add those to page 37. That's the provision that you can't be held liable by being required to do something the law prevents you from doing. That's page 37 of the draft of the instructions that went out.

I'm simply going to provide the quotations from the insurance code. I don't believe that this goes to good faith. I will instruct them that they are not being asked to determine whether the insurance code has been violated and that they're to be governed by the instructions I give them. But this doesn't go to good faith.

(p142) - Other options for retirement planning, no Death Benefit needed

Q Other options that would be better for them if they wanted guaranteed interest?
A And they're not interested in the death benefit?
Q Right.
A Okay.
Q Yes?
A Yes.
Q And do you know whether any of the named plaintiffs in this case were interested in a death benefit?
A I don't.
Q Do you know specifically the number of your consumers that are interested in a death benefit?
A Not specifically, but that's why we have the underwriting process.
Q And all of the named plaintiffs as far as you know were underwritten for this insurance; correct?
A I would think so.

(p142-147-Print Out) - zero percent floor,/ Policy Mechanics - um

Q That's what you mean by zero can be your hero; correct?
A Yes. The example would be 2008, it looks like.
Q Okay. But the floor, that doesn't provide you with any downside protection from the cash value of your account going down; does it?
A As it relates to the investment risk, yes.
Q But as it relates to your cash value in your policy, the floor doesn't provide any downside protection against the cash value of your policy going down; correct?
A It does provide you protection, yes.
Q It doesn't prevent your cash value from going down; does it?
A If it's related to the market, yes.
Q Well, let's look at Exhibit 90, an annual statement for Mr. Kim Howlett, one of the plaintiffs in this case. You see how it says that he has a beginning accumulated value of $81,108.08? Do you see that?
A Yes.
Q And do you see that he had monthly deductions in this year of $19,391.07? Do you see that?
A Okay.
Q And you see he had an ending accumulated value of $62,218.90. Do you see that?
A Yes.
Q So he lost about 25 percent of the cash value of his policy in one year; correct?
A Okay.
Q So for someone whose primary interest is to prevent their cash value from going down, the downside protection for these IUL products wouldn't necessarily accomplish their goals; would it?
A I don't know what his primary interests are.
Q Okay. But you do know that the downside protection of the Paragon product didn't prevent him from losing 25 percent of his cash value in this one year?
A I can't specifically speak to that, but he is paying for life insurance.
Q And the amount of the fees that he's paying for life insurance for these policies caused his cash value to go down approximately 25 percent?

(p147) - 

Q Do you understand the question, Mr. DeSantos? You have never looked at that; have you?
A Looked at what?
Q Whether the substantial fees charged by LSW can cause the cash value to go down even in years where the market is up.
A I answered the question.
Q Your answer is no?
A My answer is it depends.
Q So it is possible that the substantial fees will cause the cash value to go down even in years where the S&P 500 is up; right?
A I don't know that for sure.
Q You don't know that for sure? You have never looked at that?
A I can't say that I have.

Q Okay. And that's not important at all to your determination that the policies are not lapse prone or not defective?
A I have looked at illustrations, many of them. That's what we use.

(p149-150) - Is LSW a Mutual Company?

Q Now, you talked about LSW being a mutual company; is that right?
A Yes.

Q Now, LSW is not a mutual company; correct?
A I believe it's a wholly-owned subsidiary.
Q So LSW itself is not a mutual company; correct?
A It's not a stand-alone company.
Q And LSW policyholders don't own the company; correct?
A I don't know the answer to that.

(p152) -

Q And isn't it true that in sales situations, some agents may want to be able to say that they own the policy to help them close a sale?
A I have known insurance agents that purchase different products to say that they own them as well, yes.

Q Okay. And you don't know of anyone employed by National Life or LSW who owns a Paragon or Provider product; correct?

A I can't recall specifically.

(p153-154p) - Commissions / Compensation / Trips / Other 

Q Yes. There's other types of compensation besides commissions provided to high-selling agents of LSW; correct?
A There are other benefits that are provided.
Q Right. So one benefit, for example, is that LSW takes them on free international trips, for example?
A Not free, no.
Q Isn't it true that LSW has conferences for its highest selling agents in places like Monte Carlo and the Caribbean?
A We have taken some of our top agents as a reward just like most sales organization do for their top agents.

(p154-156) - Working with Compliance Department

Q Now, you mentioned that you work with the compliance department?
A Yes.

..

Q And the head of compliance is Donna Morgan; correct?
A She is -- she oversees the compliance ad review department, yes.

..

Q Now, you talked a lot about training that can be used with agents, and we saw a lot of exhibits -- Exhibits 18, 24, 59, 83, 96, 835. Is it fair to say for all the exhibits we saw today that none of those were required for any agent to take by LSW?
A I can't say that.
Q LSW does not require agents to be trained on the IUL products; does it?
A Generally no, not by us.
Q And you have no idea, do you, of specific agents who reviewed any of those exhibits we looked at?
A I have attended meetings where we have actually used some of those presentations, so I'm aware of them being used, yes.

(p156-159) - Training, Exhibit 59, Optional Report

Q Okay. Now, we looked at Exhibit 59. This was a training; correct?
A Yes.
Q It says: Trying to itemize comparative expenses to a client is unnecessary and can only confuse the issue; correct?
A That's what it says, yes.
Q Okay. And you're familiar with the optional report policy charges and expenses; correct?
A Yes.
Q And the optional report policy charges and expenses, it itemizes the comparative expenses for the Paragon and Provider policies; correct?
A Yes.
Q And so LSW's position is that itemizing those comparative expenses is unnecessary; correct?
A Unless it is requested or there is a need for it, yes.
Q And do you have any information on how often it's requested?
A I don't know. I would assume it would be rare.
Q Now, turning to the illustration itself and looking at Ms. Schmidtbauer's illustration, which is Exhibit 48, page 11, you said that the optional report, it's not necessary to give it because policyholders can figure out the amount of their total expenses from this page; correct?

Q Okay. But this page of the illustration, you agree that it does not show policyholders the net dollar amount of their expenses?
A It doesn't show net expenses specifically, no.
Q Okay. And the only expense that's itemized is the -- if we look at page 20 of this illustration, it's the monthly administrative charge; right? That's the only dollar amount that's itemized in the Provider or Paragon illustrations?
A I see that there, yes.
Q You see this here, and that's the only charge that's itemized in any Provider or Paragon illustration unless the optional report is printed; correct?
A I don't know for sure.
Q Okay. But there is nothing that would stop or prevent LSW, if it wanted to, from putting in another column right here that says total expenses. There is nothing that would prevent LSW from doing that; is there?
A I don't know the answer to that.

(161-163) - Exhibit 565-58 <Brockett?>

Q I think we have gone over this before, Mr. DeSantos. I want you to assume that these statistics are correct. If you assume these statistics are correct, that there is a 95 percent probability of reduced value with Provider and 90 percent with Paragon, do you agree that LSW should be giving this information to all of its policyholders?
A I think they are given the information that it can be more or less. I don't know where you got this.

Q Could you answer the question, Mr. DeSantos. The question is simple. Assuming this information is correct, 95 percent, 90 percent of the policies have a reduced value compared to what's in the illustration, do you agree that LSW should give this information to policyholders?
A No.
Q Thank you.

(p165-167) - Tax-Free retirement, DeSantos Newletter

  • Q Isn't it true, though, that one of the biggest hits for the Provider and Paragon product from a marketing perspective was tax-free retirement?
  • A We emphasize different marketing strategies, but that is one of our core strategies, yes.
  • Q Isn't it true that the tax-free retirement concept swept through the field of LSW's agents like a firestorm?
  • ...
  • THE WITNESS: I don't know that I would use those terms.
  • ...
  • Q You wouldn't use those terms?
  • A I don't know that I would.
  • Q Do you think they're appropriate to describe the success of the tax-free retirement strategy?
  • A Just that the idea of it swept --
  • Q That the tax-free retirement concept swept through the field like a firestorm?
  • A It sounds like a little bit of hyperbole, but it's possible that someone said that.
  • ..
  • Q Okay. Is it possible that you said it?
  • A I don't recall.
  • ...
  • A It was created by the marketing department. Yes.
  • Q And it went out under your name?
  • A Yes.
  • ...
  • Q And if you look at number four, don't you write that: By far one of the year's biggest hits, tax-free retirement, swept through the field like a firestorm?

(p168) - Agent Awareness / Lapse

Q Okay. And as we have discussed, the field, these agents, they weren't provided with any information like this regarding the lapse probability for individuals who tried to use the policy to obtain tax-free retirement through loans or withdrawals; were they?

..

Q As we discussed previously, none of the agents in the field were told by LSW that there was a 59.8 percent chance of lapse at or before life expectancy for Provider, or a 55.7 chance of lapse at or before life expectancy for Paragon, if they took loans or withdrawals as illustrated in the retirement plan contained in their illustrations?
A Not that I am aware of.

(p169) - Free Insurance / Policy Mechanics / Cash Flow Elements

Q And about the beginning account value -- excuse me, the accumulated value of $81,000 and the ending accumulated value of $62,000?
A Yes.
Q I think the point was made that the account value went down because of the charges associated with the policy. Do you recall that?
A Yes.
Q Do you know of any insurance policy ever sold that's free?
A No.
Q Do you know of any insurance policy that has a cash accumulation feature that doesn't have costs associated with it?
A No.

  • (p170) - Annual Statement, 38%, zero / hero, 
  • (p171) - MR. BROSNAHAN: Your Honor, we would like to play the Donna Morgan deposition video. (25 minutes)
  • (p172) - MR. BROSNAHAN: We will proceed with the Tivilini deposition, Your Honor
  • (p172) - MR. BROSNAHAN: We apologize for wasting the Court's time, but the video was not what it ought to be.
  • THE COURT: But your side was responsible for preparing it.
  • MR. BROSNAHAN: That's correct, Your Honor.

  • (p176) - 

    THE COURT: Ladies and gentlemen, apparently as the videotape was cut, it didn't reflect the parties' agreed designations. You heard testimony concerning an account value enhancement. The parties had agreed that that was not going to come in, so whatever you heard about account value enhancement you are to disregard.

(p177) - She? - Exhibit 673 is a letter from Plaintiff Joyce Walker to Melody Juge, a financial advisor with whom Ms. Walker consulted about her LSW policy and, thereafter, assisted in the preparation of the first complaint she submitted to LSW seeking a full refund. Apr. 17, 2014 Trial Tr. at 19:25 – 20:11; 128:4 – 24. (DOC 749, p2)

  • THE COURT: I think there are a couple of things we can take up. One, I received a request from LSW to admit Exhibit 673. I postponed that to allow the parties to have some discussion and see what might be redacted, but it seems to me the prima facia of the document is a party admission.
    I'm going to receive it subject to any redactions you may propose.
  • MR. BROSNAHAN: Thank you, Your Honor. We had discussed proposed redactions. We certainly think that the discussions of her problems with unemployment in a long previous job, her issues with the dispute she had with her former employer, we think those are prejudicial. There is no need for that. There is no relevance  whatsoever.

(p184-187) - Jury Instructions

THE COURT: There are two things I concluded as reflected in the instruction on page 24, which is the element of fraudulent concealment. I read the Gagne case. As I indicate, element number four as I've numbered them here comes directly from CACI and it requires an intent to deceive.  -- So I think I have decided that issue.

MR. BROSNAHAN: Your Honor, if I may suggest, instruction 5.8 on page 31 has a number -- I think it got a bit chopped up, so I think it's very confusing at this point. I also don't think it's necessary because that instruction was a definition of intent to defraud.  The Court has decided to go with the intent-to-deceive language out of CACI 1901 on page 24 in the overview instruction. We think that in view of that, there is no necessity to explain intent to defraud.

I believe we had proposed that simply because under the Gagne case, intent to defraud meant the intent to cause induced reliance. Since the Court is rejecting the Gagne formulation, then I think that instruction 5.8 is unnecessary and confusing, and the Court should just go with intent to deceive.

MR. BROSNAHAN: Well, the remainder of the instruction is not clear as it goes into -- means that any omissions made by LSW must have been made with intent to cause plaintiffs to purchase the policies knowing that a person unaware to the concealed fact who would not have acted had he known the fact. Everything after the word policies is inconsistent with the Gagne case, and we think there should just be a period after the word policies.
THE COURT: I understand your position.
MR. MARTENS: And I think what they're trying to do, Your Honor, is just back it into intent to cause reliance by striking that, and I think that's exactly what they can't do.