aband

Ferguson vs Crown Life and William Casteel – V13of23 – 222p

• 1995 0901 
• PAUL JOSEPH STRONG
  • Cross-Examination (Contd.) by Mr. Tekell ———- 2520
  • Cross-Examination by Mr. Deshazo—————— 2553
  • Redirect Examination by Mr. Hardesty————– 2561
  • Recross-Examination by Mr. Deshazo—————– 2570
• TODD KNEEBONE
  • Direct Examination by Mr. Becker——————  2571
  • Direct Examination (Contd.) by Mr. Becker———  2625
  • Cross-Examination by Mr. Tekell ——————- 2636
  • Cross-Examination by Mr. Deshazo—————— 2662
  • Cross-Examination (Contd.) by Mr. Tekell ———- 2670
  • Cross-Examination (Contd.) by Mr. Deshazo———-  2671
• MICHAEL E. MATEJA
  • Direct Examination by Mr. Becker——————-  2673

• MICHAEL E. MATEJA (called as a witness in behalf of the Defendant Crown Life)
  • Direct Examination by Mr. Becker——————-  2673
• Work History – Aetna – Chalke – 
• 7686 – Q What generally has your work in the last three years at Chalke involved?
  • A I have characterized my practice at Chalke as troubled companies. I have dealt extensively with insolvent life insurance companies and specifically the process by which those companies are dealt with by the guaranty associations of the various states. My major client is the National Organization of Life and Health Guaranty Associations.
• 2690 – Society of Actuaries – Chief Actuaries Forum. I then subsequently was co-chair of that same group for the following two years. It was really a collection of my peers. Generally 30, 40 people would be in attendance. And it is an opportunity to talk shop, if you will. I can tell you that in the time frames that I did that, which .would have been ’88, ’89 and ’90, I believe, all of the subjects that are at issue in this proceeding were among the topics that would have been discussed.
• 2690-2691 – Q You have, I take it, taken a look at Mr. Ferguson’s policy?
  • A Yes, I have.
  • Q Okay. I think it’s called a Conserver-Plus. Briefly, how does that policy work? What’s it for, and what’s the design of it?
• 2694 – Q Was this policy typical of others issued by the companies at the time?
  • A Yes. In my opinion, it is.
• 2694 – QAnd you know — well, can you — from the policy, can you determine the elements of the policy that are guaranteed to the policyholder as distinguished from those elements that are not?
  • A Yes, you can. The — the guaranteed elements of the policy are a — a death benefit of five million dollars payable upon the second to die of the insureds. An annual premium of $22,880 is guaranteed.
• 2695 – Q Well, are there elements — what elements of this policy, as they might affect a policyholder such as Mr. Ferguson, are not guaranteed?
• 2707 – Reputation of company – reducing dividend rates
• 2719 – A Life insurance companies are like any other organization, that they — they have to sell to survive, if you will.

Ferguson v. Crown Life and William Casteel – V4of23 – 204p

• 1995 0818
• URMAS VILMANSEN (By Deposition)
  • Direct Examination by Mr. Bostwick—————– 657
  • Direct Examination (Contd.) by Mr. Bostwick——– 754

• [(p754-) – DIRECT EXAMINATION – Continued – Questions read by Mr. Bostwick (Ferguson)]
• 754 – Exhibit 8 is another memo that you wrote on the 17th of February to Dave Ferguson, and in the first sentence you say:
  • ‘As promised to you, I am working on writing up what I think is a “least damaging” approach to reduction of “our dividend scale.” Let me visit with you first about the introduction there as promised to you.’
• 757 – I want to show you Exhibit 9. I take it this is some ·
  information passed on to the general agents by yourself
  regarding the introduction of the M.V.P. product?
  “A That is correct.
  “Q And as I understand it — you tell me if I’m wrong -the
  chief characteristic or selling point of this product
  was that it achieved a vanish in five years?
  The premiums end after five years, but it’s not a
  true vanish because the basic policy, instead of
  continuing to be an active policy where there’s still a
  contractual agreement to pay a premium for coverage,
  instead it becomes a reduced paid-up policy.
  “Q And was M.V.P. selected as the name because it was an
  acronym for ‘modified vanishing premium’?
  “A Yes, and also an acronym for many other things.
  11Q Like ‘most valuable player’?
  “.A Yes, we’re trying to get a certain ballplayer to .buy
  this.
  “Q Are you serious?
  “A Mm-hmm.
  “Q Who was that?
  “A Don Mattingly, but they decided not to.”
• 759 – 27th day of February of ’86 that
  you’re writing this?
  “A Yes.n
  “Q Exhibit 10 is titled ‘M.V.P. Text for Dave Ferguson’.
  Is this a text of a speech that you wrote for Mr.
  Ferguson?
  Yes.
  nQ Do you know where he was supposed to give this speach
  (sic)?
  “A No, I don’t.
  “Q Do you know whether or not he ever gave this speech?
  “A I know that he did present it, and he told me that it
  went well, but I cannot remember what the event was.
  • nTHE DEPONENT: I don’t know
    specifically. But it would have been to the general
    agents.
• 760 – Let me show you what’s been marked as plaintiffs’
  Exhibit 11 entitled ‘Conserve-Plus Fact Sheet’. Is this
  something that was distributed to the general agents?
  “A This was distributed to the general agents in a
  brochure that was made available for them to provide to
  brokers. Not a brochure, I’m sorry. It was a folder
• 759-760 – ‘Marketing support material’. Was there a video that
  went along with Conserver-Plus?
  “A Yes, there was.
  • Where was that video kept?
    “A Where was it kept? It was a VHS format, and a copy
    survives in my house to this day.
    “Q
    “A
    RQ
    Oh, you’ve got a copy of the video?
    I have a copy of the video.
    Would you visit with Mr. Becker at some break in the
    proceedings and see if you wouldn’t mind getting me a copy
    of the video?
• 760 – 11A Did you see ‘Patton’? You don’t have to see the
  video if you’ve seen ‘Patton’.
• 764 – One of the product features listed there, number 4,
  is that emphasis has been placed on low initial premium.
  Was that, in fact, an emphasis of the Conserver-Plus
  product?
  “A That was a definite emphasis.
• 765 – Q And Exhibit 17. Is this memo sending out the
  computer disks for these two new products, Conserver-Plus
  and M.V.P.?
  “A Yeah, this provides for a stand-alone microcomputer
  system. The Life Ledger program.
  “Q
  “A
  So this is separate and apart from the SIGMA system?
  That’s correct.
• 770 – “Q On the bottom of the second page, under the heading
  ‘Admired Companies’, subheading of ‘New England Mutual’,
  there’s a reference to Jim Hicks. Did you get information
  from Jim Hicks about New England Mutual?
  “A I don’t recall, but according to this, I did.
  “Q Was Jim Hicks one of the general agents with whom you
  discussed the potential change in dividend scale, as
  referenced in the first sentence of this memo?
  “A I don’t remember.
• 772 – In the second paragraph on the first page under the
  heading ‘Market Sensitivity’, you make the statement that:
  ‘As far as Crown Life is concerned, dropping our
  dividend scale in the 1970s dramatically hurt sale.a
  on participating business.’
  What knowledge do you have about that? Is that personal
  knowledge?
  “A Yes.
  ilQ You were there during the dividend scale drop in the
  1970s?
  “A Yes.
  How big was the drop in the 1970s?
  “A I don’t recall, but it was a deliberate drop to
  reduce sales of participating business.
• 773 – If you don’t know, you can tell me, but my question
  to you is: Legally, actuarially, ethically is it possible
  for a company to reduce its dividend scale, despite the
  fact that the interest it may be earning out of the market
  and the expenses it may be experiencing would support the
  current dividend scale?
• ………
• 787-788 – “Q Okay. The third item says:
  ‘Members of the product committee have ,started to
  push for the capability of showing more than on set
  of dividends on illustration, current and more
  conservative.’
  That seems like a reasonable request. What happened to
  that?”
  “A Right. It’s a difficult question, because the
  illustration system actually had dividends stored in the
  rate files that were used for those illustration systems.
  So to provide a separate set of dividends would have
  required some sort of work done so that those dividends could actually be calculated in the system, as opposed to
  coming from a rate file.
  • “The other alternative is to have just two sets, one
    on the current scale and one on a more conservative scale,
    if you like, but again, that would cause a lot of problems
    on the actual software. So that was one of the reasons
    why we never did that.
  • “Also, there is the question about whether or not
    you’re allowed to show different dividends than you are
    currently providing on a current dividend scale. You are
    able, as far as I know, to show different accumulation
    rates and everything, but whether or not you can show a
    different dividend from what is in your scale, I don’t
    know it that’s true in all jurisdictions.
• 791-792 – Q Let’s look at Exhibit 28. This is a letter that you wrote to Tom Rhatigan in San Diego. Is he a general agent?
  • A He was an associate general agent, and Robert E. Lee owned the agency in San Diego at that time.
  • Q He was a general agent present there in the San Diego
    office?
    • A Yes.
  • Q I was intrigued by your statement in the second numbered paragraph.
    • A Mm-hmm?
  • Q You tell him that the 4-Pay and 5_pay concepts work because of the spread between the dividend rate and the current loan interest rate, but if they get closer together, that concept erodes?
    • A Yes.
  • Q Was that generally recognized among your agents in field force in 1986?”
    • THE DEPONENT: I know that some general agents knew this, I know that I talked to some, but whether it was well-known and known by everybody, I can’t say.
  • [MORE]
• 794-795 – Tillinghast / Tillinghast study
• 803-804 – Exhibit 40 basically is a memo to Jerry Campbell,
  senior vice-president of U.S. individual insurance,
  regarding portfolio and/or investment generation.
  “And essentially one of the questions that relates to
  dividends is whether or not you can subsidize one block of
  business with another block, and as part of our research I
  went and talked to an actuary, Keith Deviney, and I also went and looked up what the American Academy of Actuaries
  had to say about it.
  • Becker: Objection. It could be misconstrued
• 806 – It says in the second sentence that you examined a
  report from the American Academy of Actuaries regarding
  dividend recommendations and interpretations.

• [(p654-) – URMAS VILMANSEN – Crown – Senior Marketing Analyst for U.S. Individual Insurance. (By Deposition) – Direct Examination by Mr. Bostwick (Ferguson)]
• 654 – Plaintiff’s Exhibit 4 – PROVE and its Applications – Vanishing Premium, dated October, 1984.
• 657 – (see GA Manual Mailing 1984-21).
• Work History
• Crown Life Products
• 666 – “Q The policy at issue in this lawsuit is a
  Conserver-Plus policy. Tell me, if you would, just
  generally what was involved, from your standpoint, in the
  introduction of the Conserver-Plus product.
• 667 – Because Crown has
  always been a .general agency company, and so it has to
  sell the products successfully to its brokers.
  “Q What do you mean by ‘bases of presentation’?
  “A I mean what sort of illustrative basis it’s set up
  under. What type of illustration, for example vanishing
  premium, or back then minimum deposit.
  “Q All right. when you say you got input from the field
  force, did you go out to your agents and ask them what
  their competitors were doing?
  “A Yes.
  “Q Did you do that personally, or did you supervisor
  someone or a group of people that actually did that for
  you?
• 668 – Crown Life Organization explained
• 679 – 11Q Was that separate and apart from the marketing area?
  “A Yes. The agency and marketing areas were completely
  separate, although we would talk to the agency people
  quite regularly.
• [Bonk: Competitors had Vanishing Premium]
• 672 – Art vs Science
• 673 – [Bonk: Actuarial vs Marketing]
  • “A Yeah, for the numbers we relied heavily on the
    individual actuarial area, and for the language of the
    actual policy we would work with the compliance area.
• ECTA – Illustrations
• “Q But the illustration system was called the SIGMA
  system?
• We also had an internal mainframe system called CAPS, and agents could call in and they could have proposals prepared at home office and sent to them the next day. We also had some microcomputer basic systems that were developed internally.
• 680 – “A
  Sure.
  When I talk about vanishing premium, I talk about
  what’s called a natural vanishing premium.
  11 Q I want to use a broader term that what you all have
  said, ‘vanishing premium’, because I think we’ve got
  some — we may need to back up and define some terms.
  “A
  “Q
  Fair enough.
  Vanishing premium has kind of been knocked around
  here, N-Pay or . 4-Pay, 5-Pay, modified vanishing premium,
  and limited pay option are some of the terms.
  “A Mm-hmm.
  “Q Generally we’re talking about a capability of a
  product to provide the consumer with a point past which on
  premiums need to be paid out of pocket.
• 682 – “The theory is that the amount of the cash values in
  the paid-up additions, plus the dividend stream from the
  coming year, which is the vanishing year, up to the
  critical year; that the dividends plus a partial surrender
  of paid-up additions that are already there will be enough
  to pay the premiums for that period of time, and then as
  of the critical year, the dividends are sufficient to pay
  from there on.
  “Q
  “A
  “Q
  “A
  “Q
  Is that consistent with natural vanish?
  That is a natural vanish.
  That’s what you refer to as your natural vanish?
  Yeah.
• 682 – Vanishing Year vs Critical Year
• 682 – “Q So in a natural vanish, the vanishing year is when we
  can use a mix of dividends and surrenders?
  11A Correct.
  “Q And then the critical year is when we can reduce the
  surrenders to zero, and that’s just completely dividends?
  “A Yes.
• 683 – APP – Abbreviated Payment Plan, Vanishing Premium, Equity Rider – Plus Rider (Crown), Leverage, 
• 683 – “A No, I think there are two types here, and I think
  there are two sets you worry about. The first one is
  vanishing-type products, and the second one is leveraged
• 684 – Minimum Deposit, N-Pay, Super Vanish, 4 of 7 years premium, Loans to pay the remainder of the Premium, Tax Deduction, Tax Code – ERTA – 1986 –
  • 685-686 – “Q Did that make minimum deposit then obsolete when it changed?
    • “A It made the tax deductibility aspect obsolete, I believe.
• 687 – “Q
  Yeah, the equity value. It would increase.
  The equity value would also increase every year?
  That is correct.
  And under this scenario, is it necessary that the
  687
  equity value against which you’re borrowing increase at a
  greater rate than the loan is increasing?
  “A For the policy to stay in force forever, yes.
  “Q I can just imagine a situation where if I’ve got a
  limit on how much — if this concept assumes I’m going to
  borrow all of the future premiums, but it includes in
  there a limitation that I can’t borrow past a certain set
  amount that’s established by this equity, which amount
  increases every year, isn’t it important for that type of
  scenario that the amount against which I’m borrowing
  increase greater than the amount I actually borrow, so
  that I never reach the limit?
• 688 – “A It may be presented, and it’s presented on the basis
  that you’re operating under a specific dividend scale at
  the time, whenever the policy is purchased, and none of
  those are guaranteed. The only guarantee you have are the
  premium amount and the guaranteed cash values, and the
  basic face amount.
• 689 – 11Q So we’ve gone through vanishing premium concepts, and
  we’ve gone through what you’ve called leveraged premium
  concepts.
• Mix and Match
• 690 -or putting in the automatic premium loan feature,
  which is the default in most insurance companies anyway.
• 691 – “A When you say ‘that mix’, you’re specifically
  referring to a combination of vanishing premium or with
  policy loan?
  “Q Right.
  “A We didn’t encourage it, no.
  “Q Did you make sure that the illustration systems that
  you gave to the field force, the gents who were out there
  selling the policies, that that system had the capability
  of doing that?
  “A I’m not sure what capability SIGMA had with respect
  to that, and I couldn’t comment on what ECTA could do.
• 693 – 11Q Mr. Vilmansen, understanding that you didn’t have the
  authority or the power to dictate when dividend scales
  ought to be changed, or what they ought to be changed to,
  it was still within your employment and within the scope
  of your employment to communicate what you knew about
  those things to other people; wasn’t it?
  “A Yes, from a marketing perspective.
  “Q The things that you knew. And you wrote these memos
  because you were trying to communicate information to
  people that you thought needed to know that; right?
  Yes.
• 693-694 – And although you might have had wishes or desires
  that it be done one way, which wishes and desires weren’t
  necessarily those of Crown Life, you were still authorized
  to state your wishes and desires to the people that cared
  to hear them?
  • 694 – “A No, I’d be careful about that. If it was something
    internal, yes. …..
• Exhibit 212 – Memo – From: Mr. Boeckner senior vice-president of U.S.
  insurance operations at Crown Life in September, 1985 – Download to information to Lotus 1-2-3
  • Things that weren’t part of our general  systems. And it was exclusively for the use of the general agents, and it was not to be distributed to anybody else.
• 696 – 11A I’m not being paid for outside work, but Crown Life
  is paying me for the preparatory work to get ready for
  this deposition.
  11Q Okay. You’re not being compensated, though, for the
  time you’re spending here actually giving testimony?
  “A Well, I fully expect you to compensate me for that,
  and I believe my lawyer was — I .did provide my lawyer
  with instructions to contact you with respect to that.
  “Q
  “A
  Well, we may have a misunderstanding in that regard.
  We may.
• 698 – I understood
  that in some case, in some proceeding, a particular letter
  which I sent out to the general agents was signed by me,
  and as a result people said, ‘Who is this guy?’
  “Q And Kevin Hayes came and found you and asked you
  about those thing?
  “A
  “Q
  “A
  “Q
  That is correct.
  Did he have a meeting here in Toronto with you?
  Yes.
  And did you provide him at that time with some of
  your file materials that you had kept?
  “A Yes.
• 703 – [Reasons for Crown Life to Move it’s Home Office from Toronto to Virginia – Official and Unofficial]
• chronological file
• 714 – 1985 1219 –  Exhibit 213 – 
• 714 – Exhibit 214 – 214 is not dated, but also talks about
  the dividend scale. Do you know in this chronology where
  214 fits?
  “A Okay. 214 was written in preparation of a general
  agents’ meeting of either the 20th or the 21st of January,
  1986. The actual date that was prepared I’m not — I
  couldn’t tell you, but it would have been sometime
  between — you know, after the previous memo and before
  January the 21st.
• 722 – Q In Exhibit 213, Mr. Vilmansen, you say that: ‘Corporate is considering very strongly reducing your dividend scale.’
• -725-  – Letter –
  • ‘The high dividend scale and accumulation rate we
    currently use are central to the vanishing premium
    concept which we look so good in currently. A drop
    in dividends would probably increase our vanishing
    premium points, causing a lost of business. Further,
    the adverse publicity of dividend scale change would
    result in … ‘
• 726 – “A It means that ‘Further, the adverse publicity of
  dividend scale change would result in, would force many of
  our agents to spent at least part of their time.’
  “Q Okay.
  “MR. BECKER: Dividend scale change
  would result in adverse publicity.
  “MR. TEKELL: I see.
  “BY MR. TEKELL:
  “Q ‘ … and .would force many of our agents to spend at least part of their time defendant instead of promoting Crown Life.’
  You foresaw that those were probable consequences of a
  reduction in dividend scales?
  “A Yes.
• 727 – “Q Was that insight yours only, or was that pretty much common knowledge among people of your stature in insurance companies in general?
  “A It think that was pretty well common knowledge among people in marketing in other insurance companies, as well as in Crown.
  Q So you weren’t telling them anything new about that?
  A No. No, no, no.
  Q The second page talks about I guess your suggestions on how these consequences can be softened. Is that a fair statement of that?
• 728 – “Q Let’s look at Exhibit 207.
  “A Yes.
  “Q Does that talk about Conserve-Plus?
  “A No. This talks about the original Conserver product,
  which was different from Conserve-Plus inasmuch as, for
  one thing, it did not have a jump in cash value at the
  first death.
  “Q Okay. Let’s look at Exhibit 211, which is a memo
  dated August 23rd of 1985. Does this discuss the
  Conserver product? Conserver-Plus product.
  “A That’s what I’m checking. Let’s see. This would be
  done for the Conserver-Plus product, yeah.
• 728-729 – “Q You and I discussed before about how you would come
  up with a concept of a product, and then draw on the
  capabilities and talents of various departments to bring that together. Is this part of that process, this memo of August 23rd, 1985?
  “A Yes.
  “Q Can we use this as an indicating of about when it was
  being first proposed, or the middle of the development
  process?
• …………
• 730 – 
• 731 – General Agents Meeting
• 733 – “Q Tell me then, again, the best of your recollection
  about what Exhibit 214 was prepared for.
  “A 214 was prepared to set the stage as far as our field
  force was concerned, with respect to a potential change in
  the dividend scale for Crown Life.
  “Q Do you know whether or not it was distributed to any
  of the general agents, whether just the product committee
  or the .board of directors?
  “A I don’t believe it was distributed. And I say that
  because if it had been given to the board of directors or
  to the product committee, I don’t think I would have put
  that note at the top. I would have said ‘distributed to’.
• 733-734 – Note at top
  • “A It says “For GA meeting 21/1/86 — not given out.’
• 734 – “Q Back to 214 then. The information about the dividend
  scale reduction as essentially recorded here in Exhibit
  214; was that communicated to the board of directors of
  the general agents’ association?
  “A It is my understanding it was.
  “Q
  “A
  “Q
  How was it communicated?
  I don’t know.
  What’s your expectation about how it was
  communicated?
  “A I believe it was discussed in a meeting with the
  board and with the product committee.
• 735 – general agents’ association
• 736 – “A
  (No response.)
  Or was that selected by Crown Life?
  Yeah. I don’t — I can’t remember us ever selecting
  any committee for the general agents. I do remember, you
  know, if somebody had something, you know, we could make
  suggestions. Let’s say somebody said, ‘Well, we’re going
  to have a .product committee, and Bill Smith’s going to run
  it.,
  •And we say, ‘Well, what about Joe Blow from over
  here? He knows an awful lot about participating
  products.’ And they say, ‘Oh, well, you know, maybe
  that’s a good idea. Joe, do you want to be on this?’
• 738 – But I also feel that there would be an
  awful lot of pressure inside the GA’s own organization to
  keep anything from leaking out regarding that sort of an
  event.
  HQ Leaking out to the general public, or leaking out to
  other general agents?
  HA Leaking out to competitors mainly.
  HQ But it wouldn’t be something that you would instruct
  them to keep from other general agents, such as Jim Hicks…
• 739 – I dealt on dividends with a specific group of agents
  called the dividend committee, and that was it.
  Is that different from the product committee?
  Yes.
  11Q When was the dividend committee — when did you
  interact with them?
  11A the dividend committee was set up at some point after
  the January meeting ._ I believe it was actually set up
  somewhere after the middle of February.
  “Q And was that set up by the general agents’
  association in response to the information that you shared
  about the potential for a dividend reduction with the
  dividend committee, you would have no expectation — would you? — that that information would be kept secret from
  other general agents such as Jim Hicks in Austin?
  “A Actually, I think for the dividends I did have the
  expectation that at least for the first part of the
  negotiations it would be very secret.”
  11Q So disclosures to the dividend committee: you had an
  expectation that that would be kept close to the vest
  within the committee at least in the short term?
  11A In the short term, yes.
• 741 – Exhibit 208 – Letter – That is a letter with some attachments, and I think the letter and its attachments pretty much speak for themselves, but let me make sure I understand the last several pages that talk about the dividend history and dividend philosophy of Crown Life.
  • A Mm-hmm.
    Q Is there a title to this document?
    A Yeah, the actual name of it is ‘Dividend History and
    Philosophy’ 
• 743 – plaintiffs’ Exhibit 1, or PX-1. That’s a memo, I guess,
  to the general agents from Dale Mathews?
  “A Yeah. It’s actually part of a general agents’ rate
  book mailing.
  • Dale Mathews is an actuary. She was at that time
    heavily involved in the U.S. individual product prodding.
• 744 – In this document she’s announcing, I guess, the
  change in the dividend scale that occurred in 1984.
  They’d upped the rate from twelve-and-a-half percent to
  thirteen percent for the dividend credit rate?
  That is correct.
• 745 – “MR. BECKER: Let me object to the
  form of your question. The increase in twelve-and-a-half
  percent to thirteen percent is not the dividend scale, but
  the dividend accumulation rate. There are comments in the
  last paragraph about the dividend scale, but I don’t see
  any reference to twelve-and-a-half or thirteen percent
  there.
• 747 – PX-7 and PX-8.
  • These are two memos that you wrote, it looks like
    both to Dave Ferguson, on the 17th of February, 1986; is
    that right?
    “A That is correct.
• 750-751 – “Q What is the basis, then, for your conclusion that
  M.V.P. and Conserver-P~us products would not be affected
  by the projected dividend drop?
  • “A I don’t know. Anything I say on that would be
    speculative.
    11Q Do you think you had some basis for it at the time
    you wrote this?
    “A Yes, I imagine that we were pricing at those levels,
    and there had been good reason — there had probably been
    several internal discussions as to why we would use
    whatever overall rate we were using.
• 751 – ‘When the re-pricing is done, we should examine ways
  to introduce a more conservative dividend scale, but
  retain the vanishing premium capability which both
  those products have.’
• [Lunch]
•  

Ferguson v. Crown Life and William Casteel – V3of23 – 239p

• 1995 0815 – 
• WITNESSES:
• WILLIAM CURTIS LOVE
  • Direct Examination by Mr. Bostwick—————– 431
  • Cross-Examination by Mr. Becker——————– 464
  • Cross-Examination (Contd.) by Mr. Becker———– 544
  • Cross-Examination by Mr. Deshazo——————- 576
  • Redirect Examination by Mr. Bostwick————— 581
  • Recross-Examination by Mr. Becker—————— 602
  • Recross-Examination by Mr. Deshazo—————– 605
• PAUL JOSEPH STRONG (By Deposition)
  • Direct Examination by Mr. Tekell——————- 611

• ATTORNEYS FOR THE PLAINTIFFS – DAVID G. TEKELL and RICK BOSTWICK
• ATTORNEYS FOR THE DEFENDANT – CROWN LIFE INSURANCE COMPANY – DOUGLAS M. BECKER and BRUCE HARDESTY
• ATTORNEYS FOR THE DEFENDANT – WILLIAM E. CASTEEL – GARY F. DeSHAZO and JEROME J. SCHIEFELBEIN

• (p431- ) – WILLIAM CURTIS LOVE – witness in behalf of the Plaintiff – Direct Examination by Mr. Bostwick
• WILLIAM CURTIS LOVE = CPA, Certified Public Accountant
• 442 – Start of estate planning discussion
• 448 – Austin Lunch
• 448 – Q Okay. Tell us a little bit about your recollection of what took place during that meeting.
  • A There was very limited talk about the insurance proposals. And that was at the end of the meeting.
• Q Okay. And tell us what you recollect of the discussion about the Crown Life illustration and how that came about.
  • Crown Life, Vanishing Premium
• Limited Payments – A Well, he — he didn’t tell me as to why that was. But I will tell you that he’s a conservative individual.  He had probably determined that he didn’t want to pay but a certain amount of money on this policy. And he wanted to — to get an adequate enough amount of insurance that he deemed it appropriate for his estate. And I think he had already sort of determined that to be about five million dollars, and that may have been through discussions with me and estimates, .or something ..
• 451 – Just Listened
• 452 – Q What was your understanding of what a vanishing premium policy was at that time?
  A At that time, the way I understood it, you paid your specified number of premiums and then there would be no -there would be no more premiums to be paid on the policy. Therefore, I guess by default, the premium vanished because there are no premiums to be paid after that point in time.
• 453 – Q And it’s my understanding you — you, in fact, purchased a — a life insurance policy from Mr. Casteel shortly after this meeting, or at least several months later.
• 455 – Life Insurance Trust
• 456 – Steve Saunders of Shapiro, Edens & Cook.
  Randy proceeded to go to — to legal counsel to visit with him about it and get the trust document put together
• 457 – asked to be Trustee
• 458 – did Randy seek any advice from you concerning the particulars of the policy that ought to be bought?
  A No.
  Q Did he seek advice from you concerning the particulars of the particular policy that he started talking to Bill Casteel about?
  A No. 
  Q Did you offer any advice to him concerning the particulars of this Crown Life policy that — that Mr. Casteel was selling to Randy on behalf of and as agent for
  Crown Life?
  A No.
• 459- – Q Okay. What kind of policy was that or for what purpose? However you want to describe it.
  A The purpose — I bought a policy for a completely different purpose. It was just a college funding policy. I bought a policy that I was going to pay I think it was seven or eight premiums, and those funds would be, I guess, invested by the insurance company. It would have accumulated value such that at the time my children started to college, that I could withdraw funds out of that policy to fund their college education.
• [Bonk: Negotiating a Contract, not Buying]
  • Q Okay. At the time that Randy was buying his policy or not buying it, but negotiating to buy it — and I guess maybe we need to make clear at this point, essentially, a deal was struck or an agreement made verbally, as you understand it, between Randy and Bill Casteel to buy a Crown Life policy, the one that was illustrated to him, probably by April or May of 1987.
    A Yes, sir.
• [Bonk: Vanishing Premium History]
  • Q Okay. Prior to March of 1987, what did you know about vanishing — the concept of vanishing premium as it relates to a life insurance policy?
  • A I — I don’t think I knew — knew a lot about it. It was a — I understand a fairly new concept.
• 461 – A Dividends, 4 payments only
• 461 – [Bonk: Policy Mechanics / Works] 
• 462 – [Bonk: Policy Mechanics / Works]
  • Q Was there any explanation of, for instance, some concept of arbitrage going on under the hood of this policy?
    A No.
    Q Was there any explanation about how dividends figured in to the — the premiums of this policy?
    A No.
    Q Was there any explanation of the fact that there was — that there were internal loans going on under the hood of this policy?
    A No.
• 463 – [Bonk: Role of Trustee]
  • Q Just so we’re clear, Bill, did you offer or were you requested by Mr. Ferguson to give him any advice concerning the particulars of the purchase of this CrownLife policy?
    A No, sir.
    Q Did you perceive that at all as your role?
    A No, sir, I didn’t.
• 463 – Q (By Mr. Bostwick) Mr. Love, based on what you knew then, did you have any advice that you. could have offered to Randy about the particulars of this policy, even if he — if he had asked? About how this policy Worked or functioned or what sort he ought to get.
  A No.

• (p464-) – CROSS-EXAMINATION – Questions by Mr. Becker (Crown)
• 465 -Q I see. So as far as you know, your certification by the state of Louisiana just kind of fell out of the sky?
• A I guess you could say that.
• Q Accounting Continuing Education – Life Insurance Courses.
  • A Very few. Maybe one, maybe two.
    Q All right, sir. And is it correct that at one point you wrote a little course in life insurance audits?
    A I wrote — I was asked by the firm’s continuing education department to write a section, maybe a four-hour section on reinsurance, and that’s it.
• 466 – A It’s when an insurance company reinsures their limit above what they’re willing to retain.
  • Q What kind of insurance are you talking about?
  • A Life insurance. It could be accident and health insurance, property and casualty insurance.
• 467 – E&O – Errors and Omissions Insurance
• 479 – Q All right, sir. Now, while you were doing audit work, you did some work for insurance companies.
  A Yes, sir.
  Q Which ones?
  A The names?
  Q Yes, sir.
  A I did work for National Western Life Insurance, and I also did work for American Founders Life Insurance. And I also did some work for a company in Phoenix one — one time and a company in Houston one time.
  Q You don’t remember their name offhand?
  A No.
  Q Phoenix and Houston. That’s four. Wasn’t there another one? Could have been another one?
  A Could have been. I’m not exactly sure what you’re referring to.  
• 480 – Q All right. Now, what do you need to know about a life insurance company or the life insurance business in order to perform an audit of such a company?
• 482 – A And that they do — insurance companies make investments.
  Q All right. Do you need to know if they have a consulting actuary?
  A Most life insurance companies would have an actuary of some form. Either they would be a consulting actuary or they would be a internal actuary. And let me explain. Do you want me to explain the difference?
  Q Sure do.
  A Consulting actuary would be someone that they would pay a fee outside — they would be like with a — an actuarial firm, just like Mr. Becker is a lawyer who has a firm and he gets paid for his services just like a consulting actuary would get paid for his services, because he would be outside of the — of the firm. He wouldn’t be an inside actuary.
  Q Okay. But you’re familiar obviously you have to be familiar with those concepts and the concept of an actuary in order to be able to audit an insurance company.
  A You don’t have to understand what an actuary does.
• 482-483 – Q What does an actuary do?
  • 483  – They — they do product development for life insurance companies.
    Q What’s product development, sir?
    A I guess they determine the policies.
    Q Determine —
    A I mean, determine the nature of the policies, what kind of policies they’re going to sell.
    Q Okay. What else?
    A They determine what the liabilities of a insurance company would be.
    Q Okay. What do you mean by the liabilities?
    A The liabilities on its policies.
    Q All right.
    A And — and I think they set premiums on policies.
    Q We know what premiums are. That’s money paid for life insurance.
    A That’s the money you pay, yes, sir.
    Q Okay. What else?
    A Well, there are actuaries who do pension calculations.
    Q All right.
    A I’m sure they do a lot of other things, which I don’t know what all they do.
    Q They calculate reserves?
    A I’m sure they do.
  • 48 – [Bonk: More]
• 486 – Q All right. Mr. Love, do you remember giving your deposition in this case on May the 1st, 1992?
  A I do.
• 488 – Q  (By Mr. Becker) At Page 148, right there, will you read my question to the jury, please?
  A “My question was did you at that time know that there were whole life insurance policies that were written, the premiums for which might vary according to investment
  income earned by the company or dividends paid by thecompany?” My answer was, “I probably did.”
• 488 – MR. BECKER: One more question. Do you recall that answer now?
  A I just read it. Yes, sir.
  Q All right. And that refreshed your memory?
  A Yes, sir.
  Q And that answer was correct in 1992?
  A Yeah. I think so.

• 488 – {By Mr. Becker) Mr. Love, if in 1987 and 1992 you knew that premiums could be affected by dividends and invested in insurance companies, we can assume you know that today, too, can’t we?
  • A Yeah.
  • Q And you haven’t — throughout this litigation, I assume you haven’t lost any knowledge of insurance companies that you may have previously had, as far as you know?
• 491 – A Well, I did the tax work on National Western.
• 492 – Q Okay. But you were responsible for it?
  A All I did was review the return.
  Q Did you sign off on it?
  A Yes, sir.
  Q Okay. Well then, you were responsible for it, weren’t you?
  A Well, I guess you can say responsible. I reviewed it. I signed off on the return.
  Q Well, do you have a problem with saying that you’re responsible for —
  A No, I don’t have a problem with saying I was responsible.
  Q Okay. What kind of company was National Western?
  A life insurance company.
• 493 – LBJ Company
• 493 – Q And what .kind of company was American Founders?
  A A life insurance company.
  Q And I think you also did work for other insurance companies, too, that you haven’t mentioned.
• 494 – Olympic Life Insurance Company, NAP Life (National Annuity Programs)
• 494 – Q All right, sir. I want to return – a little bit – to what you knew in 1987 about life insurance companies, how they work. And we mentioned investments and dividends and premiums. On investments, you knew that life insurance companies make investments, didn’t you?
  • A Yes, sir.
    Q Okay. And in fact, just tell the jury what does — what does a life insurance company do when it takes your premium? What’s it do with your money?
  • [Bonk: More]
• 496 – Q All right. Do life insurance companies invest in commercial paper?
  • A Maybe. Possibly.
  • Q What — what is commercial paper?
• 497 – Q All right. How else do life insurance companies get income?
  A Well, they collect premiums.
  Q Yes, sir. How else?
• 500- -Tell Inc – Board, Trips with Church Members, Construction Company, doing taxes for other people – Ferguson and Casteel, 
• 503 – Involvement with other people buying Crown Policies
• 505 – Defendant’s Exhibit 11 – a letter that you wrote to William E. Casteel on May 1st, 1984?
• 507 – (By Mr. Becker) May 1st, ’84. What is this letter all about, Mr. Love?
  A This is a letter to Mr. Casteel telling him that we wanted him to look at some proposals that has to do with Mr. McCreary and the buy-out of the law firm, as well as Balcones Management Services.
  Q Well, you’re writing this letter to Mr. Casteel. You’re writing it on behalf of Mr. McCreary’s law firm, aren’t you?
  A Yeah. They had asked me to write this letter, that’s correct.
  Q All right. And the name of that law firm was McCreary, Veselka, Beck & Allen, wasn’t it?
  A Yes, sir.
  Q And what they’d asked you to do on their behalf is submit to Mr. Casteel a request for proposal of insurance, wasn’t it?
  A That’s correct
• 506-507 – A Yeah. Mr. Becker, I mean, as I’ve stated, this three million dollar policy was was the focus of this transaction, and that’s what I referred to. I didn’t recall back in ’84 that we requested insurance on all this stuff.
• 507-508 – Q All right. And you were involved with the purchase of insurance on the life of Mr. Veselka, weren’t you?
  A I’m going to tell you that I was involved in getting the proposals requested. I didn’t have any involvement in making a decision on the insurance.
  Q Okay. I —
  A I don’t know how plainer I can tell you.
  Q All right. Involved to some limited extent.
  A Yes, sir.
• 517  – [College Funding]
  • A That’s correct.
    Q Vanishing premiums?
  • A That there would be no more additional premium after you paid your premiums.
    Q Right. And Mr. McCreary’s policy was a vanishing premium policy, too, wasn’t it?
• 520 – Q Anything else that happened before September of 1987 that conveyed to you any knowledge or information about his vanishing premium policies?
  A Well, Mr. Becker, I’m sure you’re referring to the fact that Mr. Casteel requested to have a seminar in my office.
  Q When was that, sir?
  A It was in — . I think it was in the late summer of 1987.
• …………..
• Defendant’s Exhibit 12 – a Crown Life Insurance Company Custom Ledger Statement that says at the bottom “Prepared on April the 27th, 1987, by Bill Casteel”
  • illustration that you received from Mr. Casteel?
• 550 – [Bonk: Contact, Rights Obligations, Duty to Read]
  • Q All right. This is the actual contract, correct?
    A Yes, sir.
    Q This is the document that controls the rights and obligations of the parties, correct?
    A Yes, sir.
    Q And you didn’t think it was important to read it?
    A I didn’t read it. I mean, I’ve never read any insurance policy I bought.
    Q Okay. And I guess you didn’t because you didn’t think it was important.
    A Because I relied — I bought the policy based on this illustration, and that’s what I expected it to be. And that’s what I knew it was going to be. I’d already paid
    for this policy. This policy was not here when I saw this illustration. They were in two different points in time. So I bought it on the basis of what these numbers say on Defendant’s Exhibit 12.
• 552 – Dividends determine premium
• 552 – [Bonk: Prudent / Reasonable Person, Duty to Read. LOOK]
  • Q Do you think it would be prudent to check to make sure that the policy itself, the contract accurately reflected what your understanding was of what it was going to be?
  • A I don’t know that if I read all this policy that I could determine that it was consistent with what was here.
    Q All right. Well, let’s get into that and see if we can.
• 552 – A I know that dividends could be used. You know, they may have some impact in determining premiums. I don’t know how they impact that calculation.
• 552 – 10-day Free Look
• 553 – A That — a vanishing premium. That the premium would go away and you would pay no more premiums?
  Q Well, yes, sir, whatever —
  A That’s my knowledge to the extent of a vanishing premium.
  Q Right. Whatever knowledge you had, it didn’t increase between the time that Mr. Ferguson and you got your policies and the time Mr. McCreary got his?
  A No, it didn’t.
• 553-554 – Q And you didn’t get any — any dumber. You retained what knowledge you had of these policies when you considered Mr. McCreary’s policy, didn’t you?
  A I don’t think I got any dumber, no.
• 554 – A What I knew was this policy — that there was a sales presentation by Mr. Casteel on this policy, that you would pay x number of premiums for x number of period of time, that you would pay no more premiums beyond those premiums that you were required to pay.
  Q I understand.
  A And that was it. That’s all I knew.
  Q Right. And you knew that about all of them.
  A Yes.
  Q All right. Would you look at the second page, please.
  A Okay.
• 555-556 – Q And it says, “Annual dividends.”
  A That’s correct.
  Q And then what does it say next?
  A “Premiums payable for life.”
  Q Well, didn’t that plainly contradict what Mr. Casteel told you?
  A Yeah. I would say that contradicts what he told me. But that’s not what I asked for. I bargained to buy — it was represented by him and I guess through Crown Life, as their agent, that we were going to buy a policy that you paid a specified number of premiums on. And that’s all it was.
  Q So this statement here directly contradicts what Casteel had told you.
  A Well, it merely says that premiums are payable for life, and I think that means that they’re payable for life, you know.
  Q. Right.
  A At that time, I didn’t read that. But even if I would have read it at that time, I don’t think I would have thought anything differently.
  Q Well now, that phrase, “premiums payable for life,” is at variance with what Mr. Casteel told you when he sold you this policy.
  A Yes. He never represented that I was going to pay $6,102 for life.
  Q So it’s at vary contradicts —
  A If he had, I would have never bought the policy.
  Q Right. And so it does contradict what he told you. 
  A I think that’s what I said.
  Q So if you read this when you received this policy, what would you have done?
  A I didn’t do anything.
  Q What would you have done had you seen this?
  A I don’t know that I would have done anything, because I believed what I was buying.
  • [Bonk: MORE]
• 558 – A I didn’t have this to read prior to the time I bought the policy.
  Q Do you agree with me that if you had read that at that time, that that would have been a red flag to you and that you wouldn’t have bought the policy?
  — MR. BOSTWICK: Your Honor, the question has been — is redundant and has been asked and answered two or three times at this time. He’s asked is it a red flag. He has stated that it is not a red flag.
  — THE COURT: That wasn’t the question. 
• 559 – (By Mr. Becker) Q Do you remember me asking you that question in your deposition on May 1st, 1992?
  A Possibly. I don’t remember if you asked it. I assume you did, if you’ve got the deposition.
  Q All right. Well, on Page 149, starting at Line 22, will you read, please, my exact question to the jury? — “And do you agree with me that if you had read that at that time, that would have been a red flag to you?”
  A You understand that I am
  Q And what is your statement?
  A Says nr may not have. I may not have bought the policy. 
• 560 – Q Yes maybe, or yes?
  A Yes.
• 563 – Fergusons Bill to Love
• 569 – (Defendant Exhibit 16 –  a letter from you to Jack McCreary, dated January the 19th, 1988?
  • MR. BOSTWICK: Your Honor, we would object to the admission of this letter because it is advice given essentially nine months after the fact to another individual, and we therefore believe it to be irrelevant to what — to advice that he could have given to Mr. Ferguson.
    THE COURT: The objection is overruled. And Defendant’s 16 is received.
• p571 – Q Did you also evaluate the cost of converting the existing term policy to a whole life product?
  A Yes.
  Q And how did you investigate that cost?
  A I asked Mr. Casteel to provide me with some — an illustration by a — this same sort of policy that we’ve been discussing, to see what the cost would be by —
• Equity
• 572-573 – Q Are the statements in this letter truthful?
  • A Mr . Becker, I’m not — I’m not denying that the letter is not truthful. I’m just saying that that’s not the principal issue that was being addressed by this letter. That’s all I’m saying.
• 573 – MR. BOSTWICK: Your Honor — wait a minute, wait a minute, wait a minute. Your Honor, I’m going to object. Counsel is clearly being argumentative at this point when he’s — in that last statement., which was not a question and didn’t appear in the form of a question. And secondly, Mr. Love, as a responding witness, is entitled to give an explanation to the answer that he makes to the question.
• 573-574 – Q (By Mr. Becker) Second page, last paragraph of the letter. You make the statement, “I’m including an illustration on the policy and would like to explain thi·s ‘
  to you. 
  A Yes, sir.
  Q Is that correct?
  A Yes, sir.
  Q I take it you felt like at the time that you understood this if you were going to explain it to him? Is that a fair statement or not?
  A I understood it based on what I’d been told to me.

• 575-576 – Q Is it your testimony that Mr. Casteel would have had the knowledge himself to type this letter?
  • A Absolutely.
    Q And are you saying furthermore that by passing it on to him in a memo to Jack McCreary from Bill Love, becauseit was prepared by Bill Casteel, that you’re not responsible for it?
    A I didn’t prepare it, Mr. Becker. Mr. Casteel prepared it. He prepared it in his office.

• (576-) – CROSS-EXAMINATION – Questions by Mr. Deshazo (Casteel)
• 576 – Q Mr. Love, did you hear Mr. Ferguson yesterday testify that these illustrations that are in question here were in fact produced by Mr. Hicks’ office here in Austin on behalf of Crown Life?
  A Yes, sir.
  Q Do you know for a fact this attachment to your memo was likewise not produced by Mr. Hicks on his computer? – [Bonk: Misprint / Typo=?]
  A I don’t know for a fact. I received that directly from Mr. Casteel.
  Q Does it seem reasonable to you that if Mr. Hicks had the software to produce this type of financial information, that it was in fact produced by him, given to Casteel and given to you?
  A That seems reasonable.
• 577 – Summer 1987 seminar
• 577 – Austin Club Lunch
• 579 – Casteel’s Income, Tax Prep
• 580 – Q I want to be sure what your position is on this because this is what I’m hearing. Your testimony is that Mr. Ferguson paid — or bought this policy, which
  eventually cost about $91,000, based on a 10 to 15-minute 1 meeting in which you had no input. Is that your testimony?
• A I think Mr. Ferguson bought that policy based on the sales presentation that was provided him and the illustration that he was given.
• Q Without any input from you. I’m just trying to find out.
• A No. I didn’t give him any input on whether or not to buy the policy.
• Q Is that to say then that you believe that Mr. Ferguson primarily bought the policy based on the two-page illustration that’s been identified as Plaintiff’s Exhibit 236?
• A I believe so.
• 581 – Q Now, with regard to the policy you bought, is it true or not that you have not been called upon by Crown Life to pay any additional premiums after you paid the ones that were set out in the illustration?
• A That’s true.

• (p581-) – REDIRECT EXAMINATION – Questions by Mr. Bostwick (Ferguson)
• 581 – Whole Life, Premiums Vary
• 582 – Q I want you also to explain your understanding of the impact that investments could have on premiums, to the extent that you understood it.
• A Investment earnings could play an impact in setting the amount and number of premiums that -one might pay on a specific type policy.
• Q And is it your understanding that that is on the front end as opposed to midway through or at some point later on?
• A I think generally that — when that product is developed, that premium is established at that time.
• 582-583 – Work for Mccreary – Difference between McCreary and Ferguson
• 591 – Q In Mr. Ferguson’s case, there were essentially three professionals working together; is that right?
• A That’s correct.
• Q Okay. Who were they?
• A Well, they were Mr. Casteel.
• Q Okay. And he is the what?
• A The insurance agent.
• Q Okay.
• A There was myself, who was the CPA, or certified public accountant.
• Q And what — okay. And who else?
• A And Mr. Steve Saunders, who was an attorney, an estate planning attorney with Shapiro, Edens & Cook.
• Q And what was Mr. Saunders supposed to do?
  A Mr. Saunders’ role was to put together the trust instrument that would own the life insurance policy?
• Q Okay. And what was your role?
  A My role was to ascertain that — that we were going to have the proper tax accounting treatment and that the structure of the trust was certainly under the rules and
  regulations of the Internal Revenue Code and we weren’t going to have any- problems with the estate issue — with the estate tax issue. And I was also asked to be trustee
  by Mr. Ferguson, co-trustee.
• 595 – APL – Automatic Loan Provision
• Dividends – Uses
• 599 – Q Mr. Becker has inferred that you have done something strange in not reading that policy.
  • 599 – [Bonk: Duty to Read]

• (p602-) – RECROSS-EXAMINATION – Questions by Mr. Becker (Crown)]
  • 602 – Q Mr. Love, if you choose not to read a credit card agreement or a rental car contract or something, you’re not saying you’re excused from the obligations that are init because you choose not to read it, are you?
    • A No, I’m not saying that. 
  • 603 – Exhibit 17 – the illustration dated January 18th, 1988 prepared by Bill Casteel for Jack and Dot McCreary that you reviewed?
  • 604 – Tax Advice vs Investment Advice
  • Objection to Exhibit 17

• (p605-) – RECROSS-EXAMINATION – Questions by Mr. Deshazo (Casteel)
• 606 – Q Mr. Love, do you believe that — let me start over. Based on your knowledge of Bill Casteel and your working relationship with he and Randy Ferguson over a number of years, do you believe that Mr. Casteel intentionally misled Mr. Ferguson?
  • A No. I don’t — I don’t think Mr. Casteel would even consider intentionally misleading Mr. Ferguson.

• (p606-) – Judge / Lawyers
• 606 – (Whereupon the jury was escorted out (of the courtroom and the following (proceedings were had:
  • THE COURT: All right. The letter that was let in before, which is Defendant’s Exhibit 16, was let in because that contained some advice and was based on some information that the jury could infer Mr. Love had, both at the time he advised Mr. McCreary and at the time that he talked to Mr. Ferguson.
• 607 – [re: Exhibit 16 / 17]
  • Judge: Now, it’s clear that this illustration is — couldn’t have been with that he got it couldn’t fit in the same category and Mr. Love got it after. So the rationale for having it — for its relevance is not the same. Why should — why is it relevant?
  • MR. BECKER: Well, Your Honor, what you said is absolutely true in terms of it couldn’t have done anything to change his state of mind, say, at the time of the Austin Club meeting because it came later. But we’re examining him about his knowledge of these things. He says it’s the same at all times. We have a claim for contribution against him because he should have known better on these things. And I think that the jury is entitled to see all of the illustrations that went through his hands during that entire period of time. And there were three of them: his own, Mr. Ferguson’s and Mr. McCreary’s. And if none of those three at any time alerted him to the things we say he should have been alerted to, I think the jury is entitled to consider that as .another piece of evidence in how he handles the things — the affairs that are entrusted to him.
  • THE COURT: Okay. All right. The objection is sustained. And 17 is excluded.

• (p608-) – Witness by Deposition: Mr. Paul Strong (Chalke Inc – Consulting Actuary – Crown Life Insurance) – Tekell and Bostwick (Casteel)
• 608 – THE COURT: You may call your next witness.
  • MR. TEKELL: Your Honor, we call Paul Strong by deposition.
• 608 – THE COURT: Let me give the jury an instruction about depositions….
• 609 – MR. TEKELL: Mr. Bostwick will assume the role of Mr. Strong.
• 611 – Work History Current – Chalke Inc – 3+ years – Consulting Actuary
  • Crown Life – 2.5 years – Assistant vice president in product management.
• 612 – Crown Life has designated you as a person that’s able to testify on their behalf on certain subjects. And I suspect that I’ve identified that I wanted someone designated to talk on. Are they paying you to come here and give your testimony today? A Yes
• …
• 641 – Letter – Strong to Ferguson – 1% Drop – Variable Loan Rate – Extra Payments
  • Q … that there were six additional premium payments that were now being projected for him in order to achieve a vanish point. Four of those could be explained by the one percentage drop in the dividend credit rate and two of them . could be explained by the increase in the variable loan rate; is that a fair reading?
  • A That’s a good summary of it, yeah, the summary of the condition.
• 644 – Q And, of course, you’ve got it there. On the back page of your letter back from Mr. Ferguson, I guess your Paragraph Number 6 and probably responding to his Question Number 6, you say, you’re unable to answer his questions about why he was not told, in essence, of the role or nature of dividends in the situation. And you said, you would be very surprised if this were the case due to the routine nature of this application and the professional expertise of the sales representatives with whom you dealt back in 1987. Did you know Mr. Casteel?
• 645 – A No.
• Q What is the basis of your statement that he, the sales representatives he dealt with had professional expertise?
  • A I don’t remember. I don’t remember what backup I had.
  • Q Did you know Mr. Hicks, James Hicks?
  • A Hicks, I had spoken to and may have met. But I’m pretty sure I had personal contact with Hicks.
  • Q But you had never met Mr. Casteel before?
  • A I don’t recall seeing him in the course of this, but I may have spoken to him on the phone, but if I did, I don’t remember.
  • Q Do you remember if someone vouched for Mr. Casteel’s professional expertise to you?
  • A No, I don’t remember.
• 646 – Exhibits 117, 118, 119 and 120.
• 647 – “The Power of a Point” – to General Agents – by Paul Strong
• Jury Excused 

• (p649-) – Judge – Lawyers
• 649 – these exhibits were offer and received: 117, 118, 119 and 120. 172, 175, 176, 177, 178, 179, 180 and 181.
• 650 – MR. BECKER: I did want to point out these are — we are into — with the exception of 117 and 120, all of these are confidential.
• 650 – “Produced pursuant to protective order,” signed by Judge Dietz. And so theoretically, if the jury was watching anyway, they saw that.
• 652 – MR. BECKER: PX Plaintiff’s Exhibit 176 is 70010 and 70011. PX 177 is 70012 through 70013. PX 178 is 70015 through 70017. PX 179 is 70018 through 70020. Plaintiff’s Exhibit 180 is 70021 through 70023. And finally Plaintiff’s Exhibit 181 is 70024 through 70026

Ferguson vs Crown Life and William Casteel – V2of23 – 260p

• 1995 0816 – 
  • Judge Joseph H. Hart

• (p204-265) – Ferguson
• — Purpose of Life Insurance Policy – Estate Planning
• 204 – tell us what your knowledge and experience was as it relates to insurance and life insurance in particular.
• 206 – second to die policy
• 207 – March 1987 – Lunch Meeting – Ferguson, Love, Casteel 209-210 – (Exhibit No. 236. – Crown Life Illustration – Looked at while at lunch
• 212 – And it’s the best price and the best policy.
• 212 – Q Okay. Did you go over or did Bill Casteel explain to you or any of the aspects of this first page?
  A All we really did — I was concerned about two things. One was what the cost was going to be, and secondly, what the death benefit was going to be.
• 213 – Q Okay. And where on — where on this first page of is there an indication of what you’re going to have to pay?
  A Under the Annual Outlay Column, there’s four years. Has my age to the left in some columns. And he said that with this particular policy, it was what he called a vanishing premium policy. And he said, All you have to do is make these four premium payments and then you don’t have to make any payments after that. He said, The policy will pay for itself.
  Q Okay. Had you ever heard of the concept of a vanishing premium?
  A No, sir.
• 214 – Variable Loan Rate
• 217 – There was nothing — nothing there that made me think certainly that the premiums were going to change drastically.
• 218 – Dividends – Paid-up Additions
• 219 – A At no time did I think I’d have less than a five million dollar death benefit.
• 221 – Dividends affect Premium, Arbitrage, Participating policy,
• 223 – Love – Death Benefit Taxable
• 225 – Lawyer – Steve Saunders – Ferguson Trust – September 1987
• (Exhibit No. 237 – Crown Life policy that the Ferguson trust purchased.
• Mr. Martin Turner at NationsBank, who was the trustee — co-trustee
• Mr. Love was the other co-trustee
  • He was the — the guardian of my children in our wills.
• Exhibit 238. And I would ask if you can identify that.
  A Yes. This is the second illustration, which was the one that reflects the actual premiums in the policy as it was actually sold in September of ’87.
• 232 – [Bonk: Duty to Read – Blumenthal] – Q Did you read it?
  A No, I did not.
  Q What did you do with it?
  A I got it, and I think I probably just kind of thumbed through it. But I — I did not read it. I still haven’t read it. I’m not sure I’d understand it if I read it even today.
• Q – Did you, as a matter of practice, read and scrutinize those policies that you purchased as you received them?
  A No, sir. I assumed when the agent told me that’s what it was for and what it was going to cost, that that’s what it was going to be.
• [Trust Casteel]
• 234 – put in drawer
• 235 – Q What caused you to have some concern or some question about this policy? Obviously you did at some point.
• 235 – And in 1989, January of ’89, I bought half of an independent insurance agency here in town, which was basically a property and casualty agency called the Grissom Agency
• CNA – Tim Moriarty
• 238 – A He said, You need to contact Crown Life insurance. And he said, This is — this is an interest sensitive policy, is what he called it. And said that it would be his guess that I would owe some more premiums on that policy. And I told him I thought he was probably mistaken about that.
• Called Crown Life in Austin, TX – Mr. Jim Hicks’ office.
• 239 – In-force illustration
• 243 – I had no idea that it was in trouble.
• 243 – And Bill just said, Yes, Randy, your policy is in the ditch.” That was the words that he used, “Your policy is in the ditch.”
• (Exhibit 239. – Ledger Statement and what you had called an in force illustration?
• 247 – it indicates at the bottom of the page that it was prepared by whom?
  A Bill Casteel.
  Q Okay. And in fact, you understood .that it had been prepared by whom?
  A It came from Crown Life.
• 250 – This — this illustration had a lot of columns that the original illustration did not have
• 252 – Well, I received a letter from Mr. Hodgdon, I believe. And would have been sometime after these conversations. Basically all he did in his letter was say Crown Life is a big company, you know, we’re — we’re a good company but, at that time, did not offer any help as far as what this problem was.
• Mr. Strong was another person supposedly with Crown Life?
  • (Exhibit 107 – letter that I sent to Mr. Strong. November 19th, 1990
• So what started out to be a $91,000 financial commitment has now turned into a $228,000 financial commitment, which was a 150 percent increase.
  Q Okay. Did you get a response from Mr. Strong to your letter?
  A Yes, I did.
• Q you say that in — that •This would appear to be one of the most volatile insurance products ever created. What do you mean by that when you say that?
• 257 – Q And just so we’re clear, is this something that — that Crown Life has kind of come forward and said, you know, I — we’re ready to face the music, we want you to know this, we’re sorry this has happened and we’d like to disclose it to you voluntarily? Or is this something you had to ask for.
  A No. This I — I don’t know if they’d ever tell me about it. The only way I got it was just by sheer coincidence that Mr. Moriarty was there and told me I need to check on this.
• (Exhibit No. 109. – letter from Mr. Strong – January 17th, 1991.
• 260 – is that all this is just a projection. That’s all these illustrations are. And the reality is that you’re required to make premium payments until the last person dies. That’s the reality of that policy.
• A The last one that I think we saw now shows that I have to make premium payments . Now it’s up to over $800,000 in premiums due.
  Q That would be something from Crown Life.
  A Yes.
• 260 – Q Why don’t we look to Page 2, if we can. And if you can — if you will, Randy, read along in that first paragraph with me, where it says, “The significant economic effect of compound interest is the reason for this increase.” He’s talking about the increase in the premiums, right?
  A Yes.
  Q “Let me provide an example. Consider the long-term impact of interest only on four payments of $22,880 (the annual outlay illustrated on your Ledger Statement).
• Q Okay. What I’d like to find out is on the illustrations that you had gotten, which were the ones that were the basis of the sale, was there any explanation of this sort, that a 1 percent change could result in a a 150 percent cost? Was there any explanation of this volatility?
  A No. Let me — the illustration didn’t even show what the dividend rate was.
• Q Even though that is what is apparently so important and apparently what causes this thing to crash or go in the ditch, as Mr. Casteel said?
  A There was — there was no dividend rate on the policy. You couldn’t tell — you couldn’t tell what it was.
• Q Is it — is it fair to say that they basically just said, That’s hard luck?
  •  
• A Yes.
  Q We’re sorry?
  A I don’t think they said, We’re sorry.
  Q Mr. Kidd — Mr. Casteel said he was sorry. But beyond that, Crown Life didn’t indicate that they were sorry. They just kind of said, Tough luck.
  A Well, he said — I guess Mr. Strong did say, “I’m certainly sorry for the misunderstanding, hope that you realize the cause of the less favorable projections are due entirely to the change in economic involvement.”
  Q And does this exhibit, this letter on January 17th of 1991, essentially represent the last word that you’ve gotten from Crown Life on this?
  A Yes
  Q Have — and obviously after this, you received this letter and got this understanding, you contacted our law firm.
• Q And what is it that you think that you ought to be entitled to? What is it that you are seeking from Crown Life and have been seeking since — since you discovered that, as Mr. Casteel said, your policy was in a ditch?
  • A The only thing I have asked of Crown Life this whole time is to give me what initially I had purchased and what I certainly had thought I was being sold and what I paid for, which was a five million dollar life policy. Certainly not one that today I’ve got to continue to make premium payments on.

• [(p265-) – CROSS-EXAMINATION – Mr. Ferguson – Questions by Mr. Becker]
• 275 – Compound interest – “the miracle of compound interest”
• Banking Graduate School – SMU
• left to start BPI in 1980
• went public in 1982
• 282 – Q All right. Now, you’ve also then, I suppose, managed your personal investments?
  A Now I do, yes.
• A Well, it’s — the name of our agency now is Texas Associate. We’ve bought a number of agencies and merged them in.
• Q Were you fairly cautious in that?
  A Yes, I was.
  Q How long a period of time did you take before you decided you wanted to get into some other business and settling on Grissom Agency?
  A I don’t know. Probably for six months or so, I think, I had been kind of looking with one eye open for something to do.
  Q Do you try to be pretty careful in your business affairs, Mr. Ferguson?
  A Yes, sir, I do.
  Q And I’m sure you try to make money on the things that you get involved in, don’t you? .
  A I try to.
• 292 – (Exhibit No. 1. – Personal Statement of Net Worth, dated December 31st, 1986.
• 295 – I’m not aware of a difference between a checking account and money market account.
• [Bonk: Typo / Misprint / Missing Word?] – A Well, a money market account you can put whatever you want to into it. IRA accounts are limited as to how much you can put in it. So if I wanted to put $200,000 in an IRA account, I could do it. So it’s not — it’s not like I had those in lieu of one or the other.
• Q What were the advantage — were there any advantages of CDs compared to tax free bonds?
  A Not that I’m aware of.
• Liquidity
• Q No. My question, sir, is did you do the amount of investigation or make the inquiries that you felt were sufficient to justify an investment of that type and in that amount at that time?
  A Yeah. That’s fine.
• 303 – (Exhibit No. 2. – financial statement that was prepared for Crown Life – prepared on July the 3rd, 1987
• 305 – Other life insurance policies Ferguson owned – [Words] Participating, Dividends, Cash Value, 
• Mr love, estate planning
• 312 – Mr. Knowles? Q Do you know Newton James Smith?
• 314 – Q Did Mr. Love recommend Mr. Casteel to you as an insurance agent?
  A No.
  Q Well, were you aware in March of 1987 that Mr. Love had been involved with the sale of some other policies by Mr. Casteel?
  A No.
  Q Do you know that now?
  A No.
  Q You don’t know whether or not he was involved with the sale of an insurance policy to Jack McCreary?
  A I do. I don’t know wha.t time that took place. I thought that was after my —
  Q It was.
  A Well then — okay.
  Q Do you know whether before the time that you met or before the time that you purchased your policy, whether, or not Mr. Love was involved with the purchase of life insurance policies from Mr. Casteel by Harvey Allen? – A No.
  Q Or Mr. Beck?  – A No.
  Q Or Shelley Veselka? – A No.
  Or Clyde Craigen? – No.
  Q Do you know that now? – No.
• Q Mr. Love, at any time before you bought the policy, did he mention to you that he knew anyone that had bought similar type policies?
  A No.
• Q Did he ever indicate to you that Mr. Casteel had explained the policy to him?
  A No.
• Q Did he ever indicate to you that he’d attended any meeting at which Mr. Casteel had made a presentation?
  A No.
• Q Well, let’s say up to the Austin Club meeting, what did Mr. Love tell you about these policies?
  A I’d never talked to Mr. Love about these policies.
  Q About these specific policies.
• 319 – Q So you’re saying 90 percent of that meeting was just pleasantries?
• (Exhibit No. 3. – (By Mr. Becker) Can you — is this the bill? 
  • A This would be a bill that I’ve paid to Peat, Marwick I believe. Doesn’t show Peat, Marwick on it anywhere
• 321 – Q So I guess at least part of this bill was for insurance planning.
  A Well, I — I think that — yes, I’d say that.
• Q All right. Well now, Mr. Love apparently was not there just as a friend at the Austin Club, was he?
  A No. He was there also for my estate planning.
  Q And to be a part of that conversation.
  A Yes.
• 324 – Q I think you said that Mr. Casteel used the term “vanishing premium.”
  A Yes, sir.
  Q And he used the phrase “the policy will pay for itself”?
  A Yes.
• Q Did you ask him what that meant?
  A No. I just assumed that what he meant was that the premiums would vanish and the policy would then pay for itself.
  Q And what did you assume about the manner or the means by which the premiums would vanish?
  A It never occurred to me that there was anything that I needed to know about that.
• 324-325 – Q Did it ever occur to you to ask how does that work?
  A No. He — he told me that’s what it would do. And I assumed — your illustration shows that’s what it would do. There was nothing I had to assume that it would not do that.
• Q Well, you’re familiar with some basic financial principles, I guess?
  A Yes, sir.
  Q Certainly interest.
  A Yes.
  Q And we’re talking here about, I guess at that time, expenditure of $21,000 a year for four years and ending with values in the millions over here?
  AYes, sir.
• Q And what you’re telling this jury is that you didn’t ask really any questions at all about how that worked.
  A Mr. Becker, that’s an actuarial situation. And it said that I bought a five million dollar policy and I paid those premiums. I really never asked him how did y’all do that. I did not ask him that. When I bought any policy, I’ve never said, Well, wait a minute, how do you do that? It was stated — the illustration showed four payments. Mr. Casteel stated four payments. There was
  nothing ever given nor mentioned that would lead anybody to think that there was more than four payments that were needed or required.
• 326 – Q All right. Did this seem like a good deal to you?
  A Not really. Seemed like a lot of money · to me.
• 326 – So to me, is it a good deal? I don’t know how they make life insurance work. All I know is that you go in and pay a premium. And if you die right away, the company obviously had to pay that death benefit. If you live a long time, then they make money on that. Somewhere in there, there’s some magic that goes on as to what’s a good deal for them and what’s not. I have never, ever discussed that. I’ve never, ever talked to anybody about that. And we certainly did not talk about that in the Austin Club meeting.
• 326 – [MORE]
• 330 – A And certainly at different times, with interest rates going up or down, then you might borrow at a different rate. So clearly that’s what variable would mean. There’s nothing to make you think that that was a critical part of how that policy worked.
• 331 – Q Down here it says, “Plan: Variable Outlay, Whole Life.” There’s that word  “variable” again. That didn’t cause you any problems at the time.
• Q If there’s only four — four premiums that are supposed to be payable here, what would be variable about the outlay?
  A Well, I think you could say that since there was four and it went to zero, it was variable.
  Q Is that the way you interpreted it at the time, or did you give it any thought at the time?
  A If I had have looked at that and said this is a concern, I think what we’re looking at certainly is a variable outlay plan, because you’re making four payments at one amount and then that goes to zero. Looks to me like that might be variable.
  • A What I’m telling you now is I — I did not look at that. We did not discuss that.. What I’m telling you now is if that was something that I was looking at, that is what I would take variable outlay to be.
• p334 – Q Mr. Ferguson, do you believe that you gave this investment or the purchase of this policy the same care and attention that you give other important investments
  A Yes.
  Q — in your life?
  A Yes, I did.
• 334-335 – A One thing, Mr. Becker. I did not exactly consider this as an investment. It was a life insurance policy. It was not until later I found out that I had a volatile investment.
• 336 – Q And Mr. Casteel never said anything about internal loans on the policy.
  A No, sir.
  Q Nor did Mr. Love.
  A No.
• Q “Dividends are based on the current scale and reflect current new money interest rates. They are not a guarantee nor an estimate of future results.” As a prudent businessman, when you see the words “not a guarantee and not an estimate,” in general, that’s a red flag, isn’t it?
  A Can be.
  A Well, some
  Q It can be.
• Q It’s something to at least address and make sure you understand, isn’t it?
  • A It can be.
  • Q Well, why wasn’t it here?
  • Q It never occurred to me, nor would anything there make anybody think that that was going to affect your premiums.
• 337 – A Most of the time with the people I deal with, they
  will talk about that and say, you know, this is what the
  guarantee on the product is. In this case, I never — I
  did not assume there was a guarantee on anything.
• 340 – A.M. Best rating, and basically gave me some
  information about their assets and how they’d done, and
  just said, you know, this is a good, big company and
  they’re — they’re in good shape.
• 343 – .A No, not really with Mr. Love about .setting up the
  trust. From that point on, about the trust, involved
  Steve Saunders.
• 344 – (Exhibit No. 4. –  Ferguson trust document – August 21st, 1987.
• 347 – Q How come from Mr. Casteel, whom you’d never bought
  insurance before, you don’t have the same desire to
  understand the product that he’s selling you that you have
  to understand this trust that involves related type
  matters from a law firm that you’ve had a relationship
  with for years?
  A Mr. Casteel was a very good friend. We were good
  friends. He was in this business to sell insurance. He
  gave me two pages, not 14. M-y attorney went over all this
  with me. We sat down in his office and went through every
  page.
  Mr. Casteel was a friend. He had a policy. There
  was an illustration, your illustration, that shows how
  that policy was performing and what it was going to do. I
  had — I had no reason to doubt that my good friend, Mr.
  Casteel, was trying to deceive me. And to this day, I do
  ———– ~ ,….._Q not think Mr. Casteel was trying to deceive me on this. I
  had no reason .to think that. And there ~as nothing on
  that illustration that would have led me to think that
  they were trying to deceive me.
• 350 – Q In fact, don’t you have an increased obligation in
  that circumstance? Because if you don’t and it goes bad,
  then you’ve lost a good friend.
  A I think that to some degree you need to. There
  was I’m sorry, you keep painting it like I did not do
  any due diligence on this or was — or was negligent. But
  I did nothing different here, Mr. Becker, than what I have
  done on any other purchase of insurance, whether it be an
  automobile policy or a life insurance policy.
• 351 – (Exhibit No. • 5 . – Letter – dated September 9th, 1987, from Mr. Casteel to Mr. and Mrs. Randall Ferguson.
• 353 – Defendant’s Exhibit 6 –  a letter to Mr. Martin Turner with First Republic Bank from William E. Casteel, dated September 9th, 1987, showing a copy to Mr. and Mrs. Randall Ferguson and Mr. William C. Love?
• 355 – Q Okay. And then did you read the policy?
  A
  Q
  A
  No, sir.
  Did you look at the policy?
  I think when it came, I may have just thumbed through
  it, but I did not read it.
  Q Would — that policy has been marked and admitted as
  Plaintiff’s Exhibit 237.
• 355 – illustration that’s been introduced that came at about the time of the policy or with the policy, as the case may be,
  is dated September the 9th of 1987, isn’t it? Or I’m
  sorry, September~- it’s Exhibit 238. – September 8th 1987
• A There is – .- there’s one additional column in the
  later illustration.
  Q The Net Paid-up Insurance column?
  A
  Q
  A
  Net Paid-up Insurance.
  Okay. Anything else?
  There’s an age difference.
• 258 – Q
  A
  That line is new, isn’t it?
  Yes, it is.
  Did you read this one when it came in September?
  No. I did not see that line.
  You didn’t even notice that?
  No.
  358
  Q If you had noticed that, would that have been a red
  flag to you?
  A I don’t think so.
  Q That “Dividends buy paid-up additions and then
  applied to reduce premium”?
  A No.
  Q Okay. That wouldn’t have made you wonder about the
  statement on Page 2, about dividends .not being guaranteed?
  A No.
  Q Wouldn’t make you click that, hey, dividends are not
  guaranteed, not an estimate? They may vary but dividends
  are what’s used to reduce the premiums?
  A No.
• 361-362 – [Bonk: Timing of Contract being sent out] –  Q Now, this is the contract, of course.
  A
  Q
  It’s a life insurance policy, yes, sir.
  Yes, sir. But this is the — the illustrations are not the contract, not the agreement. It’s the policy
  that’s the agreement, isn’t it?
  Yes.
  You understand that.
  Yes.
  And you understood that at the time.
  362
  A
  Q
  A
  Q
  A Well, I had already paid for everything before I got this. So certainly Crown Life already had my money and the policy — the transaction had already taken place before I got this.
• 362 – Q Well, this is the document that controls the rights
  of the parties, isn’t it?
  A Okay.
  Q
  A
  Q
  A
  Q
  A
  I mean
  Yes.
  Is there any doubt?
  No. That’s right.
  You knew that.
  Yes.
• Q Okay. It says, nThis policy is a legal contract
  between the owner and Crown Life Insurance Company,n
  right? You don’t know if you read that?
  No.
  363
  A
  Q
  I See this big bold print, “Read the policy carefully•? 1
  Did you see that?
  A
  Q
  A
  Q
  No.
  And you didn’t read the policy carefully?
  No, I didn’t.
  Okay. “Whole life insurance, participating in
  dividends.” When did you first read that phrase?
  A
  Q
  A
  Q
  I still have not read this policy, Mr. Becker.
  Right now, on this witness stand —
  It could have been
  is the first time that you’ve read the phrase “Whole life insurance, participating in dividends”?
  A
  Q
  Very likely, yes.
• 363 – [Bonk: 10-day Free Look] – Q “If you are not fully satisfied with this policy, you may return it within ten days following the date on which you received it.
• 364 – Q
  A
  Q
  A
  Q
  A
  Q
  Did you understand this as required by Texas law?
  No.
  All right.
  I did not know that.
  Okay. Do you know that now?
  Since you’ve told me that.
  Well, I meant maybe from the — your work at the
  Grissom Insurance Agency, maybe you might know that.
  A Yes, probably have.
  Q All right. Didn’t know it then.
  No.
• [Bonk: Whole Pages]
  •  
• 371 – APL – Automatic Loan Provision
  • Q
    A 0 If you request us to do so in your applications or
    by written notice, we will, if possible, advance a loan to.
    pay any premium that remains unpaid at the end of its
    grace period.”
    Q All right. Now, th.is says, 11 If you request us to do
    so in your application by written notice, we will advance
    loans to pay premiums that become due.”
    A
    Q
    A
    Q
    A
    Yes.
    All right. Did you exercise that right?
    I think that box was checked on this
• 372 – signature
• 373 – Q Are you satisfied that upon signing this document,
  that you’re responsible for it?
  A
  Q
  Yes, sir.
  Okay. And you requested that the automatic — that
  the premium loan, automatic premium loan provision be
  available under the policy.
  A It’s checked, yes, sir.
  Q And that was a — that requested that loans be taken
  out under the circumstances described in the policy,
  didn’t it?
  A Well, I mean, my understanding of what that really
  means is — we’ll see if my understanding is right.
  My understanding basically, what that calls for is
  if for some reason somebody doesn’t make a premium
  payment, then it will automatically — if there’s cash
  value, then it will go ahead and create a loan and pay
  that premium for you.
  Q
  A
  Q
  Well, isn’t that
  Or take it out of death benefit, one of the two.
  Isn’t that what happened in your case? You stopped
  paying premiums, didn’t you?
• 374 – Q All right. All right. I’d like to get to that
  period of time when you say you became aware that there
  were problems with the policy.
  A Yes, sir.
  Q
  A
  I think that takes us to 1990, doesn’t it?
  The end of September of 1990.
• 375 – Defendant’s Exhibit 7 – letter dated November 6, 1990 to you from Rick Hodgdon, regional vice president of Crown Life?
• 376 – you can identify your specific concern to me in writing in
  order that I can forward these on to Crown’s assistant
  vice president of marketing, Mr. Paul Strong, FSA, for an
  explanation.•
  Q And the last two sentences in the letter?
  A “Mr. Ferguson, we value your business and welcome the
  opportunity to further serve you. I have enclosed a
  self-addressed return envelope for your convenience.”
  Q This letter is an appropriate expression and concern
  for your inquiry at this point, isn’t it?
  A I think — it is. I think — I did not have a
  concern about their financial strength, but it’s an
  appropriate letter for what happened.
• 377 – Plaintiff’s Exhibit 107 – letter that you wrote to Mr. Strong on November the 19th?
• 378 – because in January of 1987, those rates were about, you
  know, maybe five and a half percent, I guess. And in
  1990, they were 7.14, which meant that they were up since
  the time I bought my policy.
  And so that was the only reason I did that, was I was
  just saying that that was curious that the reason my
  policy had gone in the ditch was because rates had gone
  down, yet this particular thing that I looked at, rates
  were — were up compared to where they were in 1987.
• 380 – Q Well, you mentioned that Mr. Strong took two months to respond to your letter, didn’t write back until January of 1991.
  A That’s correct.
  Q Actually that’s not correct, is it, Mr. Ferguson? He wrote you another letter in that interim, didn’t he?
  A I don’t think so. I don’t have it if he did. Oh, I tell you what, he did write another one. He wrote one saying he did not respond, I believe.
  Q Is that the one you’ve got there?
   Defendant Exhibit 8 – letter dated November 28, 1990 to you from Paul J. Strong, assistant vice president of Crown Life?
• 381 – Q Okay. The whole thing is three sentences. Would you
  go ahead and read it?
  A Sure. “Dear Mr. Ferguson: Thank you for your letter ,
  of November 19th. Please be assured that we are
  certainly” — “that ·we certainly understand the source of
  your concern and we are giving this matter our immediate
  attention. While we will make every effort to respond to
  you by the first week of December as you have requested,
  the extent of the analysis required will necessitate
  additional time for us to complete this process. We will
  endeavor to respond to you at the earliest possible date. 11
  Q Okay. This letter was dated nine days after your
  letter. This is an appropriate response at that point,
  isn’t it?
  A It is an appropriate response.
• 382 – The conversations that you
  had initially were with Mr. Casteel and Mr. Hicks to try
  to work this out before you wrote to the company?
• 383 – four conversations.
  Q Was — is it correct the first ones were cordial, and
  the last one was rather angry?
  A No. That really wouldn’t be correct.
  Q All right. What would be correct?
  A The first two were — were very cordial and very,
  very helpful. The third one was — was not a very
  pleasant conversation. The fourth one that came after
  that was one that Mr. Casteel called me and that was -that
  was not an angry conversation.
  Q All right. And Mr. Casteel called you for what
  purpose?
  A
  Q
  He — on that fourth conversation?
  Yes.
  A He called saying that, you know, he was — he was sorry that this had happened and said, Randy, I’m not sure but I think that I can do some work and get your — get your premiums back that you’ve paid . . And said he would be
  glad to work on that.
• 384-385 – Q
  A
  No, sir. That was about it.
  All right. Let me back you up to that third one.
  Okay.
  Q And that would have been in November of 1990, early?
  A Yes, sir. Probably — within that first — I think
  all of this started taking place, what, October the 29th,
  30th? So, you know, within two or three days. So
  probably the first couple of days of November.
  Q And what statement did Mr. Casteel make that got your
  dander up?
  A The conversations — up till that time, he’d been
  very helpful and very sympathetic about the problem and
  had said, you know, I just can’t believe this is
  happening. On that particular conversation, he said,
  Well, Randy, you know we talked about the premiums could
  change up or down; we talked about that many times.
  Q .
  A
  Q
  A
  Q
  A
  And he said •many times,• didn’t he? .
  He said •many times.”
  And what did you say when he said that?
  I told him that was bullshit.
  And did you say anything else besides the BS word?
  No. I’m sorry. That’s — I regret I said that, but that’s what I said.
  Q And what did Mr. Casteel say?
  A Mr. Casteel told me that he didn’t think I was acting
  in a very Christian-like manner.
  Q
  A
  Q
  And what did you say?
  I didn’t agree — didn’t agree with what he said.
• Q How did you express that disagreement to him?
  A I just said, If you would like to compare your Christian life with mine, I’ll be glad to do that.
  Q Whenever he gets ready.
  A Whenever he gets ready.
• 385 – Q And it’s your testimony that in that telephone
  conversation, when Mr. Casteel told you that he had
  explained to you that premiums could vary many times
  that that was the first time that you had ever heard that
  from him?
  A Absolutely.
  Q And Mr. Love never told you that.
  A That’s correct. I never asked Mr. Love.
  Q Now, you and Love — Mr. Love are kind of in this
  litigation together, are you not?
  A Well, since he is the company trustee, yes, sir.
• 386 – Defendant’s Exhibit 9 – an indemnification agreement, dated May 22, 1991 and signed by Mr. Love and by you?
• 386-387 – Q (By Mr. Becker) And what, Mr. Ferguson, is an indemnification agreement?
  A This is an agreement that says that I will hold him harmless against any claims or demands · or activity that comes out of this lawsuit that would be brought against him.
  Q So that this litigation is without financial risk to your old good friend Mr. Love; is that right?
  A It is. This — this agreement is because when I 
• 388 – Q The question was: Is the purpose of this
  indemnification agreement to assure that Mr. Love, your
  old good friend, is not at any risk in this litigation?
  A Yes
• 388 – A It covers him as acting as the co-trustee. Obviously
  I’ve not indemnified my good old friend Mr. Love for
  anything he does.
  Q Just the things that have to do with this lawsuit.
  A
  Q
  A
  Q
  Yes, sir.
  And is — do you have Exhibit 10?
  Yes, sir.
  And is this the indemnification agreement with NCNB,
  Texas National Bank, dated May 22nd, 1991, that you
  signed?
  A Yes, it is.
• 390 – Have you made any other — other than your attorneys,
  have you made any other deals with anybody else?
  A No, sir.
  Q With — not with Jack McCreary or Elliott Beck,
  Harvey Allen, Shelley Veselka, Clyde Craigen, any of them?
  A
  Q
  A
  Q
  Have I made any deals with any of them?
  Right.
  No.
  So this is the — this is the only deal that you have
  with anybody who’s a party to this lawsuit or any lawsuits 1
  against Crown Life.
  A To my knowledge. I have indemnified my two
  co-trustees, and that’s the only agreements I have.
  Q Now, at some point when you — at some point, when
  you became concerned about all this, you went and talked
  to some of these other folks who had bought policies,
  didn’t you?
  A Yes, sir.
• 392 – Q Okay. Well, you were the one that went running
  around to a lot of these people and started talking about
  a lawsuit, right?
  • 393 – A I mentioned to them — asked them if they happened to have a policy from Crown Life and told them what I had found out about my policy, asked them if Crown Life had told them about their policy, and suggested that each one of them get them an illustration, which is what Mr. Moriarty had told me.
    Q Well, when did you find out that Mr. Love had helped all of these folks with their policies before he helped you with your yours?
    A I did not —
    MR. BOSTWICK: Your Honor wait a minute. I need to object to that because that I don’t know whether it’s unintentional or intentional mischaracterization of the facts. I think it is clear that the McCreary policy was bought a year after Mr. Ferguson’s policy. Becker has — Mr. Becker has referred to that repeatedly. And I think to — I’m assuming it is not an intentional mischaracterization, but it clearly is a mischaracterization of the facts.
• 394 – A I do not know that Mr. Love helped them.
  Q And still don’t know that to this date.
  A
  Q
  A
  Q
  A
  Q
  A
  Q
  To this day, I don’t think he did help them.
  Uh-huh. Did he help you?
  Mr. Love?
  Yes.
  On the purchase of my policy?
  Yes.
  No.
  Okay. Well, then maybe that clears it up.
• 399-400+ – Q Do you remember me asking a question: “Why do you
  say it will require payments the rest of your life?”
  A Yes.
  Q
  A
  Q
  A
  Q
  And do you remember what your answer was?
  Because that’s what that policy said.
  “Because that’s what the policy says.”
  Yes.
  Well, I guess the point is in your deposition, you
  said, “Because that is what the policy says.”
  A
  Q
  A
  Q
  Yes.
  Well, you’re not changing that testimony today.
  No.
  So you’re saying that a reading of this phrase today
  informs you that premiums are payable by you every year.
  A No. What was meant by the deposition and what is
  meant today is that I had — at the time of my deposition,
  had taken — had come to find out that premiums were due
  every year until the last person died, on the policy. And
  what was stated on the — on the illustration had nothing
  to do, really, with how many premiums you were going to
  pay on that particular policy. So the illustration really
  did not represent what the policy was going to do.
  Q Well —
  A
  Q
  And that’s what I meant in the deposition, I believe.
  In the deposition, you said, quote, “I bought a …..

• [(p402-) – CROSS-EXAMINATION – Questions by Mr. Deshazo]
• 402-403 – Q Mr. Ferguson, do you believe that Bill Casteel
  intentionally misled you with regard to the sale of this policy?
  A No, sir.
  Q Do you believe that Crown Life provided him with
  documents that were used to intentionally deceive you or
  mislead you with regard to the policy?
  A Yes.
  Q Do you believe that Mr. Casteel was justified in relying on those documents that were provided to him by Crown Life with regard to the presentation that he made to you?
  MR. BECKER: Your Honor, I’m going to object to that question as far as what Mr. Casteel was justified in relying upon the Crown Life documents. That’s just a matter of opinion without any foundation.
  THE COURT: I think you need to rephrase your question, Counsel.
  Q (By Mr. Deshazo) Do you have any criticism of Mr. Casteel in his reliance on the documents he used to make the presentation that he made to you?
  A No. I .think Mr. Casteel felt like that illustration was going to perform just as it was presented.
• Austin Lunch, Pressure to buy – No – 
• 405- – Q Do you know whether or not he would have made a
  greater premium — that is, a larger commission on the
  other products that he brought to the Austin Club that day
  as opposed to the Crown Life policy?
  A
  Q
  I have no idea.
  Those illustrations indicate “Prepared by Bill
  Casteel.” Do you know whether or not he actually prepared
  those illustrations?
  A At the time that they were presented, I thought he
  had prepared them. Through the discovery in this case,
  I’ve found that he did not prepare those documents.
  Q Who prepared those documents?
  A It’s my understanding they were prepared out of Jim
  Hicks’ office, the Crown Life office here in town.
  Q Then is it true that Mr. Hicks put the notation on
  the bottom “Prepared by Bill Casteel”?
  A
  Q
  That’s my understanding.
  To what extent did you rely on those illustrations in
  the purchase of the policies — or the policy, excuse me.
  A Well, the illustration was obviously a critical part of that because it showed how much I was going to pay and
  what the — the death benefit was, so it played a major
  role.
• Q Do you have Plaintiff’s Exhibit 236 and 238 up there
  with you?
• 406 – Q With regard to the part that says dividends may vary, they’re not a guarantee, did you understand that to -that’s on Page 2, excuse me, of at least one of those exhibits.
  Did you understand that to mean that you knew that the premiums — the amount of the premiums might vary prior to the time that you actually bought the policy?
  A No.
  Q
  A
  Q
  That in fact is what happened, though, isn’t it?
  Yes, sir.
• 407 – Q Okay. Do you believe Mr. Casteel was sincere when he told you that the policy would pay for itself?
  A Yes, sir.
• 407 – Q When you first contacted Mr. Casteel or perhaps he
  called you, I don’t recall, in 1990, when you and he
  discussed the fact that additional premiums might be due
  on the policy, did he act surprised?
  A He — he already had the illustration, so he knew
  that that’s what it — the situation was. He seemed
  extremely sympathetic. And like I say, for the first two
  conversations, was very helpful on trying to — trying to
  figure out why this had happened and help resolve it.
  Q On the third conversation when it became a little bit
  heated, I believe you said, did he appear to be frustrated
  to you on the telephone about the situation that you were .
  in?
  A I don’t know if I could tell that or not. I’m sorry.
  Q You said you became upset. Did he appear to be
  upset?
  A
  Q
  He was upset, yes, ,sir.
• 408 – Q Do you know whether or not there’s been other
  litigation with regard to the Hyde Park members and Mr.
  Casteel and his policies that were sold?
  A I am aware that there’s other suits that have been
  filed.
  Q Is it true that virtually everyone he sold a policy
  to at Hyde Park Baptist Church has sued him?
  A I know there are some people there who he has sold
  first of all, I don’t know who-all he has sold policies to
  at Hyde Park, so I could not say virtually all. I know of
  at least three people or two people that have not filed an
  action about this.
  Q We have suits by Mr. McCreary, Mrs. Roane, Mr. Kelly,
  Mr. Beck and yourself and Mr. Veselka, is that true, that
  we know about?
  A That are — some of those I think have been settled.
  I don’t know if they’re all active, but those people all
  have filed a suit at one time.
  Q Currently pending four to five lawsuits from Hyde
  Park members against him; isn’t that true?
  • A I think so.
• 410 – Q Do you believe that all of this litigation and the
  problems attendant to the church have caused him mental
  anguish, consternation?
  A I have — I have seen very little of Mr. Casteel, obviously, since this happened. I mean, it’s it has obviously ended a friendship there. So I cannot tell you too much about what’s happened firsthand since then.

• [(p410-) – REDIRECT EXAMINATION – Questions by Mr. Bostwick]
• 412 – Q Okay. So when we’re talking about the Southwestern
  Graduate School of Banking, we’re talking about two weeks
  there?
  A
  Q
  A
  Two weeks.
  Total?
  Yes, sir.
• 412 – Q Mr. Becker also mentioned a limited partnership
  involving what is now called the Bank One building?
  A Yes, sir.
  Q Is that accurate? Approximately how much of an
  investment in that building did you have?
  A It was nearly $90,000. I think it was 87,5 maybe,
  something like that, pretty close to $90,000.
  Q Did you make money or lose money on the transaction?
  A No. I lost everything on that transaction.
  Q
  A
  Was there any suit out of that?
  No, sir.
• 414 – Q And just so we’re clear, in this particular case, the
  conversations that you had with Mr. Casteel, Crown Life’s
  agent, and the proposal or illustrations which Mr. Casteel
  gave him were all done before the sale.
• 417-418 – Q Is that is it your understanding that that is why
  NationsBank and Bill Love, as trustees, are parties to
  this lawsuit?
  A Yes.
  Q Okay. Because they are the — they are the trustees
  of the trust that own the policy.
  A That’s correct.
  Q Okay. NationsBank asked, since they were to become a
  party to this lawsuit, that they be indemnified. Is that
  how you testified?
  A That is correct.
  Q And when they — when you agreed to that, you — did .
  you think it fair to likewise do the same thing for Bill
  Love?
  A That’s correct. Mr. Love never asked me to do that.
  I went ahead and worked this up and told him I was doing
  it for NationsBank, or .then NCNB, and that I wanted to do
  the same thing for him.
  Q Has this litigation, the cost of depositions and the
  sorts of things that are involved in preparing a lawsuit
  for trial, been an expensive endeavor for you?
  A It has been a frustrating, long and expensive endeavor.
  Q And did you want Bill Love or NationsBank to have to
  bear any of the cost of that litigation?
  A No.
• 418 – Q During the course of this illustration — or during
  the course of this litigation, has it become apparent to
  you, .from what has been developed and frankly from what
  Mr. — beginning, I guess, with what Mr. Strong said in
  his letter to you, that dividends are a critical feature
  in terms of the performance of this policy?
  A There is no doubt about it.
• 419 – Q Has it come to your attention that not only are
  dividends critical to the performance of the policy, but
  they are critical in fact to the amount of premiums that
  must be paid for the policy.
  A Well, it’s made a huge difference, just from the
  small change that’s taken place and what premium is owed.
  Q Is it your understanding that the present dividend
  rate is 8.15 percent?
  A I think that’s correct.
  Q And the difference between that dividend rate and the
  11.4 dividend rate that was apparently assumed in this
  illustration, although not indicated anywhere, has made
  a — has caused the cost of this policy to be essentially
  nine times, is that right, what was illustrated?
  A It would be the difference between 92,000 and what
  today I guess is 820 something thousand dollars. But
  that’s just today. The reality is is premiums are
  required every day. I mean, I’m afraid that number is
  going to get higher.
• 420 – Q Does the illustration anywhere, either page, explain
  that dividends are — are used to reduce premiums?
  A No.

• [(p421- ) – RECROSS-EXAMINATION – Questions by Mr. Deshazo
• 421 – Q Mr. Ferguson, do you — your position obviously is
  here today that the illustrations shown to you by Mr.
  Casteel were incorrect at the time he showed them to you.
  Is that true?
  A That they were incorrect — that they were certainly .
  not a full disclosure of what was involved with that
  policy. I’m — I’m not sure incorrect — incorrect in the
  fact that it should have showed there was a premium due
  every year. I will grant that to be incorrect.
  Q Well, assuming they were incorrect, do you have any
  evidence or belief that Bill Casteel knew that at the time
  he showed you those illustrations?
  A No, I don’t.

• [(p422-) – (Whereupon the jury was escorted out of the courtroom and the following proceedings were had:]