Agent Statements – Walker v LSW

  • I tell clients that the cash value is guaranteed not to go down when the market goes down because the cash value has a 0% annual floor.

—  Declaration of Sean L. Covi, Agent – Doc 258 – 2010 0710 – 11p

2000s – LC – Walker v LSW (Life Insurance Company of the Southwest) —  [BonkNote]

  • (p40-41) – Q: Could you describe for the jury what you were trying to convey when you drew this drawing, Exhibit 774, on the back of her illustration. – <WishList – Exhibit 774>
  • A: JEFFREY STEMLER – (Agent):  This is — when we are sitting down talking about insurance, we try to explain to the prospects exactly how the insurance works.
    • So this is part of our talk that we give to explain how it works.
      • So this would be a build slide.
      • This didn’t just start there.
    • I drew a line on the bottom and I said:  When you buy insurance, there is a minimum amount that you must pay for insurance to pay for the costs and put the policy in force.
      • And I drew the line and I wrote minimum, and I would ask who do you think sets that price.
        • Some people will say: I don’t know.
        • Others: Well, the insurance company.
        • I go, yes, you’re correct.
      • And I said: They have actuaries, and the actuaries, their job is to figure out how much they need to collect for any given amount based on the age of the person so that they can cover the risk and also still make a profit.
    • I said: But there’s another line that we need to be  concerned about, and then I draw the line up on top and I put the max there.
      • And I say this is the maximum you can pay for a contract.
        • I said: Do you know who sets that limit?
        • People will often say: Well, the insurance company; right?
        • And I say: No. It’s actually the government.
    • In the example we’ll often say: Well, let’s just assume that this is $500,000 that we are dealing with here and the minimum premium is a thousand dollars and the maximum premium is $5,000.
      • Why would anyone put $5,000 into a contract if you could buy the same amount of coverage for only 1,000?  

2015 – LC – Walker vs Life Insurance Company of the Southwest – TRIAL DAY 11

  • Case 2:10-cv-09198-JVS-JDE Document 820 Filed 12/01/15 Page 40 of 279 Page ID # 33532
  • 2000s – LC – Walker v LSW, Life Insurance Company of the Southwest  —  [BonkNote]
  • 19. When I recommend Paragon or Provider, I inform my clients in some form of words that the policies charge a cost of insurance that will increase as they grow older. I tell them that the policies maintain cash values, in part to offset that increasing Cost of Insurance.  
  • 20. I often discuss the various crediting methodologies available under the Paragon or Provider policies for these cash values. In particular, I tell clients that their policy will accumulate value based on the returns of the S & P 500 index (filtered through a participation rate and earnings cap, which I identify for my clients).
  • ⇒  I tell clients that the cash value is guaranteed not to go down when the market goes down because the cash value has a 0% annual floor.

—  Declaration of Sean L. Covi, Agent – Doc 258 – 2010 0710 – 11p

2000s – LC – Walker v LSW (Life Insurance Company of the Southwest) —  [BonkNote]

Deceptive Sales Practices

  • …  Joseph M. Belth, who taught insurance for many years at Indiana University and publishes the Insurance Forum, a consumer oriented newsletter. 
    • “This is an industry in which various forms of deceptive practices flourish, and the regulators have not done anything about it.
    • Whether this inaction is because they don’t want to do anything or don’t understand or don’t have the resources I am not prepared to say,” Belth said, but he added, “I think it’s a combination” of those things.”

1994 0313 – The Washington Post – Do Life Insurers Foul the Sales Pitch?, By Albert B. Crenshaw  —  [BonkNote]  —  [link]

  • As Steve discussed, you were illustrating 9% or in the heyday 11%.
    • Granted that was just an illustration, and you may or may not have had cautionary language alerting the policyholder that this isn’t a guarantee. 
    • This is just where we are today.
    • Maybe the guarantee is something like 4%, but these people who perhaps were missold a policy by an aggressive agent thought that that 11% was going to be there forever.
    • It’s now 7%.
    • ⇒  What is it that they lost?

—  Allan Horwich, partner in a law firm located in Chicago

1999 – SOA – The Role of the Actuary in Litigation Support, Society of Actuaries – 16p

1970s

  • 1973 / 1974 – GOV (Senate) – The Life Insurance Industry, Senator Hart (D-MI) – 4 Parts  —  [BonkNote]
    • 1973 0223 – Part 3 of 4 – [PDF- 641p-GooglePlay]
      • (p2074) – “Deceptive Sales Practices in the Life Insurance Business,” by Joseph Belth (draft) 
  • 1974 – AP – Deceptive Sales Practices in the Life Insurance Business, by Joseph Belth – 22p

1990s

  • 1994 0227 – The Salina Journal – Abusive Life Insurance Business Needs Reform, by Jane Bryant Quinn  –  [link-newspapers.com] 
  • 1994 0528 and 0929 – GOV (House) – Deceptive Practices in the Sale of Life Insurance, Cardiss Collins (D-IL)  —  [BonkNote]
  • 1995 1123 – The Record (Hackensack, New Jersey) – Connecticut Probe Finds Prudential Misled Policyholders – [link-newspapers.com]
  • 1998 – MDL-1061 – LC – Prudential Insurance Co. of America Sales Practices Litigation  —  [BonkNote]
  • 1998 0918 – Washington Post – Pentagon Bars Life Insurance Firm Because of ‘Deceptive‘ Practices, (Academy Life Insurance Co.), by Bradley Graham – [link]  —  Military
  • 1999 0416 – NYT – Metro Business; Life Insurance Refunds, By The Associated Press, [MetLife, Richard Blumenthal, deceptive sales practices, churning]  –  [link]
  • 1999 0709 – WSJ – Prudential Fined $20 Million by NASD Over Sales of Variable Life Insurance, By Bridget O’Brian – [link]
    • Pruco Securities Inc., a unit of Prudential Insurance Co. of America , was censured and fined $20 million by the National Association of Securities Dealers for deceptive sales of variable life insurance, one of the largest fines ever by the NASD.
    • The hefty penalty is the latest blow to Prudential in its struggle to put a huge and long-running insurance-sales scandal behind it.
    • So far, the imbroglio, which involves allegations of misleading practices for the 12 years through 1995, has forced the company to take a $2.6 billion charge to pay policyholders eligible for remediation under terms of a federal class-action lawsuit.
    • Also, the Newark, N.J., financial-services company has paid $65 million in penalties to state insurance regulators.
  • 1999 1217 – Reading Eagle / Reading Times – Deceptive Sales Practices Continue in Life Insurance, by Herb Denenberg – [link-GoogleNews]

2000s

  • 2007 01 – Criminological Highlights, Volume 8, Number 4 – 12p
    • This issue of Criminological Highlights addresses the following questions:
    • 3. Would you buy life insurance after reading this paper?
      • (p6) – Deceptive sales practices in the life insurance business have become part of ‘normal business’: sales agents are taught by companies how to be deceptive and not get caught.
      • 2006 – AP (Criminology) – The Institutionalization of Deceptive Sales in Life Insurance, by Richard V. Ericson and Aaron Doyle, British Journal of Criminology, 46, 993-1010 – jstor.org/stable/23639474
  • 2020 0923 – Forbes – Sounding The Alarm On Indexed Universal Life Insurance  — [BonkNote]  —  [link]
    • But critics say indexed universal life insurance is being sold dishonestly. “They are complex products sold with false promises and deceptive marketing,” says Birny Birnbaum, executive director of the nonprofit Center for Economic Justice. “Stay away from them.”
    •  Steven Roth, president of Wealth Management International, an insurance analyst and litigation consultant.
      • “Policy values in IULs are depressed for many years due to high up-front charges and high surrender fees,” says Roth, adding that, “These typically last for more than 10 years after the policy was taken out.” Roth was recently part of a class action suit against Prudential Insurance Co. involving overbilling and improperly lapsing universal life insurance policies. He is working on another one against Pacific Life over deceptive sales practices concerning the earnings potential of indexed universal life insurance policies.
    • The ACLI’s Dolan says the size of the premium depends on the returns on the options in the policy. “The fact is, in a different (and better) economic environment, less in premiums would be paid than originally planned,” he notes. “Owners of this product must be aware of exactly how it works, because, unlike certain other types of life insurance, IULs have a fluctuating component to them.”

1994 0227 – The Salina Journal – Abusive Life Insurance Business Needs Reform, by Jane Bryant Quinn  –  [link-newspapers.com] 

Principal – Agent

  • Crown Life v Casteel
  • 2023 – FSRA – Consultation

1968 – LC – Kentucky Central Life Ins. Co. v. Combs, Ky., 432 S.W.2d 415 – [link-CaseText]

NAIFA / NALU – People

  • William N. Albus
    • 1994 0308 – NYT – Regulators Seek Limits on Insurer Sales Pitches, by Michael Quint  —  [BonkNote]  —  [link]
      • senior general counsel for the National Association of Life Underwriters
  • Jack E. Bobo 
  • Thomas Gregg
  • Robert Nelson
    • 1990s – Chairperson of the National Association of Life Underwriters (NALU) Task Force on Illustrations
    • 1993 – SOA – Sales Illustrations – We Can’t Life With Them, But We Can’t Live Without Them!, Society of Actuaries – 28p
  • Gary Sanders
  • Carney Smith
  • Thomas Wolfe
    • 1979 – NALU President
  • David F. Woods
    • 2003–  CEO, National Association of Insurance and Financial Advisors (NAIFA)
    • 2003 0515 – GOV – Retirement Security: What Seniors Need to Know About Protecting Their Futures – [PDF-137p, VIDEO-?]
    • 2004 0909 – GOV (House) – G.I. Finances: Protecting Those Who Protect Us – [PDF-176p, VIDEO-?]

NAEPC – National Association of Estate Planners & Councils

  • by Kathryn A. Ballsun, Patrick J. Collins, and Dieter Jurkat, San Raphael, California
    • (Part 1 of 4) – 2006 – ACTEC – Trustee Administration of Life Insurance – 22p
    • (Part 4 of 4) – 2006 – ACTEC – ILIT Asset Management: The Written Investment Policy Statement – 31p
  • 2012 – NAEPC – Private Family Foundations and Life Insurance: Enhance the impact of giving via an oft-ignored tool, by By Vernon W. Holleman III – 5p
  • [NAEPC – Hall of Fame Award – [link]]
  • 2004 – Ben G. Baldwin, Jr. 
  • 2004 – Jonathan G. Blattmachr
    • 2003 0719 – NYT – Wealthy Family Is Suing Lawyer Over Tax Plan, By David Cay Johnston – [link]
      • In May 2000, plaintiff Marvin Schein and defendant Jonathan Blattmachr met at a Fundraiser. At that time. Blattmachr told Schein about a tax saving strategy called the Spectrum split dollar strategy.
    • 2003 10 – FA-mag.com – When Estate Plans Go Bad, by Tracey Longo – [link]
  • 2004 – Lawrence Brody 
    • 1999 – Conference Paper – Current Issues in Life Insurance Planning, by Lawrence Brody – 75p
    • 2018 – Book – Due Diligence of Trust-Owned Life Insurance, By John Resnick, Lawrence Brody, Billie Dietz Resnick, and Richard M Weber
    • 2019 – Book – The Irrevocable Life Insurance Trust: Forms with Drafting Notes, By Lawrence Brody and Donald O Jansen
    • 2020 0115 – Conference – Heckerling – Fundamentals of Life Insurance – What You Need to Know and What You Think You Know, Lawrence Brody, Donald O. Jansen, Mary Ann Mancini – 80p
  • 2004 – Stephan R. Leimberg 
  • 2005 – Ed Slott 
  • 2007 – Robert S. Keebler 
  • 2007 – Charles L. Ratner 
  • 2007 – Gideon Rothschild 
    • 2003 10 – FA-mag.com – When Estate Plans Go Bad, by Tracey Longo – [link]
      • Says New York City estate planning attorney Gideon Rothschild, who is a partner with Moses & Singer and chair of the American Bar Association Committee on Asset Protection: “The lesson to be learned is that if you’re pushing the envelope too far, there may be consequences you don’t want to live with, like seeing yourself in The New York Times, or served with a complaint, or losing your livelihood to practice law or sell insurance. We don’t issue tax opinion letters because of the liability. But there are those who are willing to quantify the risks if the price is high enough.”
      • ⇒  Rothschild maintains, however, that it is not an attorney’s responsibility to evaluate insurance policies that go into a trust. “If an agent doesn’t do it, then I think the valid claim is against the agent,” he says.
  • 2009 – Richard M. Weber
  • 2013 – Albert E. Gibbons 
  • 2013 – Martin M. Shenkman  
  • 2013 – E. Randolph Whitelaw
    • 2016 – Book – The Life Insurance Policy Crisis: The Advisors and Trustees Guide to Managing Risks and Avoiding a Client Crisis, by E. Randolph Whitelaw and Henry Montag
  • 2014 – Lee J. Slavutin 
  • 2021 – Lawrence J. Rybka, JD, CFP®, AEP® (Distinguished) 

NAILBA – National Association of Independent Life Brokerage Agencies

  • (p40) – Adjustable Life Insurance-An adjustable life insurance product contains all the usual features of traditional cash value insurance with the added flexibility of allowing the policy owner to adjust the plan of insurance, the premiums and/or the face amount. Rather than issue a new policy every time an adjustments is made, changes are incorporated within the original policy.
    • Increases in face amount, except guaranteed cost-of-living increases, generally require evidence of insurability.
    • The plan of insurance is deemphasized with adjustable life.
    • Instead, the major thrust is to coordinate current life insurance needs and premiumpaying ability. As either of these changes, the plan of insurance can be adjusted.
    • At any given time, the plan may be term or permanent insurance, ranging from five-year term to five-pay whole life.
    • Adjustable life can be changed, within limits, in a number of ways. For example, the policy owner may:
      • – Increase or decrease the premium
      • – Increase or decrease the face amount
      • – Lengthen or shorten the protection period
      • – Lengthen or shorten the premium-payment period

2010 – NAILBA – Brokerage Desk Reference – 179p

  • (p17) – I am appearing today on behalf of NAILBA, the principal trade association representing wholesale life brokerage. 
    • NAILBA is a nonprofit trade association with over 350 members in the United States. 
    • We represent 100,000 producers, who deliver over $1 billion of life premium a year. 
    • A normal NAILBA member agency may employ anywhere from 10 to 30 employees, and operate in an average of 31 States.
    • We are small businesses, but we represent the fastest growing distribution of life insurance.

Currently, we produce over 60 percent of the life insurance written in the United States today, and it is projected by the year 2020, we will be writing over 80 percent.  (p16)

  • (p17) – The insurance carrier will outsource sales, marketing, agent training, and some underwriting functions to NAILBA member agencies.
    • By eliminating these functions, it allows a life insurance company to focus on product manufacturing and applying the savings to more competitive and consumer-friendly products

—  Statement of John W. Felton, President, Tennessee Brokerage Agency, Testifying on Behalf of the National Association Of Independent Life Brokerage Agencies (NAILBA)

  • (p28) – John W. Felton:  I think on behalf of NAILBA, we are willing to work with anyone that is going to improve the life insurance arena for the consumer

2007 1030 – GOV (House) – Additional Perspectives on the Need for Insurance Regulatory Reform – [PDF-180p

  • VUL sales are being driven by very robust market conditions for the product, agreed a panel of industry executives at the National Association of Independent Life Brokerage Agencies’ virtual annual meeting.
  • “The market conditions are absolutely right.
    • The economic indicators would tell us that VUL is a really good spot to be,” said Doug Winkler, vice president of independent distribution for Prudential.
    • “Recently, IUL has been sort of the dominant new product.
    • But with low interest rates, meaning lower option budgets, we think that the opportunity to transition to VUL is very strong.”

2021 1116 – InsuranceNewsNet – VUL Set To Take A Bigger Bite Out Of Life Sales, NAILBA Panel Says, By John Hilton – [link]

Duty

  • Duty to Disclose
  • Duty to Read
  • Duty to Speak
  • Fiduciary Duty
  • Memorandum of Law in Support of American General Life Insurance Company’s Motion for Summary Judgement
    • See Watkins v. HRRW, LLC, 2006 WL 3327659, at *8
      (“Tennessee courts, however, have rejected breach of fiduciary duty claims against insurance agents in various factual circumstances.”);
    • see also Weiss v. State Farm Fire & Cas. Co., 107 S.W.3d 503 (Tenn. Ct. App. 2001) (finding that an insurance agent had no duty to explain plaintiff’s coverage or make sure she understood her policy).

2016 – LC – Ianello v American General  —  [BonkNote] 

Q: What Do Agents Say to Consumers?

  • The agent, as a result of not understanding the illustration, may misrepresent the product to the consumer.

—  Judy Faucett

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • John Montgomery [California] asked how companies would control brokers who were selling insurance.

1994-3, NAIC Proceedings

  • Bob Wright said the Society of Actuaries report referred to the fact that companies said they had no control over what agents did.
    • [Bonk: Bob Wright = Chair of the LDWG – Life Disclosure Working Group – (A) – NAIC  —  [BonkNote]]

1994-4, NAIC Proceedings

1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  —  [BonkNote]  —  142p

  • Some of the comments that we have heard from regulators about the illustration situation suggest feelings of, if not outright despair, growing frustration.
    • A couple of them spoke sadly of the futility of regulating an illustration when the real issues involve the agent or the company.
    • Larry Gorski of the Illinois department mentioned that in states that do not regulate advertising or promotional materials, misleading statements can be rampant in those materials even if the illustrations are made pure.

 —  Benjamin J. Bock,  Transamerica Occidental

1992 – SOA – Life Insurance Sales Illustrations, Society of Actuaries – 16p

  • The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.
  • …what bothers me is that I am afraid that this same misleading information may be the basis of my children’s and grandchildren’s … planning…

—  Statement of Gloria Darleen Newberry, Policyholder

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • 1998 0717 – Tampa Bay Times – Insurers Accused of Bilking Recruits – [link]
    • The problem, investigators and prosecutors say, is that customers did not read the pamphlets, simply taking the word of persuasive sales agents.
    • “American Fidelity obviously is not in a position to know exactly what is said at each point-of-sale,” the companies’ lawyers argued in motions to prevent a temporary injunction.

Problem – Agent

  • I sincerely hope that we take a look at the agent and his role in this entire process.
  • Somehow I think we need to tie in the actuarial profession with various agents’ professional organizations, so that if the agent does in fact bastardize an illustration and make it completely unrealistic, he is liable too for discipline.

—  Neville S. Henderson

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • Let’s go back to the question of understandability.
  • With no standardized format being utilized, many of the illustrations currently in use are far too complex for the average consumer or applicant to understand.
  • In many cases the selling agent does not understand what he is presenting, and this needs to be addressed.

—  Robert E. Wilcox, NAIC Chairman – Illustrations Working Group

1994 – SOA – Problems and Solutions for Product Illustrations, Society of Actuaries – 28p

  • I would say to all of you that if you think that you don’t have any customers or any agents who fail to understand what a nonguaranteed illustration really means, you’re kidding yourself.
    • And if you don’t think that you have customers out there (which means agents also) who believe that a vanishing premium illustration means that the policy becomes paid up in contractual terms, you’re kidding yourself.
    • We are going to learn by doing as we all go through this period of more and more unfulfilled policyowner expectations.

— Walter Miller , [Prudential]

1991 – SOA – Illustrations, Society of Actuaries – 20p

  • I think that one problem, even with the illustration disclosure, is that you are still not controlling what the agent actually says to the client, even when he or she sees that illustration. 
  •  I’ve been in many situations where our agent says, “I sold them a ten-pay contract and it was paid up in ten years,” and I say, “It’s not paid up.”
  • I don’t know how you can handle the idea of the agent telling somebody that it’s a paid-up contract when it really was a vanishing-premium-concept contract.

—  Susan Oberman Smith

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

Agent Training - Walker v LSW

  • (p28) - [Not in front of Jury], also p49
  • MR. SHAPIRO (Defense Attorney): This is a diffuse atomistic sales force.  We don't require a lot. -- There is very good reasons for that. It's not a unique business model.

Perhaps other businesses run other ways, but beyond essentially telling folks that they have to be honest and good and do the right thing and that they are welcome to participate in some fairly basic training, which most folks never bother to, it's very atomistic.

  • And we are talking about over 3,000 independent agents in the state of California that sold these policies. 
  • Obviously some sell a few, and some sell a lot, but there are a lot of them out there.

2012 0918 - DOC 335 - TRANSCRIPT for proceedings - 68p

  • Michael Tivilini - LSW - primarily designing products, product design 
    • (p109) - A:  The other -- the other purpose of target premium is it's a premium that you'd like to get the policyholder to pay because it really would make the policy very safe.
    • I mean, it was -- something I used to say to agents about these policies was, If you can get the policyholder to pay target premium, these will never lapse. 

....

  • (p65) - A  It's -- you might have an agent call in to the customer service area who is looking for information on in-force policies, and you educate an agent on that.
    • I have the entire marketing department, and all the distribution channels are constantly providing that support.
    • Even our actuaries get involved and provide training and help to agents and agencies and clients. It's part of what we all do.  

2013 1211 – DOC 735-2 – Deposition of Michael Tivilini – Walker vs. LSW – 215p

  • Matthew DeSantos - LSW's Senior Vice-President of Distribution and Business Development (himself a former insurance agent) - DOC 792 p27
    • Q How big a deal is training of agents in the culture of National Life and LSW?
    • A It's critical. It's part of what we do every day.
    • Q Could you give us a sense of what percent of employees at National Life are involved in helping train agents.  (p64)

...

  • Q Now, to make sure these agents are familiar with the products and how to describe them to potential policyholders, did you make any efforts to determine that your training programs would be best suited to adult learning?
  • A We actually did.
    • We have hired people and utilized consultants.
    • We actually -- the industry that has done a good job of that is the educational space, higher education.
    • We utilized some folks who had experience there to work on putting that together.
  • Q Is it fair to say you're trying to make sure agents understand your products so that they can fully describe them to potential customers?
  • A Yes.  (p69)

...

  • A Sure: It's important to review the illustration with the client, explain the content of the illustration, and answer any questions that the client may have about the policy being illustrated.
    • Additionally, the illustration requires that the client and you both sign and date the illustration.
    • A copy of the signed and dated illustration should be left with the client as well.
  • Q Is this representative of the types of training that LSW and National Life were trying to provide to their agents during the time that you've been at the company?
    A Yes. (p89)

...

  • Q Now, are there any efforts to train potential agents working for LSW or selling LSW products regarding how to use the illustration system?
  • A Yes. We hold regular just purely illustration training.
  • Q In particular the guaranteed and current basis A and current basis B columns that we looked at, would those various columns be explained as part of that training process?
  • A Well, they're pretty standard from company to company, so likely with most of the agents we bring on, they do have experience in the industry.
    • We would show them how it works in our illustration, but generally there is a level of experience there.  (p94)

2014 0423 – DOC 812 – Trial Transcript – Day 10 – Walker vs. LSW – 194p