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:]