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M -IMARTIN HOLLINGSWORTH

& ASSOCIATES

International Place Drive, Suite 400

Memphis, TN 38120

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

April 29, 2010

Expert Report of:

e

Daryll W. Martin, JD, MBA

President

Martin Hollingsworth &Associates, LLC

In the Case of:

American General Insurance Company v. Germaine Tomlinson

Insurance Trust, dated January 23, 2006, by and through its Trustees;

J.B. Carlson, as Trustee of the Germaine Tomlinson Insurance trust,

dated January 23, 2006; The Carlson Media Group, as the beneficial

owner of the Germaine Tomlinson Insurance Trust, dated January 23,2006; and GeoffreyA. VanderPal, et ale

United States District Court; Southern District of Indiana; Indianapolis

Division

Cause No.: 1:08-cv-01747-SEB-JMS

Prepared for:

Reminger, Attorneys at Law, representing Dr. Geoffrey VanderPal



I. Dr. VanderPal met his obligations to American General by assisting the

insured in completing American General's application consistent with his

lmowledge and experience, thereby giving the insurer, its underwriters,and the investigators operating on its behalf an opportunity to continue

exploring whether Tomlinson and the Trust qualified for insurance. Not

until his deposition was Dr. VanderPal asked for the first time by any

representative of American General what the purpose of the insurance

was. At that time he testified that it served not a single purpose, but a

multitude of needs, consistent with his financial planning and insurance

experience. One of those purposes stated, financial preservation was

consistent with the statement made by Tomlinson to Worldwide. There is

no evidence in the record to demonstrate any intent on the part of Dr.

VanderPal to deceive American General.

Summary of Opinions

n . There is no evidence in the record that Dr. VanderPal intentionally omittedany information in the application. In addition, multiple other AIG

intermediaries had more significant roles than Dr. VanderPal in the

creation of the Trust and confirmation of CMG' s insurable interest,

through the trust, in the life of Tomlinson.

Ill. Dr. VanderPal cannot be held responsible for violating any standard of

care to the insurer unless he knew that the Tomlinson financial

information submitted to the underwriter was false. Based on his unrefuted

testimony, he had no basis to dispute the accuracy of the financial

information submitted on behalf of Tomlinson.

----------------------~----- Pagel

N. The life insurance purchased in this case for Tomlinson does not meet the

test for STOLl, a substantial premise in the arguments against Dr.

VanderPal.

V. It can be reasonably argued that the purpose in placing this policy was not

a transaction for the benefit of those with no insurable interest, and Dr.

VanderPal did not violate any obligation to American General, as it

alleges.

VI. Given many of the STOLl/lOLl indicia American General describes and

alleges as the basis for voiding the policy, its underwriting guidelines in

effect at the time the policy was written, and changes in American

General's own underwriting standards during a time of extensive

regulatory reform efforts being undertaken, American General had ample

opportunity to review its decision to accept this risk during the two year

conte stability period following the issuance of the policy.



Introduction:

Daryll W. Martin JD, IVIBA,President of Martin Hollingsworth &Associates, LLC has

been retained by Reminger, Attorneys at Law, counsel for defendant Dr. Geoffrey

VanderPal, in the matter brought against him and others by American General InsuranceCompany (hereinafter referred to as "American General"). My opinions presented below,

as relate to allegations made against Dr. VanderPal, are based upon the review of items

listed in Exhibit A. My opinions are also based upon my education and 24 years of

experience in the insurance industry. That experience includes serving as senior litigation

and corporate counsel to two of the world's largest insurance brokers, and also as an

insurance executive deeply involved in life insurance operations for a number of

international, national and regional brokers. Exhibit B summarizes my professional and

educational qualifications, as well as compensation to be paid for study and testimony in

this case.

Ieserve the right to update or modify my opinions expressed below at any time based

upon any new and additional information brought to my attention.

I. The relationship of Dr. VanderPal to American General Life Insurance Company

and the Application for Insurance:

In the life insurance business, licensed professionals acting as intermediaries that

approach companies on behalf of their clients seeking insurance are referred to in various

ways, including agents, producers, or brokers. States regulate the licensing of these

professionals, in some cases calling them brokers, in others agents, and in a growing

number, producers.

American General Insurance Company refers to Dr. VanderPal as a broker in its

Complaint against him. In nearly all instances the professional must be licensed and must

be appointed by the company before business can be written and commissions paid. The

appointment by the insurer of the intermediary permits that intermediary to present those

insurers' products to the insurance buying public, subject to insurer underwriting

acceptance and pricing. The intermediary's authority is typically limited to soliciting

customers on behalf of the insurer, submitting applications of insurance to the insurer,

and in some cases accepting premium on behalf ofthe insurer.

The duties of an insurance intermediary to an insurer, as well as the scope of the

agency/principal relationship, if any, are defined in both contract and common law.

While in this case Dr. VanderPal's request for an appointment from American General is

an exhibit, his actual appointment document is not; therefore, I cannot state what

contractual status he has through his appointment with American General. Nor can I state

the appointment status of ECM, CAr, and perhaps others that appear to have been

---- ---------- P age 2



appointed by American General, were paid commissions by American General, and

communicated with American General at various times.

The principal duty of a life insurance intermediary is to assist the insured in providing an

application for insurance in order to assist the insurer in making an underwritingdetermination to accept the risk or not. An intermediary (like an individual or company

seeking insurance) must exercise good faith in completing applications of insurance, and

assure that his knowledge of information is consistent with that being presented by the

prospective insured to the insurer. In this case American General's application did not ask

for the purpose of the insurance. The only portion somewhat relevant to an inquiry of

purpose is the "Business Coverage" section of the application. American General alleges

that this section was intentionally and deceptively not completed.

While acknowledging that this insurance coverage was intended to meet a business need

to protect CMG in the event of the death of Tomlinson, Dr. VanderPal has testified that

he did not believe that this business need met the traditional description of either "key

person" insurance or a "buy/sell" arrangement as described in the American Generalapplication. In his testimony, he stated that based on his experience, traditional key man

insurance is geared more toward employees and on a multiple of salary. (Brotherton

confirms in his testimony that in his 30 years of experience as an underwriter that key

man insurance is income derivative.) Since Tomlinson was neither an employee nor paid

a salary, he did not complete nor assist the insured in completing that section of the

application. In addition, he testified that in his opinion, the described business need did

not meet the traditional definition of buy/sell insurance because he was unaware of the

existence of any agreement on the part of CMG and Tomlinson where CMG would be

required to purchase her stock in the event of her death.

It is understood that an application of insurance is a document to be relied upon in the

underwriting process. The application is the document that begins the process of

enabling the underwriter/insurer to determine the insurability/suitability of the applicant

for the insurance sought. It is recognized in the industry that an application is a starting

point for a more exploratory underwriting process. Representations made in the

application are not warranties, and an underwriter typically solicits and relies on

significantly more additional information that may not be requested in the application,

before making a final determination as to whether to issue coverage. Validating and

supplementing information contained in the application provided by the prospective

insured and intermediary is typical in large cases such as the one at issue in this litigation.

That additional validation and investigation comes from a variety of sources acting on

behalf ofthe insurer outside of the intermediary submitting the risk. These sources can

include inside or contracted investigative services, and inside or contracted medical

reviewers. As reflected in American General's retention of and reliance upon the report

of Worldwide in this case (see Exhibit 4 which contains inquiry far beyond the scope ofthe application), the application is not the exclusive source ofinformation available to an

underwriter in assessing whether to go forward with a risk.

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Opinion: Dr. VanderPal met his obligations to American General by assisting the insured

in completing American General's application consistent with his knowledge and

experience, thereby giving the insurer, its underwriters and the investigators operating on

its behalf an opportunity to continue exploring whether Tomlinson and the Trust qualified

for insurance. Not until his deposition was Dr. VanderPal asked for the first time by anyrepresentative of American General what the purpose of the insurance was. At that time

he testified that it served not a single purpose, but a multitude of needs, consistent with

his financial planning and insurance experience. One of those purposes stated, financial

preservation was consistent with the statement made by Tomlinson to Worldwide. There

is no evidence in the record to demonstrate any intent on the part of Dr. VanderPal to

deceive American General.

II. Allegations Made by American General Against Dr. VanderPal in its Complaint:

In its Complaint, American General contends the following:

A) Dr. VanderPal stated the Tomlinson trust was the owner and sole beneficiary ofthe trust and that the purpose of the life insurance was estate planning. It is alsoalleged that AIG relied on these statements to its detriment.

Based upon my review oftestimony in this case, Dr. VanderPal made no statement in the

application to American General as to use of the policy. The statement relating to the use

of the policy for estate planning purposes, while supported by Dr. VanderPal, appears to

have come from the interview by Worldwide in telephone interview with Tomlinson after

the policy was submitted.

It is also clear that at no time in the application process, or prior to and after the issuance

of the policy did the insurer ask to see the trust documents. A simple request for thatdocument by American General would have resolved any current concern about the

purpose of the insurance.

The existence of the trust was accurately portrayed in the application for insurance.

However, there is no indication in the record that Dr. VanderPal had involvement in the

formation of the trust or knew the details of the trust documents at the time they were

originated. In fact, it appears that at least two other intermediaries were involved, which:

1) were appointed by American General; 2) received commissions from the insurer in this

case; 3) were involved in the creation of the trust; and 4) at times were communicating

directly with American General. (See Exhibit 20 listing Elliott A. Cobb ofECA

Marketing and Michael Cavalier of Advantage Insurance Network and Cavalier

Associates as producers. Also see Exhibit 69 implying there may have even been a third

additional intermediary involved and receiving commissions, CAI Financial, also known

as Coventry). Yet for reasons unknown, American General has elected to only sue Dr.

VanderPal for recovery.

---------------------------- Page 4



Opinion: There is no evidence in the record that Dr. VanderPal intentionally omitted any

information in the application. illaddition, multiple other AIG intermediaries had more

significant roles than Dr. VanderPal in the creation of the Trust and confirmation of

CMG's insurable interest, through the trust, in the life of Tomlinson.

B) Dr. VanderPal submitted false and misleading financial information regarding

Tomlinson net worth and income.

illthe course of assisting the customer in applying for insurance, the intermediary relies

upon the prospective insured for information necessary to make an application of

insurance. In this case, Dr. VanderPal, as requested by the underwriter, requested the

information from the insured, received it from her or her designee, and presented it as

requested to the insurer. It is not the agent's responsibility to research and validate this

information. To violate any standard of care in this regard, the agent must have mown

the information provided to the underwriter was false or inaccurate.

Opinion: Dr. VanderPal cannot be held responsible for violating any standard of care to

the insurer unless he knew that the Tomlinson financial information submitted to the

underwriter was false. Based on his unrefuted testimony, he had no basis to dispute the

accuracy of the financial information submitted on behalf of Tomlinson.

C) This is a STOLl transaction for the benefit of those with no insurable interest.

STOLl (referred to as Stranger Owned or Stranger Originated Life Insurance) and rOLl

(Investor Owned or Investor Originated Life Insurance) are acronyms that have emerged

in the life insurance business within the past 10 years. Both concepts are derivative of an

earlier emerging life insurance vehicle commonly referred to as viatical, or life

settlements. Whereas life settlements are still acceptable, permitting the owner of a life

insurance policy needing the proceeds of the policy to fund some other financial need by

assigning the insurance policy to a third party for an immediate present value as agreed to

by the parties, STOLl and lOLl have been heavily regulated over the past few years. This

regulation has occurred because their attributes were deemed not to reflect the legal

concept of insurable interest and allegedly promoted illegal wagering on the lives of

those insured.

Opinion: The life insurance purchased in this case for Tomlinson does not meet the test

for STOLl, a substantial premise in the arguments against Dr. VanderPal.

This insurance does not meet the STOLl criteria for the following reasons:

First, the trust whose beneficiary is CMG, is not a stranger to the life of Tomlinson and

had an insurable interest in the continued life of Tomlinson at the time this policy was

applied for and issued. JB Carlson has testified, as have others, that Tomlinson held a

-------------- Page 5



number of key roles at CMG. Testimony states she served as a director, an investor, a

share/option holder, and an integral business development person for the company. Based

on this information provided to Dr. VanderPal, clearly CMG, as the owner and

beneficiary of the policy through the trust, has an interest in the survivability and

longevity of Tomlinson and would have suffered a loss at the time of her death. Thereappears to be no evidence in the record refuting Tomlinson's relationship with CMG.

Second, companies of all sizes throughout the country have long been acknowledged as

having insurable interests in the lives of their key leaders, directors and employees. This

follows a number of accepted practices where a considerable number of companies and

banks have what are referred to as COLl (Corporate Owned Life Insurance) and BOLI

(Bank Owned Life Insurance) programs; where companies of all sizes buy life insurance

to meet key man needs in the event of the death of a seemingly indispensable person;

and, where life insurance is purchased to fund the purchase of shares from a key

shareholder's estate upon death.

While in this case I understand that a legal dispute exists as to the applicability of Indiana

statute 27-12-1-17 and 17.1 because ofCMG's corporate domicile, the principle of

employers having an insurable interest in the lives of those described is generally

acknowledged in the business of insurance.

It is also important to note that Dr. VanderPal relied on the legal department of at least

one of the other American General appointed intermediaries to this transaction, which

found an insurable interest on the part ofCMG in the life of Tomlinson.

Third, a third party or investor, which had no interest in the continued life of Tomlinson,

did not initiate or originate this policy. The policy was in fact initiated by CMG, which

had an insurable interest in the life of Tomlinson.

Fourth, one of the definitional components of STOLl has always been at odds with the

permissible practice of selling life insurance policies through the viatical and life

settlement process. That potential indicator of STOLl suggests that the policy be initiated

with the sole purpose of selling the policy on the secondary market. That is to be

distinguished from the possibility that the policy could be sold on the secondary market.

In this case, testimony, if believed, supports the proposition that sale of the policy to the

secondary market was an option, but not the initial and driving intent of the purchase of

insurance on the life of Tomlinson.

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Fifth, another one of the definitional components of STOLl is that the premium is

financed solely for the purpose of selling the policy to a secondary market. In this case,

while the policy was financed, the co-trustee of the policy's owner has acknowledged that

the company could have opted to allow the policy to lapse at the end of the initial policy



finance period, the premium and interest charges due could have been refinanced, or the

policy could have been sold. It does not appear that the single intent at the time of

purchase was to sell to the secondary market.

Opinion: It can be reasonably argued that the purpose in placing this policy was not atransaction for the benefit of those with no insurable interest, and Dr. VanderPal did not

violate any obligation to American General, as it alleges.

m. The Insurer's Underwriting Obligation and the Period of ContestabiIity:

The insurer casts blame on Dr. VanderPal's alleged failure to disclose certain information

as a means to deflect the inadequacies in its own underwriting obligations. It has become

more convenient, in retrospect, for the insurer to ask questions which if asked and

explored prior to the issuance of the policy, the insurer alleges it would have relied upon

in reaching a decision to not issue the coverage.

-------------- Page 7

By its own witness' admission, in 2006 circulars began being distributed within

American General on the subject of STOLl/lOLl. However, it appears little, if any

information solicited in the Tomlinson underwriting process focused on what was

emerging within the industry, and within American General, as key informational

indicators that a STOLl/lOLl case was possibly being presented. For example, please

refer to the Lincoln Benefit Life application (Exhibit 66) completed at about the same

time coverage was being applied for from American General. The questions American

General now seems to have wanted answered, but were never asked, are asked and

truthfully responded to in the Lincoln Benefit application. For instance, Question 4B on

the Intent Form asks whether the loan terms or trust provisions allow transfer of

ownership of this policy as an alternative to continuing the loan in the future; to which

"yes" is answered. Question 4D asks to indicate the names of the program administratorand the entity providing the financing; to which "Lasalle" is the response. Question 5

asks whether any funds other than your own are being used to pay the premiums for the

applied for life insurance; to which "yes" is answered.

While on one hand American General identifies these and other key indicators as

possibly reflective of a STOLl/lOLl transaction (e.g. a large value/limit case, an older life

insured, a high net worth reflected with heavy investment in stock, but with little salary

or dividend income; and a trust owned policy), on the other hand, not only did American

General not ask relevant questions, until presented with a claim, it failed to meaningfully

explore the responses to any of the questions it did ask. Not until after the claim was

made did American General choose to ask what it could have and should have asked

prior to, or at the inception of the policy. In his deposition, Brotherton concedes that the

post-death investigation by American General was more thorough than during the

underwriting stage. Moreover, American General acknowledges in the Cicchi deposition

that today it would engage in a more detailed and thorough underwriting exercise. (e.g. to

include property searches, internet searches, heightened financial review, request for trust

information, and greater review of private company financials).



It is 'also significantto note that at or about the time of the issuance of the .insurance

policy, both the National Commission of Insurance Legislators (NOOIL) and the National

Association of Insurance Commissioners (NAIC) were embarking on a well-publicizedcampaign to proposeinsurancelaw reform to prohibit S'I'Ol.Land.Ktl.I'transactions. In

the:course of drafting model legislation, those regulating entities sought and-received

considerable input from insurers and their various trade associations. It is difficult to

imaginethat American General's own underwriting practices did not undergo review and

revision during this period. It is also unlikely that American General was not

participating in these significant reform activities, and if so, Would riot be working to

amend-its underwritingpractices.

By 2007 and 2008 model acts were being proposed by the NeOlL arid the NAIC, and a

number of states, including Indiana, were undertaking legislative reform. This period

coincided with the two-year contestability period of this policy issued in January 2006.

Given the high profile of this reform activity, there is nothing that would haveprecluded

American General from reviewing its book of business and essentially re••underwritingany risk it was concerned may be a STOLIIIOLl risk=-especially after acknowledging

that the size' of this case was atypical for their protfolio. Incontestability provisions

generally bar a n insurer's effort to void a policy after a period of time.

Opinion: Given many of the STOLIIIOLI indicia American General describes and

alleges asthe basis for voiding the policy, its underwriting guidelines in effect at the time

the policy was written, and changes in American General's own underwriting standards

during .atime of extensiveregulatory reform effortsbeingundertaken, American General.

hadample opportunity to review its decision to accept this risk during the two year

contestability period following the issuance of the policy.

C J S e c t f u ly submi

Daryll .MartinJD, MBA

President

Martin Hollingsworth &Associates, LLC

------------------------~--- PageS

.... - ..•.-----~-------------------------------



Exhibit A: Information considered in forming opinions

Depositions:

Brotherton, JimCarlson, JB

Clcchi, Bob

Hilbert, Tomisue

Mason, Thomas

Maust, Harry

Rutherford, Kathy

Schultz, Thomas

VanderPal, Geoffrey

Wickes, Sarah

Pleadings:

American General Complaint

CMG- Declaration ofJB Carlson (Doc 91-2)

CMGBrief in Support of Partial SJ (Doc 90)

CMGMotion for Partial SJ (Doc 89)

CMGReply for Partial SJ (Doc 103)

Estate Brief in Support of Partial SJ (Doc 94)

Estate Motion for Partial SJ (Doc 93)

Estate Reply for Partial SJ (Doc 102)

PI's MSJ- Brief in Support (Doc 116)

PI's MSJ (Doc 115)

------------- Page9

Exhibits:

Ex-l through 100,124,125

Statutes:

IN IC 27-1-12-17 and 17.1

News Releases:

NCOIL November 20,2007: NCOIL CLOSESIN ON ILLEGALSTOLl,

UNANIMOUSLYADOPTS AMENDED MODELACT

NAIC June 4,2007: NAICADOPTS VIATICALSETTLEMENTS MODELACT

REVISIONS

NAIC December 11, 2006: NAIC COMMITTEE ADOPTS AMENDMENTS TO

VIATICALSETTLEMENTS MODEL REGULATION



Aon Risk Services, Inc. of Maryland

2002

Director, Healthcare, Northeast Region

May 2001-November

Aon Risk Services, Inc.

2002-

Managing Director, National Healthcare Practice

June 2002-November

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

Aon Risk Services, Inc. of Maryland

2002

Senior Vice President

Baltimore, MD Dec. 1998-November

Sedgwick of Tennessee, Inc.

Managing Executive

Nashville, TN August 1997 -Dec.1998

Sedgwick, Inc. Memphis, TN

1997Assistant General Counsel

Vice President,

Director of Professional Liability RiskManagement

June 1993 -August

Alexander &Alexander Inc.

1993Senior Attorney

Baltimore, MD October 1986 - June

In this role, Martin oversaw all professional liability litigation against the company's

brokers in North America, including its life and health brokers, which were part of its

Sedgwick Noble Lowndes subsidiary.

In this role, Martin served as senior counsel, overseeing claims against all ofAlexander &

Alexander's North American subsidiaries, including Alexander &Alexander Consulting,

which was A&A'slife and health brokerage operation. Martin first learned the principles of

corporate owned life insurance as a result of guiding his clients through the insolvency of

Executive LifeInsurance Company and Mutual Benefit life Insurance Company, two

significant insurers ofA&A's significant life insurance practice.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ P a g e

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Education

1994 M .B.A . Loyola University in Maryland Baltimore, MD

1984 J . D . University of Kentucky Lexington, KYCollege ofLaw

1978 B.A. Centre College Danville, KY

. '

Professional Licenses

Maryland Bar

Tennessee Resident Agent/Broker (Property, Casualty, Lifeand Health)

Non-Resident Agent/Broker Licenses in a number ofother states

Professional Memberships

Maryland State Bar Association

______________________ ~----- Page

12

Compensation to be Paid for the Study and Testimony in the Case:

My billing rate is $300 per hour for study and testimony in the American GeneralInsurance Company v.VanderPal, et al. case.

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