2014 0416 - DOC 809 - Trial Transcript - Walker v LSW - 236p

  • Howlett
  • Walker

(p73) - Spooner Policy Delivery Receipt

Q Okay. Turning to Cooper Exhibit D, Exhibit D is a policy receipt for Muriel Lynn Spooner; is that right?
A I think so.
Q And it was signed on 10/11/2007?

  • Witness - Howlett

(p109-110) - Howlett / One Fee

Q And one of those claims is that the fees you would be charged by LSW were not disclosed to you by LSW in the July 27, 2007, illustration, Exhibit 4, that you reviewed in deciding whether to purchase the LSW policy; correct?
A Correct.
Q And what's the basis of your claim?
A The July 27th illustration says it's one policy fee. The illustration only shows the monthly administrative charge, and therefore I thought that was the only fees associated with the policy. They would be in that monthly administrative charge.
Q And the monthly administrative charge that you are referring to is on page 18 of 21 of Exhibit 30, the illustration; correct?

(p111) - Howlett - List of Fees not disclosed on Illustration

Q But the fees that were not disclosed to you?
A These are the fees that were not disclosed: The premium expense charge, the cost of insurance, the monthly charge. And there is another one that I have forgotten what it is.
Q Is it the monthly percent of accumulated value charge?
A Monthly percent of accumulated value.
Q Were you aware of these fees at the time that you decided to buy your policy?A No, I wasn't.
Q Would you have purchased your policy if you were informed of them?
A No, I would not have.

(p156) - 

A Again, I thought it was two and a half percent per year.
Q And if you were unclear about that and that's what you thought, the document specifically tells you to take a look at the policy; correct?
A I wasn't unclear about it. I thought it was two and a half percent.

(p156-157) - Look / Language

Q  So if you had taken a look at the policy, you might have realized you were mistaken; correct?
A Might have.
Q We just don't know because you didn't take a look at the policy; correct?
A We don't know because we don't know what the language is in the policy.
Q And we don't know whether you would have understood it because you didn't take a look at it at the time; is that fair?
A Yes.

(p157) - Bucket - <Trowbridge> / How the Policy Works

Q Mr. Cooper when he was providing this generic discussion of these insurance options, he actually talked to you about insurance mortality and expense charges; correct?
A I don't recall him talking about that.
Q Okay. Well, let's pull up Exhibit 632 which I believe is already in evidence. If we go to page 362 on the bottom. We've looked at this, what we call, the bucket diagram for lack of a better term. Do you remember that?
A Yes, I do.
Q Did you look at this bucket diagram back in 2007?
A I looked at it briefly.
Q Did Mr. Cooper discuss this bucket diagram with you to help you understand how the policy worked?
A No. He was focusing on how the money would come out of the residence and go into this bucket, and out of this bucket would come money to fund the policy.

(p163-4) - Expectation = No Charges after 10 years - Howlett

  • Q And you thought after those ten years there would be no charges for the rest of your life for life insurance; correct?
  • A I thought there would be no more charges for the rest of my life.

(p164) - Book - Missed Fortune - Patrick Kelly

  • Q Did he recommend that you read a book called Missed Fortune 101?
  • A Yes.
  • ...
  • Q Did you read the book?
  • A No. I only read very small portions of the book.
  • ...
  • Q Do you remember whether the book emphasized the importance of seeking the advice of a tax advisor to understand how the tax feature worked?
  • Q Do you remember whether the book said that you shouldn't fund a life insurance policy solely from the equity of your home?
  • Q Those weren't pages that you read?
  • Do you remember that the book said each person should seek competent legal and accounting advice?
  • Q Did you seek legal and accounting advice before investing in the IUL?
  • Q Did you talk to a tax advisor?.

A - all No

(p170-176) - How the 2 1/2% is Calculated

(p171)  Q Okay. Back in July of 2007 was it important to you how the guaranteed values were calculated?
A It was important to me that I get two and a half percent per year, yes.

(p176) Q So on May 10th you testified you hadn't thought about how the guaranteed values were calculated, but on May 14th you testified that you had thought about it and that you understood it would occur every year even in years when the S&P was less than two and a half percent; correct?
A I don't understand what you mean by calculation. To me if it's two and a half percent minimum per year, it's two and a half percent minimum per year. I don't understand what you mean by calculation.

  • (p177-182) - S&P Index, Volatile

(p182) - Surrender Charges

Q Sure. Let me just rephrase and maybe make it a little easier. Did you know in July of 2007 that your policy had a surrender charge?
A Yes.
Q And you knew that by definition, a charge will reduce the value your account; correct?
A Correct.
Q A surrender charge or any charge will do that; correct?
A Yes.
Q That's the definition of a charge; correct?

(p185) - Charges, Account Value, Goes to Zero, Lapse

Q And as your account value gets smaller, you could
lapse; correct?
A Yes.

  • (p187-191) - Underwriting, Lower Risk Class, Higher MAC Charge (P2) Higher COI (P2), Lower Account Value, No Adjustment to Premium (P1)

 

(p191) - 10-day Free Look Period

Q Exhibit 935, page 4 in the exhibit.
A Yes. I see that.
Q It says: This policy at any time within ten days after its receipt by the owner may be returned in person or by mail to us or to the agent through whom it was bought. Upon such return the policy will be deemed void as of its effective date. We will then refund any premium paid. Do you see that?
A Yes.
Q Did you see that back in September of 2007?
A No.

(p192) - Duty to Read

Q And when they gave you this policy, they also encouraged you to read the policy also on the same page; correct?

  • If we go down to the bottom, the second paragraph above the signatures, do you see where it says: This contract is a legal contract between the contract owner and Life Insurance Company of the Southwest.
  • And then in all caps it says: Read your policy carefully. Do you see that?A Yes.Q But you didn't do that; did you?

A No, I did not.

(p199-200) - Didn't review Annual Statement to see he received less than 2 1/2%

Q And just doing rough math, what would two and a half percent be of $105,750, just roughly? ballpark?
A About $2,500.
Q About $2,500 just roughly; right?
A Right.
Q Because two and a half percent of $100,000 would be about $2,500?
A Right.
Q I'm not asking you to be any more specific than that. I can't do that either. Do you see what it says where it says interest credited?
A Yes.
Q How much is the amount?
A $562.

Q So you knew from your first statement that you could get something less than two and a half percent; didn't you?
A I didn't review this statement when I received it. I don't recall whether I reviewed it or not. I might have.
Q Let me just be clear. You did get this statement; right?
A Yes, I did.

(p200) - Annual Statement - Monthly Deductions - Howlett

Q Now, if you turn -- well, actually let's stay on the first page. Do you see on the line right above that it says monthly deductions?
A Yes, I do.
Q And the monthly deductions are listed as what amount?
A $25,204.
Q Now, remember back when we were talking about the monthly administrative charge that was in your illustration that was 780 some dollars a month? Do you remember that?
A Yes.
Q So let's round it to 800, 800 a month.  So 800 a month would be eight times 12, about $9,600 a year; correct?
A Yes.
Q So you got your first annual statement that shows monthly deductions totaling more than $9,600; correct?
A Yes.
Q So by the time of your annual statement, it was perfectly clear, as it was in your policy, that the monthly administrative charge wasn't the only expense; correct?
A It shows the deduction and the interest credited, yes.
Q But you didn't read that?
A I don't recall whether I read it or not.

(p200-204) - Annual Statement - Breakdown of Policy Cash Flows

Q And it has month by month what the expenses are. Do you see that?
A Yes.
Q It lists the premiums received on October 25, 2007; correct?
A Yes.
Q And it lists the expense charges for each month;
correct?
A Yes.
Q And for the first month it lists an expense charge of $7,437; right?

(p205) - Redirect

  • Calculating Guaranteed Values at 21/Percent
  • Review of Brockett Testimony - 58 percent chance of lapsing before life expectancy

(p206) - Surrender Charge

Q Mr. Howlett, did you know at the time that you reviewed the illustration that even if you did not surrender your policy, that LSW would apply the surrender charge to you?
A No, I didn't know that.

(p208) - Witness - Joyce Walker

Would you call your next witness, please.
MR. FREIBERG: Joyce Walker, Your Honor.
JOYCE WALKER, PLAINTIFFS' WITNESS, SWORN

(p210) - 

Q Prior to buying your LSW policy, had you ever purchased life insurance?
A No, sir.
Q And why not?
A I don't have any children, so I had no need for a death benefit.

(p211)

Q And why were you interested in attending a dinner about retirement at that time?
A Because I have retirement dollars and I wanted to see what they had to offer in terms of safe and secure possibilities.
Q When you say you had retirement dollars, what are you referring to?
A At that point I had just sold my condo, so I had $300,000 in cash ready to -- that I was looking specifically.

(p213) - 

A Yes. Particularly there was one they mentioned, a tax-free retirement, and I was definitely interested in tax-free retirement  for these dollars.

(p215) - 

Q ...did they eventually recommend a specific product to you?
A They did.
Q And what was that product?
A That was the LSW SecurePlus Provider policy.

(p217)

Q You said you focused on page 11. What do you recall reviewing on page 11 of Exhibit 48?
A We reviewed the plan premiums. In my case I was planning on making five payments of $112,637, so we reviewed that. Then the annual income column which had me taking out $93,167 starting at year 15. And we spent some time looking at the guaranteed values column, but most of the time was spent on the current basis B values.
Q And what was your takeaway from your review of page 11?
A My takeaway was that I would put in five premiums and I would be able to get out $93,000 starting at age 62, all the way to policy year 51.

(p217)

Q And this illustration shows you starting to take money out when you would be 62?
A Age 62, correct.
Q And how old would you be in year 51?
A Ninety-nine.

(p221) - 

Q Do you see that under the guaranteed values column there is a zero in year 17 under cash surrender value end year?
A I see that.
Q Do you see the zero?
A I do.
Q What did you understand about that?
A Well, like I was beginning to say, Mr. Botkin and I reviewed those columns. And whenever I pointed out these zeros starting at policy year 17, he indicated to me that the only way that the policy would zero out at policy year 17 was if the S&P returned flat or negative returns for 17 straight years and that the possibility of that happening was very remote.

(p221) - 

Q What was your understanding about the cost of this policy from the illustration?
A I understood from the illustration that the cost was one policy fee of, in my case, $1,072.17 per month for the first ten years, and then going down to $429.29 per month starting in policy year 11.

(p223)

Q Did you review your October 3, 2007, illustration, Exhibit 48, between those two meetings?
A Yes, I did.
Q Did you speak with anyone outside of Preservation Financial about the LSW policy you were considering?
A Yes, I did.
Q Who did you speak with?
A I spoke to two different people. I spoke to my then financial planner, Barry Reid. And I also spoke to a gentleman from New York Life who was an acquaintance of my now husband named John Turek.
Q And what was the nature of your discussions with Mr. Reid?

(p223-224) - Comparison Shopping

  • Reid - Pacific Life
  • Turek - VL, WL -
    • Q Were you interested in any of the products that Mr. Turek presented to you?
    • A No, because -- no, because from what I could see in it in the review that I did, I could see that it wasn't going to get me anywhere near the annual income that the LSW product was showing me that I could get.
      Q Did Mr. Turek offer an assessment of the LSW policy you were considering?
      A Yes. He questioned the fees and he questioned the financial stability of LSW.

(p224) - 

Q Is this a copy of an e-mail that you received from John Turek which you then forwarded by fax to Mr. Botkin?

(p225)

Q Then Mr. Turek says, starting about five lines up from the bottom of the first page: I could not find all the fees that are associated with the EIUL in the illustrations provided. For example, in the guaranteed columns of the EIUL you would have contributed in excess of 560K; however, we saw the account balance continue to decrease, eventually zeroing out, and you were only able to make two withdrawals of 93K. Where did the money go? This contract states that you are guaranteed at least a two percent interest crediting. What were the additional factors, fees, that resulted in this performance to eat away the deposited funds?

(p226)

A So the same scenario that Mr. Botkin and I had talked about the day before, and Mr. Botkin had assured me that the possibility of that zeroing out was extremely remote based on the possibility or lack thereof of the S&P returning negative values for 17 straight years.

(p226)

Q Between your October 16, 2007, meeting with Mr. Botkin and your next meeting with him, did you do any research?

A I did some research online trying to gain a little bit more of an understanding of the product, but all the search results that I was able to find were mainly focused on equity-indexed annuities.
Q So what did you do with that research?
A There was one article in particular. It was an equity annuity buyer's guide. So I took that article and I took their list of questions that they advised you to ask, that would be important to ask, and I edited it down to questions that seemed to me to pertain to this product versus an annuity product, and I submitted those to Preservation Financial.

(p228)

Q Are these the questions? That is, is Exhibit 772 a list of questions that you went over with your agents at the fourth meeting?
A Yes, they are.

(p229)

A I understood it to mean what he wrote, which was premium minus five percent federal tax, minus mortality; exp, which I'm assuming is expense; added is the index rate.
Q What was your understanding of how these charges related to the monthly administrative charge in your LSW illustration?
A I thought that they were included, that they were all inclusive, all included in the monthly administrative charge, that this is what the monthly administrative charge was comprised of.

(p230)

Q Do you see some notes near current basis B values?
A Yes, I do.
Q Can you read those.
A It says index, and then circled is five percent, times 140, equals seven percent.
Q What did that mean to you, Ms. Walker?
A What that meant to me was index of five percent times 140, which is my participation rate, equals seven percent. So I believe he was indicating the weighted average interest rate in the current basis B column, how they derived at that.

(p232)

A Yes, I believe so.
Q Above current basis A where it says crediting rate,
5.9 percent, equals 5.9 percent loan interest. What did you understand that to mean?
A I understood that to mean that the crediting rate was
equal to the loan rate, interest rate of -- they were both
5.9 percent.
Q And did you understand why they were using the loan
rate of 5.9 percent to calculate current basis A values?
A Did I understand why they were using it?
Q Well, did you understand --
A I understood that they were using it, but I don't know
why they were using it.

(p232)

Q And why did you decide at that time that you were ready to apply for the policy?
A Because I was satisfied that this would meet my
retirement needs, receiving $93,000 a year for tax-free
retirement, turning that money that I had targeted for my nest egg into this $93,000-a-year income. It sounded like a good product for me.

(p232-233)

Q And the annual income that is shown for the current basis B values starts on page 34 of 781 and moves over to page 35 of 781?
A Yes.
Q And what year did the $93,167 start going to you?
A The illustration indicates that the $93,000 in annual
income would start in policy year 15, which was 62, and would go through year 99, the 51st year of the policy.

(p234)

THE COURT:  but perhaps not so today as we had some extended examinations, for example, on whether Mr. Howlett thought he was going to get free insurance after age 67.
MR. BROSNAHAN: I believe those were Mr. Martens' examinations.
THE COURT: They were. I just happened to be looking at you.
MR. MARTENS: I understood the Court's admonition and moved on. I understand, Your Honor.
THE COURT: Well, I think especially for this jury we need to move along and tighten up some of these presentations.