Law Bulletin _

Information Network ~~

ELECTRONICALLY .FILED SIll/20l1 4:06 PM 2011-L-004910 CALENDAR: T PAGE 1 of33

IN THE CIRCUIT COURT OF COOK cOUN~08~ggrJJf?~IPJoIS COUNTY DEPARTMENT. LAW DIV1S~ON CLE.Ji'6Ro~~~OWN

\

) KEMSING, INC., an Illinois corporation, ) KEITH DREW, an individual, and ISABEL ) CRISTINA DREW, individually and as ) Trustee of the Josephine Kuhn 2007 Trust ) and the James Kuhn 2007 Trust, )

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

-------------------------------------------------------)

Plaintiffs.

v.

DA VID MISIAK, an individual,

DAVID MISIAK & ASSOCIATES, INC., an Illinois corporation,

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY. a foreign Corporation, JAMES KUHN, an individual, and JOSEPHINE KUHN, an individual,

Defendants.

Case No.

Trial by Jury Demanded

COMPLAINT AT LAW

Plaintiffs Ksmsing, Inc., Keith Drew and Isabel Cristina Drew, individually

and as Trustee of the Josephine Kuhn 2007 Trust and the James Kuhn 2007 Trust,

by and through their attorneys, the Hendrickson Law Firm. for their complaint

against Defendants David Misiak, David Misiak & Associates. Inc., Lincoln

National Life Insurance Company, James Kuhn and Josephine Kuhn. state as

follows:

NATURE OF THE CASE

1. This action arises from Defendants' scheme to induce the Plaintiffs by

way of misrepresentations and omissions to finance a particular type of life

insurance transaction known by the acronym "STOLl," which stands for Stranger

Owned Life Insurance. Although STOLl transactions were perfectly legal in the

State of Illinois at the time of the events giving rise to this Complaint, the manner

in which Defendants defrauded Plaintiffs was not,

2. On or about August 2, 2007, the Kuhns, via their agent Misiak,

submitted applications for life insurance carrying a death benefit of $10,000,000

each to Jefferson-Pilot Life Insurance Company, which at the time operated as a

subsidiary of Lincoln Life and later merged with Lincoln Life.

3. The life insurance application contained a material misrepresentation.

Namely, Question 63 asks:

Have you been involved in any discussion about the possible sale or assignment of this policy to a life settlement, viatical or other secondary market provider?

The answer to Question 63 was marked «No.1)

4. The answer to Question 63 was false because the Kuhns intended from

the beginning to sell or transfer ownership of their life insurance policies at the end

of the two-year contest ability period in return for a cut of the proceeds of that

transaction.

2

5. Via their agent Misiak, the Kuhns looked for someone to finance the

premiums on their behalf while they waited out the contestability period. That

someone turned out to be Keith Drew, president and owner of Kemsing.

6. On information and belief, the Kuhns were aware that the policy

applications contained one 01' more material misrepresentations at the time Misiak

submitted them to Lincoln Life, or became aware no later than October 15, 2007,

when Lincoln Life issued the policies.

7. Nonetheless, because of the substantial benefits they stood to gain in

the form of free insurance and future profits from the sale or transfer of the policies,

the Kuhns acquiesced in the misrepresentation to ensure that the policies were

issued and not rescinded.

8. Misiak, on his own and while acting as agent for the Kuhns and Lincoln

Life, induced Kemsing by means of misrepresentations and omissions to lend the

Kuhns hundreds of thousands of dollars to finance the premiums for their life

insurance policies. It was a transaction that was designed to fail.

9. As a result of Defendants' scheme, Kemsing has lost all of its assets and

the Drews have lost their life sa vings (primarily in the form of their stock

ownership in Kemsing), resulting in damages of at least $750,000.

THE PARTIES

10. plaintifIKemsing. Inc. (IIKemsingU) is an Illinois corporation organized

and existing under the laws of the State of Illinois.

3

11. Plaintiff Keith Drew ("Drew") is the sole shareholder, officer and

director of Kemsing. Prior to September 2007, Drew had no experience with

buying, selling or financing life insurance policies.

12. Plaintiff Isabel Cristina Drew C'Cristina") is the wife of Keith Drew and

is the Trustee of the Josephine Kuhn 2007 Trust (the "Josephine Kuhn Trust"),

which was established by Josephine Kuhn in November 2007 to own the policy

insuring Josephine Kuhn's life with a death benefit of $10 million. Cristina is also

the trustee of the James Kuhn 2007 Trust (the "James Kuhn Trust") which was

established by James Kuhn in November 2007 to own the policy insuring James

Kuhn's life with a death benefit of $10 million.

13. Defendant David Misiak ('(Misiak;» is the owner and principal of Misiak

& Associates, Inc. a financial consulting and insurance brokerage services firm.

During all times relevant to this Complaint, Misiak was a life insurance agent

licensed by the State of Illinois who placed life insurance coverage for individuals

with several insurance companies including Lincoln Life and Jefferson-Pilot Life

Insurance Company (a subsidiary of Lincoln Life). Misiak specialized in writing

STOU Policies.

14. Defendant Misiak & Associates. Inc. ('(Misiak & Associates") is and at

all times relevant to this action was duly registered with the Illinois Department of

Insurance as an insurance broker. Misiak was the owner and principal officer of

Misiak & Associates. Misiak & Associates also had an agency agreement with

4

Lincoln Life, pursuant to which Lincoln Life paid Misiak & Associates commissions

for the life insurance policies Misiak sold on behalf of Lincoln Life.

15. On information and belief, Misiak disregarded the corporate entity of

Misiak & Associates and made it an instrumentality for his own affairs. Inasmuch

as there is such a unity of interest and ownership between Misiak and Misiak &

Associates that Misiak & Associates lacks a separate corporate identity, to uphold

the corporate veil would protect fraud andlor promote injustice.

16. Defendant Lincoln National Life IDsUl'ance Company, doing business as

.. -~- -- Lincoln Financial Group and Lincoln National, is a North Carolina insurance

company and the parent company of Jefferson Pilot Life Insurance Company,

~

::l '

Lj:2 (Lincoln Life and Jefferson-Pilot Life Insurance Company are collectively referred to

",I=oIC~

~!i ~: as "Lincoln Life".)

... -;:s~ .

Z;C"'!'O

~ § ~:: : 17, Defendant James Kuhn is a citizen and resident of Illinois and was the

J~

~ named insured in the $10,000,000 life insurance policy issued by Lincoln Life

designated as Policy No. JP5577280 (the "James Kuhn Policy"), A true and correct

copy of the James Kuhn Policy is attached as Exhibit A.

18. Defendant Josephine Kuhn is a citizen and resident of Illinois and was

the named insured on the $10,000,000 life insurance policy issued by Lincoln Life

designated as Policy No. JP5577281 (the "Josephine Kuhn Policy") (the James Kuhn

Policy and the Josephine Kuhn Policies are referred to as the "Kuhn Policies"), A

true and correct copy of the Josephine Kuhn Policy is attached as Exhibit B.

5

JURISDICTION AND VENUE

19. The Co.urt bas personal jurisdiction over Defendants pursuant to 735

ILCS 5/2-209 because Defendants committed tortious acts within the State of

Illinois, made contracts or promises substantially connected with the State of

Illinois, transacted business within tbe State of Illinois. andlor are doing business

within the State of Illinois.

20. Venue is proper in this county pursuant to 735 ILCS 5/2-101 and 735

ILCS 5f2-102(a), because Defendant Misiak is a resident of Cook County. Misiak &

Associates and Lincoln Life do business in Cook County, and Cook County is the

county in which the transactions giving rise to this Compliant, or Some part thereof,

~

~~ I d

~,OI:j occurre .

~~~r<'l .

. .:q!:0'1 M '

~! i! ; BACKGROUND FACTS

... -:s~ .

§@:::o

II:: = ~:: 21. A STOLl transaction is one in which a person takes out life insurance-

3~

~ typically with an extremely large death benefit and commensurately high

premiums-using the resources of a third-party investor to finance the premium

and with the ultimate intent to transfer ownership of the policy for a profit.

22. STOll policies were banned by statute in Illinois effective June 1,2010.

For many years prior to that date, insurance companies were known within the

industry to contest the validity of STOLl policies, claiming lack of insurable interest

and often fraud in the procurement of the insurance. Insurance companies also

sought to prevent such policies from being underwritten in the first place by, among

6

other things, including questions on the life insurance application designed to ferret

out possible STOLl policy transactions.

23. At some point, Lincoln Life issued a statement to all of its agents that it

would not underwrite STOLL policies. However, because of the huge profits Lincoln

Life was earning on its STOLl business, it did not implement adequate procedures

to enforce its purported policy or otherwise end the practice.

24. Drew had no experience with any aspect of the life insurance business,

and certainly no familiarity with STOLL transactions, prior to September 2007.

25. Misiak and Misiak & Assoc. (collectively, "Misiak~') focused on selling

STOLl insurance. On information and belief, Misiak had sold over 25 STOLl

~

~ ~ s:: ~ policies prior to recruiting the Kuhns. All together, Misiak sold over 40 STOLL

~!~:! '

~!~ ~' Policies during the period 2001 through 2009 . .. -~~

§~=~

~ = ~ ~ ! 26. On information and belief, Misiak placed at least nine STOLL policies

j~

~ with Lincoln Life before he recruited Drew to fund the Kuhn Policies.

27. Misiak held himself out to Drew during the period September through

--------_,./

November 2007 (and thereafter) as an expert in selling and placing life insurance

policies, as well as in the financing and reselling of life insurance policies. bragging

about all the policies he had placed and then sold, earning him millions in

commissions over the previous several years. Misiak's claimed expertise lent

substantial credibility to his representations regarding the viability of the

transaction into which he lured Drew and the options for selling or otherwise

disposing of a life insurance policy in the secondary market.

7

THE KUHN STOLl TRANSACTION

28. In or about August 2007, Misiak undertook to place two policies of

insurance, one for James Kuhn and one for his wife. Josephine Kuhn. each with a

death benefit of $10,000,000.

29. At the time of the applications James Kuhn was 70 years old and in

good health. Josephine Kuhn was 70 years old and also in good health.

30. Plaintiffs had no knowledge of 01' relationship with Mr. and Mrs. Kuhn

at that time.

31. Misiak procured separate applications from James Kuhn and Josephine

Kuhn for each of the Kuhn Policies and submitted them to Lincoln Life.

~

~ .

~ 32. Misiak suggested on the application attached to the James Kuhn Policy

~i(~('fl

~~~~, that the annual premium for this policy should be $373,055 and that the premium z;~=o ,

~:::~£ i for the Josephine Kuhn Policy would be $301.371. Each premium would be paid

3~

~ annually.

33. Misiak's sole motivation for inducing the Kuhns to apply for the Kuhn

Policies was to earn a large commission off the substantial premiums Lincoln Life

would be paid from the issuance of the policies.

34. The Kuhns agreed to apply for their respective policies on the basis that

they would have two years of "free" coverage; that they would never have to fund

the premiums. which were substantial; and depending on when the policies were

sold, they would receive part of the proceeds.

8

35. Therefore, the scheme hinged on finding a third party who would fund

the premiums on the Kuhn Policies and either stand ready to make additional

annual payments for years three and beyond. or be able to sell the Kuhn Policies to

a third party who had the financial resources to keep them in full force and effect

until the death benefit was paid out.

36. Whether the Kuhn Policies remained in force past year two was of little

importance to Misiak since he earned over 90% of his commissions for placing the

Kuhn Policies with Lincoln Life in the first two years after the Kuhn Policies were

- - .. -. --.~-- ~

issued.

~ 37. On or about October 15, 2007, Lincoln Life issued the James Kuhn

~

E ~ 01 Policy and Josephine Kuhn Policy. The applications for insurance, which Misiak

~ii_~ _;;q!O'\~ I

~.!'a

5- 0\ and the Kuhns signed and provided to Lincoln Life, are attached to and made an

... - ~

~~=Q

:a:: = ~ ~ integral part of their respective policies.

J~

.:;j

~ 38. The Kuhns had 20 days after Lincoln Life issued their policies to

examine the policies and tender the first year's premium to Lincoln Life.

Alternatively, the Kuhns had the option of returning the policies to Lincoln Life

during this time for any reason, and obtain a refund of any premium already paid.

This is called the "free-look" period.

39. The premiums on the Kuhn Policies were due to be paid, and the free-

look period was due to expire. on November 4,2007.

9

40. Misiak and the Kuhns always intended to finance the premiums for the

Kuhn Policies. However, Misiak was having difficulty finding a financing source by

the premium due date. October 15,2007.

41. If Misiak was unable to find someone to fund the first year's premium

on the Kuhn Policies, he would lose out on the hefty commission and Lincoln would

lose the premium income it expected to earn from the Kuhn Policies.

42. Around this time, Misiak learned from Drew that Kemsing had recently

sold its business (the Intelligent Office) and that Kemsing had received net proceeds

------, of $750,000. Misiak had been a client of Drew's business since 2002) although he

and Drew had very little personal interaction up to this point.

~

~ ~ ~ ~ i 43. Misiak suggested to Drew that Kemsing make a short-term loan to

~!i~: James Kuhn of $448,397.08 (the "Bridge Loan") so that Kuhn could pay what

.... -:s'T'

~o"'!'6

~ ~ ~ ~ Misiak represented was the first-year premium for the Kuhn Policies.

3~

~ 44. Drew, as sole owner and officer of Kemsing (which had retained the

proceeds of the sale of Drew's business), agreed to make this short-term loan to

James Kuhn based on Misiak's representation that Kemsing would be repaid with

interest when Misiak was able to secure alternative financing, w hieh Misiak

represented he was on the verge of doing.

45. Misiak memorialized Kemsing's agreement to make the Bridge Loan to

James Kuhn in a memorandum dated October 15. 2007 (the "October 15th

Memorandum", a true copy of which is attached hereto as Exhibit C), the first day of

the "free-look" period.

10

46. Drew signed the October 15th Memorandum on behalf of Kemsing but

never received a copy executed by James Kuhn. On information and belief. Misiak

never obtained James Kuhn's signature and never intended to.

47. Misiak again represented to Drew on or about October 15, 2007 that

Kemsing would be repaid with interest when the other sources of premium

financing he claimed he was working with funded the Kuhn Policies.

48. Subsequently, Misiak informed Drew that his other sources of financing

fell through, so he suggested that Drew provide all of the financing to fund the

premiums for the Kuhn Policies for a full two (2) years.

49. Thereafter, Drew authorized Kemsing to provide a $750,000 loan to the

Kuhn Trusts {which included the Bridge Loan> to fund the premiums on the Kuhn

Polices for two years based in part on statements and representations made by

Misiak, all as more fully described in Count I below.

50. Since Drew had no previous experience or knowledge regarding the life

insurance business, he relied on Misiak to guide every aspect of the issuance and

financing the Kuhn Policies from beginning to end.

51. To this end, Misiak introduced Drew to his attorney, Edward Trio, with

the law firm of Gould & Ratner. LLP.

52. Trio and Gould & Ratner had a long standing relationship with Misiak.

On information and belief, in addition to performing legal work for Misiak, Trio and

other Gould & Ratner attorneys referred clients to Misiak for the purpose of

11

procuring insurance necessary to accomplish the clients' financial and asset

protection goals.

53. Misiak. Drew and Trio had a conference call on or about November 1,

2007, during which Drew agreed to engage Trio to represent himself and Kemsing

in connection with the transaction being contemplated. Later, Trio also undertook

to represent Cristina in her capacity as Trustee of the Kuhn Trusts.

54. On information and belief, Misiak also referred his insurance clients to

Trio and Gould & Ratner to represent them in connection with their financial and

estate planning needs.

55. On information and belief. most of those policies Misiak procured for

clients of Trio and Gould & Ratner were STOtl policies.

56. The mechanics of the STOll Transaction were as follows:

a. The Kuhns transferred ownership of their policies to the Kuhn Trusts and all future payments of premiums became the sole obligations of the Kuhn Trusts (which had no assets other than the policies) and not James or Josephine Kuhn;

b. The Bridge Loan was transferred to the Kuhn Trusts so that this obligation ceased to be James Kuhn's obligation, but instead became an obligation oithe Kuhn Trusts;

c. Drew, on behalf of Kemsing, lent the Kuhn Trusts additional funds for an aggregate total of $750,000 (the "Kuhn Policy Loans"), an amount Misiak represented would be sufficient to cover the first two years of premiums;

d. The Kuhn Policy Loans became due and payable two years after the Kuhn Policies were issued, which coincided with the end of the contest ability period;

12

e. Instead of repaying the Kuhn Policy Loans at the end of the two-year term, the Kuhn Trusts were supposed to transfer ownership of the Kuhn Policies to Kemsing, which could either sell them or continue to hold them until the Kuhns died.

57. Part of the structure Misiak and the Kuhns insisted on was making the

loans from Kemsing to the Kuhn Trusts non-recourse to the Kuhns. Consequently,

the only collateral for repayment of the Kuhn Policy Loans was the assets of the

respective trusts which consisted solely of the Kuhn Policies.

58. At Misiak's direction, Trio negotiated the terms of the Kuhn Trusts

.. _ ... -- -', with the Kuhns' attorney; drafted and established the Kuhn Trusts1 naming

Cristina as Trustee; drafted all of the transaction documents memorializing the

~

~ ::s transfer of the Kuhn Policies to the Kuhn Trusts; and prepared the promissory

.... J:l.i2~

~~!'a ' d h P 1 La I!... K h

("II" r<'I: notes and security agreements evi encing teo icy ans rrom erasing to t e

J- ....

~~..!. ffi

~ - S -e Kuhn Trusts and all related documents necessary to affect the Policy Loans from

.. S;«"l J:I.i

~ Kemsing to the Kuhn Trusts.

59. The promissory notes and other documents evidencing the loan from

Kemsing to the respective Kuhn Trusts had a term of two (2) years with payment

due at or about the same time the contestability period expired. A copy of the

Promissory Note from the James Kuhn Trust to Kemsing is attached as Exhibit D

and a copy of the Promissory Note from the Josephine Kuhn Trust to Kemsing is

attached as Exhibit E.

60. This two-year contestability period from the date the Kuhn Policies

were issued is important as it represented the period during which an insurance

13

company, such as Lincoln Life, could contest a claim by a beneficiary of a life

insurance policy for misstatements in the application regarding medical conditions

or other misrepresentations.

61. Misiak assured Plaintiffs that at the end of the two-year contestability

period, there would either be sufficient cash value in the policies to finance future

premiums, or Plaintiffs could sell the policies on the secondary market. Either way,

Misiak assured them, they would get their money back with interest within two

years.

62. Misiak assured Drew on several occasions during October and

November 2007 that the $750,000 Kemsing was to lend to the Kuhn Trusts would

~

~ ~ 2 ~ I be sufficient to pay the premiums for the Kuhn Policies for a full two years from

j :"C_\!'O

5! ~ i date of issue and that no further premium would be due until the end of 2009.

"'0. I ~

Z:t:::!-o

~~~~ 63_ As Misiak was well aware, those statements were false. Misiak knew

cl

a the total annual premium for both polices was $674,432 and the premium for two

years would be $1,348,864, far more than the $750)000 Kemsing had loaned to the

Kuhn Trusts.

64. Misiak knew that Kemsing and Drew only had assets of $750,000 and

that this amount would not be sufficient to fund the policies for two years as he

falsely represented over and over again during October and November, 2007.

65. Since the Kuhns had no intention of paying the premium, Misiak knew

from the outset that the Kuhn Trusts would default on the Policy Loans. Therefore,

14

pursuant to the security agreement prepared by Trio, ownership of the Kuhn

Policies would pass to Kemsing and out of the Trusts.

66. Drew, by and through Kemsing, made payments of $448,397.08 on

October 19, 2007 (the Bridge Loan as memorialized by the October 15th

Memorandum), $221,357 on December 9, 2007 and a final payment of $80,245.47 on

January 15, 2008, for a total of $750,000.

67. Upon making the last payment on January 15, 2008, Kemsing had no

other assets except the notes from the Kuhn Trusts. Misiak had emptied the bank

so to speak but had realized his objective of receiving over $725)000 in commissions

:l from Lincoln Life. The Kuhns, in turn, received free insurance coverage.

:Q

:3 •

'" )l 0 f""I i 68. Cristina I as Trustee to the Kuhn Trusts, began to receive notices in

~=- .... f""I,

~!§~ i August 2009 stating the Kuhn Policies had entered the grace period in July 2009

2~=~

~-Cl<' and that further premiums were due ($31,450 for the policy on Josephine and ""SiN=--

cl

a $42,455 for the policy on James) within 30 days or the Kuhn Policies would lapse.

I These amounts were only sufficient to keep the Kuhn Policies in force for a month,

and thereafter, additional premiums would be due to keep the Kuhn Policies in

force for other months until the anniversary date for each policy (October 2009) and

into the third policy year.

89. Cristina, as Trustee, received notification from Lincoln Financial in

September 2009 and Lincoln National (both affiliates of Lincoln Life) in October

2009 that the Kuhn Policies had lapsed and been terminated, Therefore, at this

point their policies had zero value and the Kuhn Trusts had no resources to repay

15

the Kuhn Policy Loan to Kemsing. Basically. Kemsing lost everything it lent the

Kuhn Trusts.

70. Misiak, when confronted with these facts, disavowed any responsibility

for any of the losses suffered by Kemsing, notwithstanding the fact that he had

masterminded and managed the entire transaction, including making computations

of the premiums due.

71. Misiak advised Drew that although the Kuhn Policies had lapsed, they

could be reinstated if the entire unpaid premium was brought current since there

was no material change in the Kuhn's medical history.

However, Misiak

purposefully failed to tell Drew that if the polices were reinstated, the contestability

~

~ ~ 0 M. period would restart for another two years. ~~;.~ .

~:!I~ 72. Misiak then recommended that Drew try and sell the Kuhn Policies in

... -:s I'T'

z;o"!'6

~ § ~:; the secondary market for via tical settlements. However, Misiak was evasive and JiiII

~

~ failed to provided information regarding commissions earned and other material

information necessary to market the policies. In fact, up until this point Misiak had

_____ ~~. • ~i

failed and refused to provide Drew with copies of the Kuhn Policies. Ultimately.

after the policies lapsed no buyer could be found.

73. Misiak finally provided Drew with copies of the Kuhn Policies in

September 2009 in connection with an attempt to resell them into the viatical

market.

74. The Kuhn Policies included the initial applications which were an

integral part of each policy. It was at this point that Drew realized that Misiak and

16

the Kuhns had made misrepresentations in the applications in response to Question

63 regarding conversations regarding possible sale or assignment of this policy to a

life settlement, viatical or other secondary market provider.

COUNT!

Violations of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2, Against Misiak and Misiak & Associates

75. Plaintiffs reallege and reincorporate the foregoing paragraphs as if fully

set forth herein.

76. Misiak knew at the time he solicited Kemsing and Drew to make the

Policy Loan to the Kuhn Trusts that Kemsing and Drew were liquidating all of their

~

" assets to make the Policy Loan and had no other assets available to pay premiums

~::s

.. j:l.jOc<\

~!i~ I on the Kuhn Policies beyond the initial $750,000 loan amount, Therefore, if no

)-::s -

;:;. • ~ party could be found to repay Kemsing's Policy Loan, Drew and his family would be

5~=«

t::=~r:1.

... )~

virtually destitute.

cl

77, Misiak made the following deceptive statements to Drew at various

--~. times during the period August to November 2007, which he knew were either

untrue or given with the intent to lure Drew into a false sense of well being and

trust, in order to ind uce him to authorize Kemsing to make the Kuhn Policy Loan:

a. That the Kuhn Policies could be readily sold in the secondary market.

b. That any sale of the Kuhn Policies in the secondary market would be sufficient to repay the Kuhn Policy Loan with 9% interest and a premium.

c. That no one ever lost money financing STOLl Policies.

17

78. Misiak made the following oral misrepresentations to Drew at various

times and on various dates during the period August to November 2007, which he

knew at the time he made them were not true, in order to induce Drew to authorize

Kemsing to make the Kuhn Policy Loan:

a. The $750,000 loan to the Kuhn Trusts was sufficient to pay the premium on both of the Kuhn Policies for a full two years. In fact, au the face of the policies this amount . was clearly inadequate.

b.

That Kemsing could borrow money from a bank to pay the premiums on the Kuhn Policies after the contestability period expired, based on the cash value of the Kuhn Policies. In fact, on the face of the Kuhn Policies they would have no cash or collateral value at the end of year two.

79. In addition, Misiak omitted, concealed and failed to tell Drew the

following facts, all of which were material and which made other statements and

representations made by Misiak to Drew inaccurate or misleading:

a. Lincoln Life had notified its agents that it would not underwrite STOLl Policies.

b.

Lincoln Life took the position that parties providing financing for STOll Policies lacked an insurable interest in the insureds and therefore any such policy was void or voidable.

c. That the lawyer Misiak recommended to Drew to represent Kemsing and the Kuhn Trusts had a material conflict of interest by virtue of his existing business and/or attorney-client relationship with Misiak.

d. That Misiak had misrepresented the total amount of premium which would be necessary to keep the Kuhn Policies in force for a full two years.

18

e. That the applications prepared by Misiak on behalf of the Kuhns and signed by both Misiak and the Kuhns contained a false statement, specifically that the response to Question 63 was false, which if known to Lincoln Life would have invalidated the Kuhn PoLicies.

80. Misiak and Misiak & Associates made the foregoing misrepresentations

and material omissions during the solicitation of STOLl life insurance for clients of

Misiak (James and Josephine Kuhn) as well as in connection with the procurement

of financing for a life insurance policy, both of which were integral to the business of

Misiak and Misiak & Associates.

~!: 81. Misiak and Misiak & Associates intended that Drew, in his capacity as

the President of Kemsing and therefore Kemsing itself, rely on the

misrepresentations and omissions in inducing Kemsing to lend James Kuhn the

initial $448~397.08 Bridge Loan and the Policy Loan to the Kuhn Trusts for a total

of $750,000.

82. Misiak and Misiak & Associates materially benefited from the

misrepresentations and omissions by the receipt of commissions in excess of

$725,000, which commissions and fees would not have been paid if Kemsing had not

made the Policy Loan to fund the premiums paid to Lincoln Life.

83. Plaintiffs would not have entered into any of the transactions described

in this Complaint if they had been fully apprised of all relevant facts and

circumstances and Misiak had not made intentional misrepresentations and

omissions of material facts or if the Kuhns had not acquiesced in Misiak's

intentional misrepresentations and omissions.

19

84. Kemsing suffered the total loss of its loan to the Kuhn Trusts in the

amount of $750,000 and Keith and Cristina Drew lost their life savings.

WHEREFORE, Plaintiffs pray for judgment in their favor and against Misiak

and Misiak & Associates, Inc.i jointly and severally. in the amount of $750,000 plus

prejudgment interest, attorney's fees as provided for by statute and costs and such

other and further relief as the court shall deem proper in the circumstances.

COUNTll Common Law Fraud

Against Misiak and Misiak & Associates

85. Plaintiffs reallege and reincorporate the foregoing paragraphs as if fully

set forth herein.

86. Misiak knew at the time he solicited Kemsing and Drew to make the

Kuhn Policy Loan to the Kuhn Trusts that Kemsing and Drew were liquidating all

of their assets to make the loan and had no other assets available to pay premiums

on the Kuhn Policies beyond the initial $750,000 initial loan. Therefore, if no party

could be found to repay Kemsing's Policy Loan, Drew and his family would be

virtually destitute.

87. Misiak made the following oral misrepresentations to Drew at various

times and on various dates during the period August to November 2007, which he

knew at the time he made them were not true, in order to induce Drew to authorize

Kemsing to make the Kuhn Policy Loan:

a. The $750,000 loan to the Kuhn Trusts was sufficient to pay the premium on both of the Kuhn Policies for a full

20

...... _---_ .. _..,

s

-~----~

two years. In fact, on the face of the policies this amount was clearly inadequate.

h. That Kemsing could borrow money from a bank to pay the premiums on the Kuhn Policies after the contestability period expired based on the cash value of the Kuhn Policies. In fact, on the face of the policies, the Kuhn Polices would have no cash or collateral value at the end of year two.

88. In addition, Misiak intentionally omitted, concealed and failed to tell

Drew the following facts, all of which were material and which made other

statements and representations made by Misiak to Drew inaccurate or misleading:

a .

Lincoln Life had notified its agents that it would not underwrite STOLl Policies.

b.

Lincoln Life took the position that parties providing financing for STOLl Policies lacked an insurable interest in the insureds and therefore any such policy was void or voidable.

c.

That the lawyer Misiak recommended to Drew to represent Kemsing and the Kuhn Trusts had a material conflict of interest by virtue of his existing business and/or attorney' client relationship with Misiak.

d.

That Misiak had misrepresented the total amount of premium which would be necessary to keep the Kuhn Policies in force for a full two years.

e. That the applications prepared by Misiak on behalf of the Kuhns and signed by both Misiak and the Kuhns contained a false statement, specifically that the response to Question 63 was false, which if known to Lincoln Life would have invalidated the Kuhn Policies.

89. Misiak and Misiak & Associates made the foregoing misrepresentations

and material omissions during the solicitation of a policy loan for insurance clients

of Misiak, which was the business of Misiak and Misiak & Associates

21

_ .. __ ........ ---...

90. Misiak and Misiak & Assoc. intended that Drew, in his capacity as

President and therefore Kemsing itself, rely on the misrepresentations and

omissions in inducing Kemsing to make the initial Bridge Loan to James Kuhn in

the amount of$44B,397.0B and the Kuhn Trusts a total of $750,000.

91. Misiak and Misiak & Associates materially benefited from the

misrepresentations and omissions by the receipt of commissions in excess of

$725,000, which commissions and fees would not had been paid if Kemsing had not

made the Policy Loan and the premiums on the Kuhn Policies had not paid to

Lincoln Life.

92. Plaintiffs would not have entered into any of the transactions described

In this Complaint if they had been fully apprised of all relevant facts and

circumstances and Misiak had not made intentional misrepresentations and

omissions of material facts.

93. Kemsing suffered the total Ioss of its loan to the Kuhn Trusts in the

amount of $750,000 and Keith and Cristina Drew lost their life savings.

WHEREFORE, Plaintiffs pray for judgment in their favor and against Misiak

and Misiak & Associates. Inc .• jointly and severally; in the amount of $750,000 plus

pre-judgment interest, punitive damages and costs and such other and further relief

as the court shall deem proper in the circumstances.

22

COUNT ITI

Negligent Misrepresentation Against Misiak and Misiak & Associates

94. Plaintiffs reallege and reincorporate the foregoing paragraphs as if

fully set forth herein.

95. Misiak held himself out to Drew and others as an expert in the

procurement, financing and disposition of life insurance policies. In fact, Misiak

had procured and financed over 25 STOLl policies before soliciting Drew and

Kemsing to finance the Kuhn Policies.

96. Advising financing sources, such as Kemsing, on whether and how to

provide premium financing was part of the business of Misiak and Misiak &

Associates

97. Misiak and Misiak & Associates fully expected funding sources, such

as Kemsing, to rely on their advice in dealing with insureds such as the Kuhns and

in entering into transactions involving the financing and reselling of life insurance

policies.

98. Misiak had a duty to act truthfully and to not deceive Kemsing and

Drew in his dealings with them as regards the financing of Kuhn Policies and the

risks associated with entering into such a transaction.

99. Misiak advised Kemsing and Drew in their dealings with the Kuhns,

specifically in whether and how to finance the Kuhn Policies. On information and

belief. Misiak provided this same or similar advice to other persons who had

23

provided financing for STOLl policies in the years before he induced Plaintiffs to

enter into a similar transaction.

100. Misiak negligently made the following statements which were not true:

a. The $750,000 loan to the Kuhn Trusts was sufficient to pay the premium on both of the Kuhn Policies for a full two years. In fact, on the face of the policies this amount was clearly inadequate.

b. That Kemsing could borrow money from a bank to pay the premiums on the Kuhn STOLl Policies after the contestability period expired; based on the cash value of the Kuhn Policies. In fact, the Kuhn Policies, on their face, would have no cash or collateral value at the end of year two.

101. Misiak also negligently failed to disclose material information in his

sole control, which information was material to Kemsing and Drew's decision to

make the Policy Loan to the Kuhn Trusts and which information, if disclosed, would

have made other representations made by Misiak which on their face seemed true

and accurate, in fact inaccurate:

a.

Lincoln Life had notified its agents that it would not underwrite STOLl Polices.

h. Lincoln Life took the position that parties providing financing for STOLL Policies lacked an insurable interest in the insureds and therefore any such policy was void or voidable.

c. That the lawyer Misiak recommended to Drew to represent Kemsing and the Kuhn Trusts had a material conflict of interest by virtue of his existing business andlor attorney-client relationship with Misiak.

d. That Misiak had misrepresented the total amount of premium which would be necessary to keep the Kuhn Policies in force for a full two years.

24

e. That the applications prepared by Misiak on behalf of the Kuhns and signed by both Misiak and the Kuhns contained a false statement, specifically that the response to Question 63 was false, which if known to Lincoln Life would have invalidated the Kuhn Policies.

102. Plaintiffs relied on the Misiak's representations in agreeing to provide

Bridge Loan of $448,397.08 and an additional $310,603 to pay the premiums on the

Kuhn Policies, and to enter into the transactions described in this Complaint.

103. As a direct and proximate result of Misiak's negligent

misrepresentations, Plaintiffs have been damaged in the amount of $750,000.

WHEREFORE, Plaintiffs pray for judgment in their favor and against Misiak

and Misiak & Associates, Inc., jointly and severally, in the amount of $750,000 plus

pre-judgment interest and costs and such other and further relief as the court shall

deem proper in the circumstances.

COUNT IV

Vicarious Liability against James Kuhn and Josephine Kuhn for the Acts of Their Agent, David Misiak

104. Plaintiff Kemsing realleges and reincorporates the foregoing

paragraphs as though fully set forth herein.

105. James Kuhn and Josephine Kuhn were the insured persons under the

Kuhn Policies and indirectly, the beneficiaries of the James Trust and Josephine

Trust.

106. James Kuhn and Josephine Kuhn applied for the Kuhn Policies with

no intention of paying the initial premium to place the policies in full force and

effect.

25

107. Rather, they always intended that the premiums for the Kuhn Policies

would be financed by a third party for at least two years.

108. The Kuhns engaged Misiak as their agent with apparent andlor actual

authority to secure financing for the Kuhn Policies.

109. Misiak, acting within the scope of his apparent andlor actual authority

as agent for the Kuhns, contacted a number of financing sources including Drew

and Kemsing regarding financing the premiums for the Kuhn Policies.

110. Misiak obtained financing from Kemsing for both the Bridge Loan and

Policy Loan.

Ill. Drew understood that Misiak was acting on behalf of the Kuhns in

~ ,

a :

;., ~ c I securing financing from Kemsing for the Bridge Loan and the Policy Loan.

~~q,~-~ !

J:!: ~! 112. All of Misiak's actions were consistent with his apparent andlor actual

~- ~

~S"!'o

~ ... ~£, authority as the Kuhns' agent for the purpose of procuring financing of the

....... '

).,..

d premiums for the Kuhn Policies.

113. Misiak, as agent for the Kuhns, also caused the Kuhn Trusts to be

established to hold the Kuhn Policies for the benefit of the Kuhns.

114. All of the statements, representations and omissions Misiak made to

Drew and Kemsing as described above were made while acting as agent for the

Kuhns for the express purpose of securing financing for the Kuhn Policies.

115. The Kuhns benefited from the acts of Misiak insofar as they were

insured for $10 million each for a period of 18 months, did not pay one dollar of

premium to secure this coverage and would have received a payment from the

26

proceeds of the sale of the Kuhn Policies if that sale was made before the Policy

Loans went into default.

116. In addition, by allowing Misiak to mastermind the transfer of the

Kuhn Policies to the Kuhn Trusts, the Kuhns avoided personal liability for the

$448,397.08 which Kemsing advanced on their behalf on October 19, 2007 to make

the initial payment of premiums on the Kuhn Policies to Lincoln Life.

117. Furthermore J the Kuhns were aware that the applications for the

Kuhn Policies contained one or more materially false representations, including but

not limited to the negative answer to Question 63, and they acquiesced in and

perpetrated the misrepresentation by intentionally and consciously failing to alert

~ ~

~ ~ 2::::· Lincoln Life and Drew, and/or causing their agent Misiak to conceal the truth from

j~i'Q .

5 ~ :s ~. Lincoln Life and Drew.

e8.J. f3

~;;~~ I 118. If Cristina, as Trustee of the Kuhn Trusts. had been aware of the

)In

~ misrepresentation contained in response to Question 63 in the applications for the

Kuhn Policies signed by James Kuhn and Josephine Kuhn, respectively, she would

not have agreed to accept the transfer of the Kuhn Policies.

119. As a consequence of the foregoing, the Kuhn Trusts owe Kemsing

$750,000 plus interest which they are unable to pay.

120. Plaintiffs have suffered a loss of $750,000 plus interest.

121. The Kuhns, as Misiak's principals, are responsible for Plaintiffs losses

which were directly caused by the acts and omissions of their agent, Misiak.

27

WHEREFOREJ Plaintiffs pray for judgment in their favor and against James

Kuhn and Josephine Kuhn, jointly and severally, in the amount of $750,000 plus

pre-judgment interest, and costs and such other and further relief as the court shall

deem proper in the circumstances.

COUNT VI

Vicarious Liability against Lincoln Life

for the Actions of its Agents, David Misiak and Misiak & Associates

122. Plaintiffs reallege and reincorporate the foregoing paragraphs if fully

set forth herein.

123. Misiak and/or Misiak & Associates had at all times relevant to this

~ action an agency agreement with Lincoln Life as its agent. Misiak acted on behalf

~

~

~ :I Q ~ of Lincoln and Lincoln Life cloaked Misiak with both apparent and actual authority

"~M~

J~~!<e

5.... ~. to act on its behalf.

~ .... I ~

5~=o

~ = ~:: ; 124. Misiak promoted Lincoln Life insurance products to potential insureds .

........

Jon

d Lincoln accepted him as its registered agent andlor representative by allowing

Misiak to act on behalf of Lincoln Life in filling out insurance applications and

obtaining coverage for potential insureds from Lincoln Life.

125. On information and belief, Misiak signed one or more contracts with

Lincoln Life to be its registered agent and/or representative.

126. Misiak had the apparent and/or actual authority to discuss Lincoln

Life financial products with potential insureds and to represent Lincoln Life in life

insurance transactions.

28

127. Misiak procured an application for insurance on behalf of the Kuhns

and Lincoln Life issued the Kuhn Policies.

128. Misiak also sought to procure financing for the premiums on the Kuhn

Polices from Kemsing and others.

129. Drew, on behalf of Kemsing, believed that Misiak was acting within

the scope of his agency for Lincoln Life in seeking money to finance premiums

payable on the Kuhn Policies.

130. Drew had no experience or basis in fact to believe that financing life

'1 insurance premiums was of questionable legality and frequently contested by life

insurance companies.

131. In fact, financing of premiums for casualty insurance is a regular part

of the insurance business and frequently the agent who procures the insurance

arranges with a third party for the financing of the premiums.

132. Lincoln Life had notified its agents, including Misiak, that it would not

underwrite STOLl insurance policies.

133. Lincoln Life claimed that it had in place adequate policies and

procedures to ferret out STOLI insurance applications and to prevent them from

being issued, but in fact it did not.

134. Notwithstanding this purported policy, Lincoln Life issued at least

nine STOLl insurance policies to insured persons procured by Misiak.

135. On information and belief, Lincoln Life continued to Issue STOLl

insurance policies, notwithstanding its purported policy to the contrary.

29

136. Lincoln Life reaped millions of dollars in premium income from the

continued marketing and sale of STOLL insurance policies by its agents, including

Misiak.

137. Lincoln should be vicariously liable for the misrepresentations and

misconduct committed by Misiak in the course of the scope of his agency for Lincoln

which is a direct and proximate cause of the damages sustained by the Plaintiffs.

138. Plaintiffs have been damaged in the amount of $750,000 by the acts of

Misiak for which Lincoln Life should be held responsible under the doctrine of

actual or apparent authority of an agent.

WHEREFORE, Plaintiffs pray for judgment In their favor and against

Lincoln National Life) Inc. in the amount of $750,000 plus pre-judgment interest,

and costs and such other and further relief as the court shall deem proper in the

circumstances.

COUNT VII

Negligent Hiring against Lincoln Life

for the Actions of its Agents, David Misiak and Misiak & Associates

139. Plaintiffs reallege and reincorporate the foregoing paragraphs if fully

set forth herein.

140. Lincoln Life knew, or in the exercise of reasonable care, should have

known that Misiak continued to solicit and place STOLl insurance with Lincoln Life

despite its purported policy to the contrary.

141. Lincoln Life knew, or in the exercise of ordinary care should have

known, that Misiak was submitting false insurance applications in order to

30

generate revenues for Lincoln Life and earn huge commissions for himself from the

sale of STOLl insurance.

142. Lincoln Life knew. or in the exercise of ordinary care should have

known. that Misiak was particularly unfit to act as its agent in life insurance

transactions at the time it entered into and/or renewed its agency agreement with

Misiak

143. Lincoln Life knew, or in the exercise of ordinary care should have

known. that Misiak's unfitness to act as its life insurance agent created a danger of

harm to third parties, including persons who provide the funding for STOLl

l transactions.

~

~

;, ~ c fO') 1 144. On information and belief, Lincoln Life retained and continued to

.. "fO')

,;j~CI'I.~ I

~;~~! renew its authorization for Misiak to represent it as a broker and insurance agency !;~=o ;

a=~::: i in spite of his continued flaunting of its purported policy against submitting

.. _

)'" I

d applications for STOLl policies.

145. As a proximate cause of Misiak's unfitness to act as a life insurance

agent, Plaintiffs have been damaged in the amount of $750,000 by the acts of

Misiak for which Lincoln Life should be held responsible under the doctrine of

negligent hiring.

WHEREFORE. Plaintiffs pray for judgment in their favor and against

Lincoln National Life, Inc. in the amount of $750.000 plus pre-judgment interest,

and costs and such other and further relief as the court shall deem proper in the

circumstances.

31

COUNTvm

Negligent Supervision against Lincoln Life

for the Actions of its Agents, David Misiak and Misiak & Associates

146. Plaintiffs reallege and reincorporate the foregoing paragraphs if fully

set forth herein.

147. As a regulated life insurance company. Lincoln Life had a duty to

supervise its agents, including Misiak.

148. STOLl transactions typically carry an extremely large death benefit

and commensurately high premiums, creating a substantial profit motive for

insurers such as Lincoln Life to allow the practice to continue, notwithstanding

purported policies to the contrary.

149. Despite its purported policy of refusing to underwrite STOll

insurance, Lincoln Life failed to implement adequate procedures to enforce its policy

or otherwise end the practice.

150. Because Lincoln Life failed to supervise its agent Misiak's activities,

, Misiak was able to place as many as ten STOLl policies with Lincoln Life, including

the Kuhn Policies for which Plaintiffs provided the funding. without ever

encountering any challenge or inquiry from Lincoln Life.

151. As a proximate cause of Lincoln Life's failure to supervise, Plaintiffs

have been damaged in the amount of $750,000 by the acts of Misiak for which

Lincoln Life should be held responsible under the doctrine of negligent hiring.

WHEREFORE, Plaintiffs pray for judgment in their favor and against

Lincoln National Life, Inc. in the amount of $750,000 plus pre-judgment interest.

32

and costs and such other and further relief as the court shall deem proper in the

circumstances.

DEMAND FOR JURY TRIAL

Plaintiffs demand a trial by jury as to all issues so triable.

Dated: May 11,2011

KEMSING. INC., KEITH DREW. and ISABEL CRISTINA DREW. Individually and 8sTrustee of the Josephine Kuhn 2007 Trust and the James Kuhn 2007 Trust

Nancy L. Hendrickson HENDRICKSON LAw FIRM Firm ID No. 45302

191 North Wacker Drive. Suite 2300 Chicago, IL 60606

Tel: (312) 332'0855

Fax: (312)264~767

33