MYRTLE BEACH — The state Department of Insurance is investigating 18 additional complaints filed against insurance salesman Rick McDavid by Horry County consumers who say they were scammed into mortgaging their homes and properties to pay for expensive whole life policies they didn’t want, need or understand.
The complaints – filed on Feb. 18 by Surfside Beach lawyer Sid Connor on behalf of consumers who claim McDavid misrepresented himself as a financial planner selling investments – are in addition to a pair of complaints with similar allegations filed over the past two years. The insurance department dismissed those complaints within weeks once McDavid filed written responses stating that he had done nothing wrong.
McDavid also is facing fraud and negligent misrepresentation claims in nearly two dozen pending lawsuits filed by Connor on behalf of the consumers.
McDavid is not facing any criminal charges and he denies any wrongdoing in court documents. He did not respond to a request for comments Thursday.
Meanwhile, Jacksonville, Fla.-based EverBank filed a foreclosure lawsuit on Feb. 21 against Charles and Peggy Allen, who say they mortgaged their 100-year-old family home at McDavid’s urging to buy $350,000 in life insurance policies costing nearly $3,000 a month.
Eighty-year-old Charles Allen, who suffered a stroke in 2000, said the home was built by 79-year-old Peggy Allen’s grandfather, using timber he cut from his own land along Bakers Chapel Road. Peggy Allen’s father and his four siblings were raised in the two-bedroom home, which was debt-free until McDavid arranged two mortgages on the property to pay for the life insurance policies he sold, according to court documents.
According to the foreclosure lawsuit, the Allens owe $130,180 in principal, interest and fees on the mortgage, which was issued in December 2009. The Allens stopped paying the mortgage in August because they said they could no longer afford the home and insurance bills on their annual income of about $32,000 from Social Security and retirement benefits.
“We are trying to help the Allens hold on to their family farmhouse,” Connor said. “Most of the money from the mortgage was used to buy the life insurance. They struggled for several years to make the mortgage payments, but their savings ran out and they can no longer make the payments.”
The Sun News featured the Allens in a story last month detailing the insurance fraud allegations. Connor said he is hopeful the Allens will be allowed to remain in their home.
“It will all depend on how the judge views the actions of the mortgage company,” he said.
EverBank spokesman Michael Cosgrove declined to comment on the matter.
Ann Roberson, public information officer for the state Department of Insurance, said the agency cannot discuss open investigations, such as the 18 complaints filed against McDavid.
“But be assured that all complaints and investigations are properly reviewed and if warranted, assistance from the appropriate enforcement agencies is requested so as to resolve the matter in accordance with all appropriate state and federal laws,” Roberson said.
The department can take administrative actions, such as fines and license revocations, against anyone who violates the state’s insurance laws.
Connor has been critical of the agency, saying the department in charge of protecting consumers from insurance scams has failed to do its job.
The agency dismissed two prior complaints against McDavid without interviewing the consumers who filed the complaints or requesting any documentation from them. The dismissal notice in the second investigation shows the department was skeptical of the complainants’ motives.
“Although this is the second letter with the same complaint from different insureds, it is noted that these complainants are represented [by] the same attorney and have a civil suit pending against the respondent,” investigator Chris Lewis stated in the dismissal notice. “The complainants in both cases did not provide any supporting documentation. Consequently, this matter will be closed with no further action.”
Roberson defended the insurance department’s actions, saying the two complaints “were thoroughly investigated.”
McDavid, in an affidavit he filed with the insurance department, said he “never lied or misled a client or tried to scam money from them.”
“My recommendations were sound and would have benefited my clients in achieving what they desired,” McDavid said in the affidavit.
McDavid was making about $60,000 a year from insurance sales through his Old South Financial Services company until the real estate boom hit and he developed a program in which clients used the equity in their homes and property to purchase whole life policies, court documents show. McDavid’s income soared to $1.1 million by 2007 and he purchased several cars, homes and luxury items with the commissions from policy sales, according to court records and depositions.
Those policies far exceeded the needs of the purchasers, according to court documents, with several instances of multi-million dollar policies being sold to retirees with little or no debt. Some of those purchasers already had life insurance policies in addition to the ones McDavid sold to them. Purchasers who have filed lawsuits against McDavid said they did not know they were purchasing life insurance.
Connor said many of McDavid’s clients were elderly and sick, suffering from illnesses such as Parkinson’s disease and diabetic neuropathy. He said many of the clients lacked financial sophistication and fell for McDavid’s “slick and high-pressure sales pitch.”
“These are simple, country people who go to church and trust people,” Connor said. “When you get older, your ability to think about these kinds of things diminishes and it becomes more difficult to fight off someone who wants to take advantage of you.”
State law forbids a home lender to finance – either directly or indirectly – life insurance premiums. Connor said McDavid indirectly financed the premiums for the policies he sold by arranging mortgages for his clients. Court records show McDavid used the same appraiser, mortgage broker and lawyer for each home loan he helped to arrange.
In addition to the insurance department complaints and civil lawsuits, the Internal Revenue Service has filed a lawsuit against McDavid in federal court alleging he owes $1.6 million in unpaid taxes and penalties after nearly a decade of failing to file tax returns. The S.C. Department of Revenue also has filed nearly $240,000 in tax liens against McDavid.
Contact DAVID WREN at 626-0281.