State regulators have revoked the license of a Myrtle Beach insurance salesman accused in court documents of tricking sick and elderly customers into mortgaging their homes to buy high-priced life insurance policies they didn’t need.
Rick McDavid will no longer be allowed to sell insurance in South Carolina, according to a five-page order from the state’s Department of Insurance, and his name has been entered into a national database so other states’ regulators will know about the disciplinary action if he attempts to get a license elsewhere.
Meanwhile, the insurance companies that issued the policies McDavid sold have agreed to settle with more than two dozen families who mortgaged their homes and property to purchase the policies. The insurance companies will pay an undisclosed amount to McDavid’s customers. Terms of the settlement are confidential. The families whose homes and properties went into foreclosure continue to negotiate with the banks and the attorney who closed the loans on the terms of potential settlements.
Sid Connor, the Surfside Beach lawyer who represented McDavid’s clients, said he cannot comment on the cases because of the confidentiality agreement.
McDavid could not be reached for comment.
Peggy Allen, one of the customers whose homes went into foreclosure after she purchased an insurance policy from McDavid, said she is thankful her nightmare is almost over.
Allen and her husband, Charles, mortgaged the 100-year-old home Peggy Allen’s father built by hand in Aynor to buy three whole-life insurance policies with death benefits totaling $350,000. They paid $66,500 toward the premiums but couldn’t keep up with those payments – totaling $3,000 per month – and their new, $847-a-month mortgage. They eventually defaulted on both the insurance policy and their home loan.
Charles Allen told The Sun News last year that he was ashamed of being taken advantage of, and he blamed a stroke he had in 2000 on his inability to fully understand McDavid’s sales pitch. Charles Allen died on March 2 at the age of 81, just four days short of his 60th wedding anniversary with Peggy. Although he died before the threat of foreclosure had been fully resolved, Peggy Allen said her husband knew the home that had been in their family for three generations would remain theirs.
“These last few days have been hard,” Peggy Allen said on Tuesday. “I’m just so thankful that the insurance companies have agreed to settle and this is almost over.”
Multiple regulatory violations
The insurance department’s order outlines 19 instances in which McDavid violated state regulations, including falsifying financial information on policy applications, promising interest rates as high as 12.5 percent for policies that did not have such rates, failing to disclose policy buyers’ health problems on applications and failing to disclose that clients already had life insurance policies. McDavid also told the department that he would have his clients sign blank applications and then he would enter financial and other information for them.
State law also forbids a home lender from financing – either directly or indirectly – life insurance premiums. Court document allege McDavid indirectly financed the premiums for the policies he sold by arranging mortgages for his clients. The insurance department’s order also states that McDavid misrepresented to insurance companies the source of funds used to pay his clients’ premiums.
McDavid collected commissions on the policy sales and his clients’ homes went into foreclosure when they could no longer afford to keep up with their mortgage payments, according to court documents.
This is the third time the state’s Department of Insurance has investigated complaints against McDavid. Both of those previous investigations – one in 2011 and one in 2012 – were dismissed quickly after McDavid said he didn’t do anything wrong. Documents from the department show investigators did little follow-up with victims and relied solely on McDavid’s written denials to close those earlier cases.
McDavid also is facing other legal troubles since The Sun News first wrote about this case a year ago.
The Internal Revenue Service in September obtained a $1.6 million default judgment against McDavid for federal income taxes he failed to pay from 2002-09, according to court documents. The IRS filed a civil lawsuit against McDavid in January 2013 and McDavid never filed an answer to the allegations, leading Judge Mary Lewis to enter the default judgment.
The IRS plans to foreclose on McDavid’s property in the gated Pottery Landing community in Conway to help recover some of the debt. McDavid’s 2/3-acre parcel sits along the Waccamaw River and is valued at $137,800 according to the Horry County assessor’s office. McDavid purchased the property in 2007 and then put it into his then-girlfriend’s name in an attempt to stop the IRS from seizing the land.
In addition to the federal tax bill, the S.C. Department of Revenue has filed nearly $240,000 in state tax liens against McDavid.
‘A financial assassin’
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.
The life insurance policies McDavid sold far exceeded the needs of the purchasers, according to court documents, with several instances of multimillion-dollar policies being sold to retirees with meager incomes. The Allens, for example, lived on $38,000 a year from Social Security and pension income. Some of the purchasers already had life insurance policies in addition to the ones McDavid sold to them. Some of the purchasers who have filed lawsuits against McDavid said they did not know they were purchasing life insurance because McDavid represented the policies as investments. In at least one instance, according to the insurance department’s order, McDavid told his clients that the policy they purchased was a college savings plan.
Connor, during an interview last year, said many of McDavid’s clients were elderly and sick, suffering from illnesses such as Parkinson’s disease and diabetic neuropathy. Connor termed McDavid “a financial assassin” and 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 last year. “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.”