Local businessman J.B. Carlson contends the $15 million life insurance policy he took out on Stephen Hilbert’s mother-in-law
was legitimate, because she served on his firm’s board and was a key decision-maker.
The mother-in-law, Germaine
“Suzy” Tomlinson, died at age 74 last September—just 32 months after the policy was issued. As a result,
Carmel-based Carlson Media Group says it’s entitled to cash in the so-called “key man” insurance policy
for a hefty payday.
But the firm is a long way from receiving a check. The issuer of the policy, Houston-based
American General Insurance Co., filed a federal lawsuit in December charging the coverage is invalid because J.B. Carlson
misled the firm on the insurance application.
Meanwhile, the Indiana Department of Insurance confirms it’s
investigating, and Hilbert’s wife, Tomisue, is preparing her own legal assault, arguing that she and her siblings are
entitled to the insurance windfall.
The brouhaha surrounds what American General contends was not a “key
man” policy at all, but rather a controversial form of coverage known as “Stranger Originated Life Insurance,”
or STOLI, that effectively allows outside investors to wager on when an insured person will die.
In a typical transaction, an investor entices someone, usually a senior
citizen, to take out a multimillion-dollar life insurance policy. Investors pay
the premium and purchase the policy, making them beneficiaries. In return, the insured person receives an upfront
cut of the eventual death payout.
Under the arrangement, the sooner the insured person dies, the better the return
for investors. Because of that perverse incentive, states have moved to ban new policies. Indiana did so last year.
But that’s not the kind of insurance at issue in Tomlinson’s case, according
to Kevin Toner, a Baker & Daniels partner representing Carlson Media Group, a privately owned marketing
firm with about a dozen employees.
In a counterclaim filed in May, the firm
said Tomlinson began attending the company’s board meetings in November 2002 and eventually served
as vice chairwoman. The policy is straightforward key-man coverage that American General should stand
behind, Toner said.
“If executives in this town find out insurers aren’t going
to honor key-man insurance, I think they’re going to be quite distressed,” he said.
paid obituary printed in The Indianapolis Star made no mention of her involvement with Carlson Media Group. It said
she was born in Paris and worked as a model before marrying an American soldier and moving to the United States in 1960.
During the 1970s and 1980s, the obituary said, she operated furniture and antique stores. Tomisue is one of her six
Steve Hilbert, a Conseco Inc. co-founder who now runs MH Equity Investors, told IBJ in January
that he knew nothing of his mother-in-law’s $15 million policy before the newspaper told him about the lawsuit. He said
the policy’s existence had fanned his and his wife’s suspicions that there was foul play in Tomlinson’s
Shortly after Tomlinson’s death, the Indianapolis Metropolitan Police Department ruled it an accidental
bathtub drowning. The department has not reopened the investigation.
The Hilberts did not respond to requests for
comment this month.
Probate court records show that Tomisue, who was named personal representative of the estate
last month, is preparing to fight Carlson for the insurance money.
Because Tomlinson died without a will, her biological
heirs would be entitled to any remaining assets in her estate. Tomisue last month filed to intervene in the American General
case, arguing the insurer issued the coverage for the purposes of estate planning. She contends that even though she and her
siblings weren’t involved in creating the policy or paying its premiums, they’re entitled to the proceeds.
In a written statement, Judy Woods, a Bose McKinney & Evans partner representing Tomisue, said: “As personal
representative of her deceased mother’s estate, Mrs. Hilbert has a duty to investigate and collect any possible estate
assets and make sure all assets are distributed appropriately.
“Mrs. Hilbert sought leave to intervene in
the litigation involving the American General Life Insurance policy on her mother for that reason, and because there is evidence
that Mrs. Hilbert was among the intended beneficiaries.”
Carlson did not respond to requests for comment.
Marion Circuit Court records show that in August 2007 he legally
changed his name from Jason Carl Bolf. The reason for the change is unclear. His attorney, Toner, said: “I don’t
think it has anything to do with the case, frankly.”
In court records, Carlson Media Group said its purchase
of the Tomlinson policy was a board decision reached in late 2005. The policy’s annual premiums were $387,274. The company’s
court filings also note that Tomlinson occasionally borrowed funds from Carlson Media Group from 2004 to 2008, although they
don’t specify how much.
American General contends the court should void the policy because Carlson committed
fraud in the insurance application by making it appear the coverage was solely for the benefit of Tomlinson and her family.
In fact, according to the lawsuit, the policy was a STOLI. It alleges Carlson and other defendants induced Tomlinson
to take out the policy with the intention of selling it to other investors. The other defendants are Nevada-based insurance
broker Geoffrey A. Vanderpal, and Michele Harra of Delaware and Delaware-based Wilmington Trust Co.
Department of Insurance is investigating “all aspects” of the complex transaction, said Nikolas P. Mann, chief
of investigations in its enforcement division and consumer protection unit. He would not comment in detail.
Tomlinson’s biological heirs don’t appear to have a clear path to collecting the $15
million, said Marty Wood, vice president of the Insurance Institute of Indiana. He said that if the court finds the policy
valid, American General would have to pay Carlson. But if it voids the coverage, no one would get anything.
it’s impossible to be certain, Wood said, because this area of the law has rarely been explored.
insurance is fairly simple,” Wood said. “But STOLI obviously makes it much more complicated.”
assertion that the policy is key-man coverage may be a stretch, said Joseph Belth, a retired Indiana University insurance
professor who publishes The Insurance Forum, a watchdog newsletter.
Insurers typically make potential
life insurance payouts commensurate with the financial value of the person they insure. He said board service usually wouldn’t
be enough to prove an employee was worth $15 million to the company.
The sum is whopping compared with what directors
typically earn, even at publicly traded Hoosier firms. Average compensation for a public company director in Indiana last
year was $100,016, according to IBJ research.
“That’s nonsense that there would be a justification
for $15 million,” Belth said. “And what’s estate planning got to do with insurable [business] interest?
It’s a very confusing situation.”