Insurably Risky

Note to self: never get into the bathtub fully clothed, including high heels, after spending the evening in a martini bar.

Second note to self: if, when I hit my seventies, if I have some throwing around money, don’t invest it in the business of a much younger man who decides that he has an insurable interest in you.

Not that the first situation has anything other than the most circumstantial of connections to the second one. Just saying.

I decided to make these notes to self after reading in The Wall Street Journal  what – to me at least – can only be read as a cautionary tale

Here’s what happened to one poor woman who did both of the above.

A goodly portion of Germaine “Suzy” Tomlinson’s tragically abbreviated life – and, when you’re my age, I assure you that dying at age 74 translates into “tragically abbreviated” – can be fairly described as at least quasi-hardscrabble.

Sure, Suzy was born in Paris, and was a model, which sounds decidedly un-hardscrabble. But then she married an American GI and came to Les Etats Unis, where she had a couple of divorces  and five kids, and worked at jobs like cook in a downtown-Indianapolis lounge.

Then Ms. Tomlinson got lucky.

Her daughter, Tomisue, was a dancer performing at a party attended by Stephen Hilbert, founder of Conseco.

So moved was he by the artistic beauty of the dance performed by Ms. Tomlinson the Younger, Mr. Hilbert ended up divorced from his wife and married to Ms. T the Y.

After her daughter married Mr. Hilbert, Ms. Tomlinson's fortunes improved. Mr. Hilbert says he and his wife put her on salary for tasks at the estate, set her up in her own home and gave her a Cadillac and, later, a Lincoln.

No more lounge cookin’ for her.

Now, with a bit more walking-around-in-high-heels money, she invested $50K in the startup (electronic coupon retrieval) of J.B. Carlson, a much younger man she had befriended.

With a supporter like Ms. Tomlinson the Elder to open doors for him, Carlson decided that he’d better get key-gal insurance.

$15M seemed like the right amount. After all:

Ms. Tomlinson [the Elder] introduced him to potential investors and told people she was a board member of his company.

Carlson was the last person to see Ms. Tomlinson the Elder alive, and, in fact, escorted her home the night she ended up drowning in her bathtub. (At least she died with her high heels on.)

Fortunately, having lost his business patron and social companion, Carlson did have the $15M policy to fall back on.

But the insurer – AIG, of course – is balking at paying up.

They’re now claiming that the net worth figures for Ms. Tomlinson the Elder claimed by Carlson and his insurance agent, the wonderfully surnamed  Geoffrey VanderPal, for Ms. Tomlinson the elder were a tad inflated:

…as part of a "carefully crafted scheme" to dupe it into selling such a large policy.

AIG also contends that the “key man” role claimed for Ms. Tomlinson the Elder is “’a sham.’” And, as for the value of the electronic coupon business itself… Well, the business was actually worth about as much as the non-redemption for goods value you see on the fine print on the back of a paper coupon. You know, the ones where a 10-cent coupon has a cash value of 1 mill. As in 1 mill – not 1 million. Let alone $15 million.

In order to get this sort of policy on Ms. Tomlinson, Carlson needed to provide evidence that her net worth justified it.

Easy-peasy.

Just get a friend with letterhead to state in writing that Ms. Tomlinson the Elder had assets worth $46.7 million.

Now, even when you subtract out the $39.8 million in “preferred shares” of Carlson’s worthless business – nice return on the $50k invested, by the way, if only on paper – that’s still a reasonable chunk of asset change for someone who was just a few short years before a lounge cook.  And if you want to use income as something of a proxy for wealth – and, yes, I know the two don’t have to march hand in hand – Ms. Tomlinson the Elder’s annual income for the years in which she was being insured was $17K.

So, how do you pay for $15 million worth of insurance on an income of $17K?

Well, on the policy application it said that Ms. Tomlinson the Elder would be liquidating some of her assets. Which I guess would have worked if she hadn’t tried to liquidate those assets that reflected her holdings in Mr. Carlson’s company.

Nonetheless, Mr. Carlson, with supreme generosity of spirit, took out a loan of nearly $400K (at a vig of 17%) to pay the annual premium.

Anyway, as it happened, Ms. Tomlinson the Elder met with her unfortunate demise, and now Mr. Carlson wants the money. Mr. and Mrs. (Ms. Tomlinson the Younger) Hilbert claim that it was meant for them. (And it may be the case that Ms. Tomlinson the Elder believed that her family members were the beneficiaries, not J. B. Carlson.) The Hilberts, while not accusing anybody, hint at foulplay.

And where’s AIG in all this?

Needless to say, they’re not interested in paying out on this one.

It’s certainly difficult decisions, stalwart executive positions, that suggest to me that AIG executives deserve their big pay days.

An entirely sordid mess.

Which is why I’ve made those two notes to myself.

Note to my family: if I’m found fully clothed, drowned in my bathtub, be sure to check and see if someone half my age took out a $15M insurance policy in my name. Be particularly suspicious if I’m found wearing high heels.