A $1.4 million life insurance payout is at the center of a newly filed lawsuit, raising sharp questions about insurer obligations in business loan collateral cases.
First Internet Bank of Indiana has taken American General Life Insurance Company to federal court, claiming the insurer failed to pay more than $1.4 million owed under a life insurance policy used as collateral for a business loan. The case, filed in the United States District Court for the Northern District of Illinois, focuses on whether an insurer must honor assignments and pay out promptly when a policy is tied to a commercial debt.
The dispute traces back to Policy No. MM 0131356, issued in 2001 by Old Line Life Insurance Company of America to Schroeder-Lauer Funeral Home, Ltd. The policy, which insured the life of Robert J. Cole, president of the funeral home, carried a face value of $2,650,000. Cheryl Cole, his wife, was named the primary beneficiary. American General Life Insurance Company later acquired Old Line Life and assumed its liabilities.
In 2015, Schroeder-Lauer took out a $1,812,500 loan from First Colorado National Bank, using the life insurance policy as collateral. The policy was formally assigned to the bank, and American General acknowledged the assignment in writing. Five years later, First Colorado gave First Internet Bank of Indiana the authority to act on its behalf, and the assignment was transferred accordingly.
Robert J. Cole died on January 30, 2024. According to the complaint, the policy was still in force at the time of his death. The policy’s language is clear: “Proceeds will be payable on the date of the insured's death… Upon receipt of due proof of the insured's death, we will pay the insured's beneficiary the face amount.”
On March 4, 2025, First Internet Bank of Indiana submitted a claim for $1,406,674.15 - the outstanding loan balance - along with the death certificate and all required documentation. The bank alleges that American General Life Insurance Company failed to respond or pay the amount due under the policy.
The complaint asserts that all conditions for payment have been met and seeks damages for breach of contract, a declaratory judgment, and statutory penalties under Illinois law for what it calls an unreasonable and vexatious delay. The bank also claims entitlement to interest at 5% per year from the date of Cole’s death.
Notably, the bank does not claim the full policy amount. Cheryl Cole, as the named beneficiary, is entitled to the remaining proceeds, and the bank makes no claim to her share.
American General Life Insurance Company has not yet responded to the lawsuit. The complaint’s allegations remain unproven, and the court will ultimately decide the rights and obligations of the parties under the policy and the assignments.
For insurance professionals, the case highlights the complexities of handling collateral assignments and the importance of timely claims processing when business loans and life insurance intersect. The outcome may offer guidance for insurers navigating similar commercial arrangements in the future.
