Former state employees have filed a lawsuit in U.S. District Court claiming they were forced out of the Idaho Department of Insurance for pursing a fraud investigation into a southeastern Idaho company and turning their inquiry over to federal authorities.
The Idaho Statesman reports that former insurance department investigators W. Robert Lemke, Jan Heinz, Carol Garrett and Felicia Kruck filed the federal complaint Sept. 28 against the state agency and its director, William Deal.
The former employees claim an investigation into the company, which started in December, revealed illegal activities that included a rebating scheme used to induce people to purchase policies, according to court documents.
The ex-workers claim some of the policyholders who benefited from the insurance company’s illegal activities have strong personal connections to people with direct and indirect authority over the Department of Insurance’s investigation unit, which resulted in their ouster.
In a rebating scheme, typically an insurance agency will offer a prospective policyholder a monetary rebate as an inducement to purchase a policy.
State law prohibits insurance agents from directly or indirectly offering as an inducement to purchase insurance “anything of value whatsoever” over $200 that is not plainly specified in the insurance contract, the lawsuit claims.
The complaint claims the insurance company that came under investigation last year, called Company X in court documents, would offer rebates with the purchase of a life insurance policy. The lawsuit claims Company X would inform purchasers that after two years, they could sell their policy to a third-party investor for an amount that is greater than the premiums they had paid on the policy, therefore reaping a profit.
That policyholder would typically purchase another policy from Company X with the same rebate offer and the intent to again sell the policy after two years, thus continuing the cycle and creating high sales volume and continued commissions for Company X, according to the lawsuit.
“Lemke and some of the other investigators feared that, given the strong personal connections of those benefiting from Company X’s rebate scheme, the investigation would not be prosecuted,” according to the lawsuit.
Lemke, to ensure the investigation continued, decided to contact the IRS and FBI and request that they join the investigation, the court documents say.
Last October, the FBI obtained a search warrant for the company’s offices in Rexburg and Idaho Falls. The former employees claim that amid the fallout from the search, each of them was wrongfully terminated or forced out of the agency.