Hall of Shame: Illinois Director of Insurance Michael T. McRaith – A Postscript

February 28, 2011

On December 2, 2010, I commented on the outrageous conduct of Illinois’ Director of Insurance Michael T. McRaith.  He had “settled” the investigation of a life insurance broker (Merrill Lynch Life Agency) for $18 million, requiring funeral directors across the State who suffered over $100 million in losses because of the shenanigans of various Merrill Lynch entities (collectively, “Merrill Lynch”) to release Merrill Lynch from all liability in order to access a distributive share of the funds.

The Honorable Mary Ann Mason of the Circuit Court of Cook County, Illinois, jettisoned the deal, finding neither McRaith nor the Department of Insurance (“DOI”) had the statutory or constitutional authority to extract releases from parties engaged in litigation against entities over which the DOI had no jurisdiction. The DOI and Merrill Lynch came back with a new arrangement that allowed distribution of the $18 million “without preconditions.”  On May 5, 2010, McRaith filed a Notice of Intent to Distribute Funds in which he asserted that the funds would provide critical support to small businesses across the State during a difficult economic climate, yet then made no effort to distribute any funds for almost another year.

Now the money has been disbursed, but McRaith is at it again.  Instead of requiring funeral directors to release their legal claims to access the funds,  McRaith has issued a letter stating that the funds must be treated by funeral directors as pre-need funeral funds covered by the Illinois Burial Funds Act.  What’s wrong with this picture?  Plenty.

Let’s start with the fact that McRaith has no authority to regulate funeral directors, much less to enforce his personal interpretation of the Burial Funds Act.  The Director obviously sees himself as unconstrained by any limitations on his power and authority, feeling perfectly comfortable directing matters over which the Illinois legislature has put the Office of the Illinois Comptroller (“IOC”) in control.

Second, McRaith issued his edict without regard to the potential tax consequences of his actions, without regard to the differences between the Taxable and Tax-Exempt pre-need trusts, and by making arbitrary and capricious calculations of the amounts to which the various funeral directors are entitled. The list goes on and on but, in essence, and as before, McRaith shot first and aimed later.

McRaith’s Machiavellian approach to handling the pre-need trust debacle is inappropriate for an appointed official with limited statutory authority.  His complete disregard for the consequences of his actions leads to the inescapable conclusion that his sole interest is in  getting his own way, regardless of whether he has the right to do so.


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