First Penn-Pacific Life Insurance v. Evans ( 2009 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-2020
FIRST PENN-PACIFIC LIFE INSURANCE COMPANY,
Plaintiff - Appellant,
v.
WILLIAM R. EVANS, Chartered; INVOTEX INCORPORATED, f/k/a
Maryland First Financial Services Corporation,
Defendants - Appellees.
-------------------------------------
LIFE INSURANCE SETTLEMENT ASSOCIATION,
Amicus Supporting Appellees.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Andre M. Davis, District Judge.
(1:05-cv-00444-AMD)
Argued: January 29, 2009 Decided: February 26, 2009
Before WILLIAMS, Chief Judge, and NIEMEYER and MOTZ, Circuit
Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Bryan David Bolton, FUNK & BOLTON, P.A., Baltimore,
Maryland, for Appellant. Nathaniel S. Shapo, KATTEN, MUCHIN &
ROSENMAN, L.L.P., Chicago, Illinois, for Amicus Supporting
Appellees. Paul S. Caiola, GALLAGHER, EVELIUS & JONES, L.L.P.,
Baltimore, Maryland, for Appellees. ON BRIEF: Michael P.
Cunningham, FUNK & BOLTON, P.A., Baltimore, Maryland, for
Appellant. David G. Sommer, GALLAGHER, EVELIUS & JONES, L.L.P.,
Baltimore, Maryland, for Appellees. Jenny R. Leifer, KATTEN,
MUCHIN & ROSENMAN, L.L.P., Chicago, Illinois; Eric A. Kuwana,
KATTEN, MUCHIN & ROSENMAN, L.L.P., Washington, D.C., for Amicus
Supporting Appellees.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
First Penn-Pacific Life Insurance Company (First Penn)
appeals from the district court’s grant of summary judgment to
William R. Evans, legal title owner of a First Penn life
insurance policy, and Invotex, Inc., receiver for the bankrupt
owner of that policy. First Penn originally issued the policy
to Stanley Moore. Despite Moore’s intent to transfer the
policy, we agree with the district court that Moore had an
insurable interest when he obtained it, preventing the policy
from being void ab initio. Moreover, even if Evans endorsed a
premium refund check that First Penn offered for rescission,
such an endorsement did not manifest a meeting of the minds
sufficient to establish a mutual rescission of the policy.
Therefore, we affirm the district court.
I.
The majority of facts in this case are not in dispute. In
September 1997, Moore, an Arizona resident, commenced a
fraudulent scheme to exploit the “viatical settlement” industry.
A viatical settlement is a contract by which a terminally ill
person assigns the benefit of his life insurance policy to a
third party in exchange for cash to pay for medical or personal
expenses. See, e.g., Life Partners, Inc. v. Morrison, 484 F.3d
284, 287–88 (4th Cir. 2007) (reviewing history of viatical
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settlements). Between November 13, 1997 and December 15, 1997,
Moore applied for (and eventually obtained) seven life insurance
policies, totaling $8.5 million in coverage. Shortly
thereafter, Moore met with a viatical settlement broker to
discuss selling the policies he had obtained; at that time, he
falsely represented that he was terminally ill. By April 1998,
Moore had sold at least six of his policies.
On January 5, 1998, First Penn issued to Moore a 10-year
policy, which a month later Moore converted to a 20-year policy;
this 20-year two million dollar policy is the one at issue in
this case. By not disclosing his existing and pending policies
with other insurance companies when obtaining this policy, Moore
made material misrepresentations to First Penn.
In October 1999, about a year and a half after issuance of
the Moore policy, First Penn learned of Moore’s fraud. First
Penn sought to rescind the policy, sending a letter to Evans 1
giving notice of rescission along with a refund check for the
premiums paid. Evans promptly responded to the letter,
rejecting the attempted rescission and returning the check to
1
In March or April 1998, Moore sold his First Penn policy
to Kelco Inc., which then sold the policy to Answer Care, Inc.,
for which defendant Evans formerly served as escrow attorney.
Evans thus holds legal title in the policy at issue here for the
benefit of Answer Care. The State of Maryland placed Answer
Care in receivership on October 16, 2000, and appointed
intervenor and appellee Invotex, Inc. as receiver.
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First Penn. First Penn then sent a second letter to Evans
seeking rescission. Evans again rejected the rescission and
demanded reinstatement of the policy but did not return the
check, stating it would be “ludicrous to keep sending this check
back and forth.” However, Evans did state his intent not to
cash the refund check. Evans may have endorsed that check over
to the beneficial owner, Answer Care; the parties dispute
whether the endorsement to Answer Care was a forgery. In any
event, it is undisputed that Answer Care never cashed the refund
check and instead continued to contest First Penn’s attempted
rescission.
On March 6, 2001, First Penn filed a complaint against
Evans, seeking a declaration that the policy was rescinded and
void. The district court dismissed the case on abstention
grounds in light of the concurrent state receivership
proceedings, and this court affirmed the dismissal. See First
Penn-Pac. Life Ins. Co. v. Evans, 304 F.3d 345 (4th Cir. 2002).
On February 15, 2005, after the conclusion of the state
proceedings, First Penn again sought rescission, filing a new
complaint; the district court granted summary judgment to Evans
and Invotex. First Penn then timely noted this appeal. On
appeal First Penn asserts two arguments: (1) an insurable
interest did not exist under Arizona law, which the parties
agree governs here, when First Penn issued the policy to Moore,
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rendering the policy void ab initio 2 and (2) the parties mutually
consented to a rescission of the policy.
II.
We review a grant of summary judgment de novo, applying the
same standards as the district court. Holland v. Washington
Homes, Inc., 487 F.3d 208, 213 (4th Cir. 2007). A court may
grant summary judgment only when there is no genuine issue of
material fact and the moving party is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986).
We have reviewed the record, briefs, and applicable law,
and considered the oral arguments of the parties, and we are
persuaded that the district court reached the correct result in
granting summary judgment to Evans and Invotex. See First Penn-
Pac. Life Ins. Co. v. Evans, No. 05-444-AMD, 2007 WL 1810707 (D.
Md. June 21, 2007).
2
The parties also dispute whether the incontestability
clause in the policy and Arizona’s incontestability statute,
which states that insurance policies become incontestable two
years after issuance, bar First Penn’s insurable interest claim.
See Ariz. Rev. Stat. Ann. § 20-1204 (2002). Because we conclude
that the insurable interest claim lacks merit, we need not reach
this issue.
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III.
A.
With respect to First Penn’s first claim on appeal, we
agree with the district court that Moore had an insurable
interest under Arizona law despite his plan “to sell all or most
of his life insurance policies at the time he applied for them.”
First Penn, 2007 WL 1810707, at *4 n.7. An “insurable interest”
in the context of a life insurance policy is an interest in
having the insured life persist, as opposed to an interest only
in the loss of that life. See Grigsby v. Russell, 222 U.S. 149,
155 (1911).
Clearly, an individual has an insurable interest in his own
life, and consequently, under Arizona law, “[a]ny individual of
competent legal capacity may procure or effect an insurance
contract upon his own life or body....” Ariz. Rev. Stat. Ann. §
20-1104 (2002). In contrast, an individual without ”any
reasonable expectation of pecuniary benefit or advantage from
the continued life” of an unrelated person may not insure that
life; this constitutes a pure “wager policy” and is void as a
contract against public policy. Conn. Mut. Life Ins. Co. v.
Schaefer, 94 U.S. 457, 460 (1876); Gristy v. Hudgens, 203 P.
569, 572 (Ariz. 1922); Ariz. Rev. Stat. Ann. § 20-1104 (2002).
Once a life insurance policy validly issues, however, the
insured may freely transfer the policy to a third party who has
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no insurable interest in the insured life. Grigsby, 222 U.S. at
155–56.
The district court correctly held that in this case -- in
which Moore intended to sell the policy when he applied for it
but where “[t]here is no evidence that anyone other than Moore
was a participant in the scheme at the time Moore obtained the
First Penn policy” -- Moore had an insurable interest when he
obtained the policy. First Penn, 2007 WL 1810707, at *4 n.7.
No third party participated in the procurement of Moore’s policy
and therefore no one was “wagering” on Moore’s life in violation
of public policy. Furthermore, as amicus curiae noted in its
brief and at oral argument, evaluating insurable interest on the
basis of the subjective intent of the insured at the time the
policy issues, as First Penn would have us do, would be
unworkable and would inject uncertainty into the secondary
market for insurance. 3
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We note that the majority of courts that have directly
considered the issue under various state laws have similarly
concluded that intent to transfer a policy does not alone
destroy an insurable interest; a third party must be involved in
the procurement of the policy to eliminate the insurable
interest. See e.g., Sun Life Assurance Co. of Can. v. Paulson,
No. 07-3877(DSD/JJG), 2008 WL 451054, *2 (D. Minn. Feb. 15,
2008); Life Prod. Clearing, LLC v. Angel, 530 F. Supp. 2d 646,
653-55 (S.D.N.Y. 2008); Fyffe v. Mason, 268 S.W.2d 29, 31-32
(Ky. 1954); Harrison’s Adm’r v. Nw. Mut. Life Ins. Co., 63 A.
321, 321 (Vt. 1906).
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B.
With respect to First Penn’s remaining contention -- that
the parties mutually consented to rescission -- Evans initially
argues that First Penn did not timely assert this issue in the
district court. Even assuming that First Penn did properly
raise the issue, the claim fails on the merits. Mutual
rescission of an insurance contract can arise from “any act or
course of conduct of the parties which clearly indicates their
mutual understanding that the contract is abrogated.” Great
United Realty Co. v. Lewis, 101 A.2d 881, 884 (Md. 1954). Often
when an insured cashes a premium refund check offered as a
rescission, this action manifests agreement and effectuates the
rescission. See Mut. of Omaha Ins. Co. v. Korengold, 241 N.W.2d
651, 652 (Minn. 1976).
In this case, however, it is undisputed that neither Answer
Care nor Evans ever cashed First Penn’s proffered refund check.
As the district court explained, “the record shows that there
has been no acceptance of the refund of premiums and that
defendants have consistently rejected the attempted rescission.”
First Penn, 2007 WL 1810707, at *3. First Penn argues that
Evans’s alleged endorsement of the check was a “negotiation”
under Maryland law, see Md. Code Ann., Com. Law § 3-201(b)
(2002), and therefore constituted a rescission. However, all of
the cases relied on by First Penn involve situations in which
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the refund check was cashed. First Penn cites no authority for
the proposition that an endorsement from a title owner to the
beneficial owner constitutes agreement to a rescission. Because
Answer Care consistently manifested its intent not to agree to a
rescission, Evans’s retention and any endorsement of the check
did not manifest “a mutual understanding.” Cf. Warren v. N.Y.
Life Ins. Co., 58 P.2d 1175, 1181 (N.M. 1936) (holding that
retention of check for extended period without notice or
challenge to the rescission constituted consent to the
rescission).
IV.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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