Holt v. Lewis

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
FILED
FOR PUBLICATION
TOMMY NEAL HOLT, Deceased ) Filed: April 19, 1999
)
Plaintiff, )
) April 19, 1999
v. ) DAVIDSON COUNTY
)
MARILYN KAY HOLLINGSWORTH )
HOLT, ) Cecil Crowson, Jr.
) Hon. Frank G. Clement, Jr.
Defendant/Third-Party ) Judge Appellate Court Clerk
Plaintiff/ and Counter- )
Defendant/Appellee, )
)
ELLIOTT NATHAN HOLT )
) Supreme Court
Third Party Plaintiff and ) No. 01S01-9809-PB-00165
Counter-Defendant/Appellee, )
)
v. )
)
VICKIE LEWIS, Administrator Ad )
Litem for the Estate of Sophia Holt, )
)
Third Party Defendant and )
Cross-Defendant/Appellant, )
)
In Re: Proceeds of Old Line Life )
Insurance Company of America )
Policy No. 1878593L )
FOR APPELLANT FOR APPELLEES
John L. Whitfield, Jr. John G. Doak, Sr.
Nashville, TN Nashville, TN
OPINION
TRIAL COURT AND
COURT OF APPEALS AFFIRMED DROWOTA, J.
In this case, we determine the rights of parties to the proceeds of a $50,000
insurance policy insuring the life of Tommy Neal Holt, now deceased. In a marital
dissolution agreement incorporated in a divorce decree, the decedent had agreed to
acquire a $100,000 life insurance policy naming his child as beneficiary and his
former wife as trustee. At the time of his death, the decedent owned a $40,000
insurance policy naming his child as beneficiary and a $50,000 policy naming his
mother, who subsequently died, as beneficiary. After suit was brought before the
Probate Court of Davidson County, the trial court entered summary judgment in favor
of the appellees and ordered that the proceeds of the $50,000 be paid to the former
wife as trustee for the benefit of the child. The Court of Appeals affirmed. For the
reasons stated hereinafter, we affirm the judgments of the lower courts.
I. FACTS & PROCEDURAL HISTORY
Tommy Neal Holt (“the Decedent”) and Marilyn Kay Hollingsworth Holt
divorced pursuant to a decree entered by the Probate Court for Davidson County on
May 8, 1990. At the time of the divorce, the couple had one child, Elliott Nathan Holt,
born in June of 1978. The divorce decree incorporated the terms of a marital
dissolution agreement between the parties. The parties were given joint custody of
Elliott Holt, and Mr. Holt was required to make child support payments. Paragraph
XII of the marital dissolution agreement provided as follows:
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Life Insurance
The Husband and Wife agree that the Husband shall maintain
and keep in full force and effect a life insurance policy in the amount of
one hundred thousand dollars ($100,000) to secure his obligations for
the payment of child support and other debts as set out in this
Agreement. The Husband and Wife agree that the parties’ child, Elliot
Nathan Holt, shall be named as the sole and irrevocable beneficiary of
the Husband’s one hundred thousand dollar ($100,000) life insurance
policy as set out in this Agreement. The Husband and Wife agree that
the Wife will be named as Trustee for the benefit of the parties’ minor
child. In her capacity as Trustee, the Wife shall be, and is hereby
authorized and directed to use the proceeds to provide generally for the
child’s health, education and support. The Husband and Wife further
agree that any monies in the Wife’s possession as Trustee for the
benefit of the parties’ minor child will be given to the parties’ minor child
at age twenty five with all proceeds that are remaining in trust for the
benefit of the child to be paid over to the child at the child’s twenty fifth
birthday.
The Husband and Wife further agree that within thirty days of
the entry of the Final Decree of Divorce, the Husband will furnish to the
Wife a copy of the policy or policies defined herein, showing the
appropriate beneficiary designation as set out in this Agreement. In
addition, the Husband will take whatever steps are necessary to allow
the Wife to determine directly from the Husband’s insurance agent
whether or not the monthly premiums are being paid in accordance with
the terms of the insurance policy or policies listed in this section.
Another clause in the divorce decree1 stated that the provisions would be “binding
upon and inure to the benefit of the parties hereto, their personal representatives,
heirs and assigns.” At the time of the divorce, the Decedent did not own any life
insurance.
The record reflects that the Decedent failed to comply with the divorce decree
by not procuring a $100,000 life insurance policy listing Elliott Holt as the beneficiary
and providing Marilyn Holt with a copy of the policy. In September of 1992, while he
1
The divorce decree incorporating the marital dissolution agreement will be
collectively referred to as the “divorce decree” throughout this opinion.
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and Elliott Holt were apparently living with the Decedent’s mother, Sophie Holt, the
Decedent obtained from Old Line Life Insurance Company of America (“Old Line”)
a life insurance policy in the amount of $50,000. The Decedent designated his
mother, Sophie Holt, as the beneficiary of this policy. In 1995 the Decedent obtained,
as a benefit from beginning employment with his new employer, Patterson Press, a
$40,000 policy on his life. He designated Elliott Holt as the sole beneficiary of this
$40,000 policy, and no one was listed as trustee.
The Decedent died on January 12, 1996. At that time he was in arrears in
making child support payments in the amount of $2,721.09. Less than one week
after the Decedent’s death, Sophia Holt altered her will so that all of her estate was
bequeathed to Ms. Vickie Lewis.2 Following the Decedent’s death, all proceeds of
his $40,000 life insurance policy were tendered to Elliott Holt, and this policy is not
in controversy in this suit.
In January of 1997, Marilyn Holt and Elliott Holt3 filed this complaint seeking
to enforce the May 8, 1990 final divorce decree. Specifically, the complaint demands
that the proceeds of the $50,000 Old Line policy be paid to Marilyn Holt as trustee for
the benefit of the Child in accordance with the terms of the divorce decree. Sophia
Holt and Old Line were listed as defendants in this action. The trial court dismissed
the complaint against Old Line after Old Line interplead the funds.
2
The record does not indicate Sophia Holt’s relationship with Ms. Lewis.
3
Throughout this opinion, Marilyn Holt and Elliott Holt will often be referred to
collectively as “Elliott Holt.”
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While this matter was pending before the trial court, Sophie Holt died. In
addition to bequeathing all of her possessions to Ms. Lewis, Sophie Holt’s will named
Ms. Lewis as the administrator ad litem for her estate. Accordingly, Ms. Lewis was
substituted for Sophie Holt in this action.
Elliott Holt and Ms. Lewis proceeded to file motions for summary judgment.
After considering motions, affidavits, and other documents filed by the parties, the
trial judge granted summary judgment in favor of Elliott Holt and ordered that the
proceeds of the $50,000 Old Line Policy be transferred to Marilyn Holt as trustee for
the use and benefit of Elliott Holt. The trial court reasoned as follows:
Since on 9/8/92, when Tommy Neal Holt applied for the
$50,000.00 Life insurance policy (the proceeds of which are the subject
of this suit), both Tommy Neal Holt and Elliott Nathan Holt were living
with Mr. Holt’s mother (Sophia Holt), and since Tommy Neal Holt had
been ordered on May 8th of 1990 to obtain $100,000 in life insurance
on his life and to make Elliot Nathan Holt, its beneficiary, the Court
draws the inference, both from a logical standpoint and from the maxim
of equity that “Equity regards that as done which ought to be done”,
that it was the intent of Tommy Neal Holt to comply with the Order of
the Court (although he obtained only $50,000.00 of the $100,000.00
insurance that had been ordered, and named his mother, Sophia Holt,
as the beneficiary instead of his son (who was still a minor) or his ex-
wife) and that he intended that his mother be the beneficiary only as
Trustee for the use and benefit of his son, Elliott Nathan Holt; and, that
it was his intent to simply substitute his mother in place of his ex-wife
as such Trustee; and thus, in effect, creating a constructive trust, for
the use and benefit of his son.
On appeal, the Court of Appeals affirmed, finding that the trial court’s decision was
consistent with Tennessee case law and equitable principles. From this order, Ms.
Lewis appeals.
II. ANALYSIS
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It is undisputed that the Decedent breached his obligation under the final
divorce decree to maintain a $100,000 life insurance policy listing Marilyn Holt as
trustee and Elliott Holt as the beneficiary. Ms. Lewis contends that since the
Decedent was not prohibited from purchasing other life insurance policies listing other
individuals as beneficiaries, Elliott Holt’s only remedy is an action against the
Decedent’s estate. Therefore, Ms. Lewis contends that the trial court should have
granted summary judgment to her instead. Elliott Holt responds that the trial court
properly found that he was entitled to the proceeds of the $50,000 policy.
A. Standard of Review
In this case, both Elliott Holt and Ms. Lewis moved for summary judgment. On
appeal, Ms. Lewis appears to assert both that the trial court erred in granting
summary judgment to Elliott Holt and that the trial court should have granted
summary judgment to Ms. Lewis. Summary judgment is appropriate if the movant
demonstrates that no genuine issues of material fact exist and that the movant is
entitled to a judgment as a matter of law. Tenn. R. Civ. P. 56.03. We must take the
strongest view of the evidence in favor of the nonmoving party, allowing all
reasonable inferences in favor of the nonmovant and discarding all countervailing
evidence. Shadrick v. Coker, 963 S.W.2d 726, 731 (Tenn. 1998) (citing Byrd v. Hall,
847 S.W.2d 208, 210-11 (Tenn. 1993)). Since our review concerns only questions
of law, the trial court’s judgment is not presumed correct, and our review is de novo
on the record before this Court. Warren v. Estate of Kirk, 954 S.W.2d 722, 723
(Tenn. 1997); Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997).
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B. Tennessee Law
Tennessee courts have long recognized that “[e]quity regards that as done
which in good conscience ought to be done.” McCann Steel Co. v. Third Nat. Bank,
337 S.W.2d 886, 891 (Tenn. App. 1960); William H. Inman, Gibson’s Suits in
Chancery § 21 (7th ed. 1988); 11 Tenn. Jur. Equity § 11 (1995); 2 Pomeroy Equity
Jurisprudence § 364 (5th ed. 1941).
Judge Cardozo has articulated the rationale supporting the judicial recognition
of one equitable device, a constructive trust, as follows:
A constructive trust is the formula through which the conscience of
equity finds expression. When property has been acquired in such
circumstances that the holder of the legal title may not in good
conscience retain the beneficial interest equity converts him into a
trustee.
* * *
A court of equity in decreeing a constructive trust is bound by no
unyielding formula. The equity of the transaction must shape the
measure of relief.
Beatty v. Guggenheim Exploration Co., 122 N.E. 378, 380-81 (N.Y. 1919); see also
Akers v. Gillentine, 231 S.W.2d 369, 371 (Tenn. 1948). Tennessee courts have
employed equitable devices to avoid the unjust enrichment of a person who:
by fraud, actual or constructive, by duress or abuse of confidence, by
commission of wrong, or by any form of unconscionable conduct,
artifice, concealment, or questionable means, or who in any way
against equity and good conscience, either has obtained or holds the
legal title to property which he ought not, in equity and good conscience
hold and enjoy.
Rowlett v. Guthrie, 867 S.W.2d 732, 734 (Tenn. App. 1993) (quoting Livesay v.
Keaton, 611 S.W.2d 581, 584 (Tenn. App.1980)); see also Burleson v. McCrary, 753
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S.W.2d 349, 353 (Tenn. 1988).
Tennessee courts have utilized equitable grounds to protect persons legally
mandated to be listed as beneficiaries of a life insurance policy. As such, it is clear
under Tennessee law that an enforceable agreement, such as a marital dissolution
agreement, which mandates that an individual be listed as a beneficiary of a life
insurance policy existing at the time of the agreement vests in that individual an
equitable interest in the designated policy. In Goodrich v. Massachusetts Mut. Life
Ins. Co., 240 S.W.2d 263 (Tenn. App. 1951), the plaintiff former wife and her
husband entered into a marital dissolution agreement which was subsequently
incorporated into a divorce decree. The agreement included the following provision:
The [husband] further agrees to pay the premiums upon and to
continue in force a certain policy of insurance on his life, which said
policy is in the sum of Five Thousand Dollars ($5,000.00), and to keep
said insurance in force in favor of [the wife] as beneficiary thereof. The
said policy of insurance shall be kept in force in favor of [the wife]
during the period that she shall remain separated from [the husband]
and in the event that she obtains a divorce, during the period that she
shall remain single thereafter.
Id. at 265. The husband, at the time of the agreement and divorce decree, had in
effect a policy insuring his life in the amount of $5,000. Fourteen years after the
divorce, the husband changed the beneficiary on the policy so that it listed his son.
After changing the beneficiary, the husband died.
In ruling that Marilyn Holt was entitled to the proceeds of the life insurance
policy in question, the Court of Appeals stated as follows:
It is true that where the right to change the beneficiary has been
reserved to the insured by the terms of the insurance policy, the
beneficiary named in the policy has a mere expectancy, and has no
vested right or interest during the life time of the assured. Page v.
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Detroit Life Insurance Co., 11 Tenn. App. 417, at page 424, and cases
therein cited.
However, in this case the divorce decree specifically provides
that the agreement made by the parties on September 3, 1932, was by
the court ratified, approved and its provisions adopted by the court.
These provisions thus become a part of the decree. . . .
The effect of this decree is more than a mere assignment by the
insured of his right to change the beneficiary. It was a judicial
determination that the insured should have the right to change the
beneficiary only in the event that [the former wife] should remarry.
We think the legal consequence of this decree was to give [the
former wife] a vested interest in the proceeds of the policy, subject to
be divested only by a rightful change of the beneficiary by the insured,
and this could be done only in the event the wife should remarry.
In his [sic] view of the case, it cannot be doubted that an attempt
by the insured to change the beneficiary without the joinder of the
beneficiary cannot affect the rights of the latter. 29 Am.Jur. p. 402,
Sec. 493; p. 986, Sec. 1316; Page v. Detroit Life Ins. Co., 11 Tenn.
App. 417.
The following statement in 29 Am. Jur. Sec. 1314 is fully
applicable to the case at bar:
“Equities may arise in favor of the beneficiary in a life
insurance policy which will deny the insured the right to
change the beneficiary, as, for example, the insured, for
a valuable consideration, estops himself from changing
his designation of the beneficiary.”
There could hardly be a stronger case for the application of this
rule than the case under consideration. Certainly if the insured himself
were alive in a contest between him and the former wife, he could not
be heard to say that he had either assigned a policy or changed the
beneficiary. And, his privies can stand on no higher ground than he
does. This is true because the rights of both an assignee and a
beneficiary are derivatives. (Citations omitted).
* * *
[T]he decree in the divorce case gave the [former wife] a vested right
in the policy, as between her and the insured. In violation of the
agreement and the decree, the insured has fraudulently attempted to
deprive her of the proceeds of the policy by an attempted change of
beneficiary. Equity will intervene in such case and declare her
beneficiary in the policy.
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Goodrich, 240 S.W.2d at 269-70, 272.
The Court of Appeals addressed similar factual circumstances in Herrington
v. Boatright, 633 S.W.2d 781 (Tenn. App. 1982). In that case, a marital dissolution
agreement that was incorporated into a divorce decree required the husband to “keep
his life insurance in effect and shall keep Wife as the beneficiary so long as they are
married or if they should divorce, so long as she is not remarried.” Id. at 782.
Relying on Goodrich, the Court nullified the husband’s attempt to change the
beneficiary of the life insurance policies subsequent to the divorce. Id. at 783; see
also Bell v. Bell, 896 S.W.2d 559 (Tenn. App. 1994); Holbert v. Holbert, 720 S.W.2d
465 (Tenn. App. 1986).
In Dossett by Dossett v. Dossett, 712 S.W.2d 96, 97 (Tenn. 1986), a divorce
decree obligated the husband “to maintain a $20,000.00 life insurance policy upon
his life and with the minor children of the marriage designated as the beneficiaries of
said policy.” At the time of the divorce, the husband owned one life insurance policy
naming the former wife as beneficiary but its value at that time was unknown. Shortly
after the divorce, the husband remarried and named his new wife as the beneficiary
of this policy. At no time were the children, the mandated beneficiaries, ever listed
as beneficiaries of the policy. The former wife did not discover the husband’s breach
of this divorce provision until his death by accidental drowning four years after the
divorce. At the time of his death, the husband had no other insurance policy, and the
insurance policy at issue included a $26,000 group life benefit and a $50,000 special
accidental death benefit.
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This Court first found that the life insurance policy at issue was the policy to
which the divorce decree referred and had an approximate value of $20,000 at the
time of the divorce. Id. at 98. Holding that the children were entitled to the proceeds
of the insurance policy, the Court reasoned as follows:
Under the stipulated facts of this case, we perceive no
significant difference between the provision of the property settlement
agreement in Herrington, supra, that the husband “shall keep his life
insurance in effect and shall keep Wife as the beneficiary” and that in
the divorce decree in the present case where the husband “is required
to maintain a $20,000 life insurance policy upon his life and with the
minor children of the marriage designated as the beneficiaries of said
policy.”
Id. at 99. The Court proceeded to find that the children were entitled to the entire
amount of the policy, including the accidental death benefit, since it was part of the
same policy. Id. at 99-100.
These cases stand for the proposition that when a life insurance policy exists
at the time of the divorce decree, the mandated beneficiary of the divorce decree
retains a vested interest in that policy in the event that the obligor spouse does not
comply with the terms of the divorce decree. No reported cases in Tennessee,
however, address the circumstance in the present case in which no identifiable
insurance policy existed at the time of the divorce.4 In the present case, Ms. Lewis
argues that these aforementioned cases are distinguishable. Ms. Lewis contends
that since no insurance policy existed at the time of the Decedent’s divorce, there is
no evidence of a fraudulent transfer or any other form of abuse of confidence,
4
Although we granted permission to appeal in a Tenn. R. App. P. 11
application in January of 1997 to resolve this specific issue, the appeal was
subsequently dismissed by the parties.
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duress, or the commission of a wrong. Furthermore, Ms. Lewis stresses that the
divorce decree did not expressly prohibit the Decedent from obtaining other life
insurance policies listing other individuals as beneficiaries. Accordingly, Ms. Lewis
asserts that Elliott Holt does not have a vested right in any particular insurance policy
and, thus, Elliott Holt is simply an ordinary creditor of the Decedent’s estate. Elliott
Holt responds that the principles espoused in such cases as Goodrich, supra, and
Dossett, supra, should be extended to the case at hand due to public policy
considerations that discourage the violation of contractual agreements and court
orders.
C. Other Jurisdictions
Because no case law in Tennessee specifically addresses this issue, we have
looked to other jurisdictions for guidance. As in Tennessee, the vast majority of
related case law in other jurisdictions involves circumstances in which identifiable life
insurance policies existed at the time that the divorce decree was entered. See
generally Annotation, 59 A.L.R. 3d 9 (1974 & Supp. 1998); 24 Am. Jur. 2d § 857
(1983 & Supp. 1998), Kelvin H. Dickinson, Divorce and Life Insurance: Post Mortem
Remedies for Breach of a Duty to Maintain a Policy for a Designated Beneficiary, 61
Mo. L. Rev. 533 (1996). The facts in a few cases, however, are remarkably similar
to the facts in the instant case.
In Equitable Life Assurance Soc’y v. Flaherty, 568 F. Supp. 610, 611 (S.D. Ala.
1983), the couple’s divorce decree required the husband to “maintain a life insurance
policy in the amount of $10,000.00 on himself making the parties minor child the
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irrevocable beneficiary on same.” At the time of the agreement and divorce, no life
insurance policy existed. Three years later, the husband obtained life insurance from
his employer and designated his new wife as the beneficiary. When the husband
died a few months later, this policy was worth $53,100 and was the only existing life
insurance policy. At no time prior to his death had the husband complied with the life
insurance policy provision of the divorce decree. When the former wife brought suit
on behalf of the decedent’s minor daughter, the named beneficiary claimed that the
daughter’s only remedy was an action against the decedent’s estate.
Applying Florida law, the court ruled that equity compelled a finding that the
child was entitled to proceeds of the insurance policy, but only to the extent of
$10,000, the amount specified in the divorce decree. The court found as follows:
The Court agrees that the present case, herein the husband has
obviously been ordered to obtain an insurance policy, differs from the
many other cases . . . wherein a party to divorce has been ordered to
maintain an existing policy naming a minor child as beneficiary.
However, in view of the intent and purpose of the decree, to-wit:
providing security for the support of the minor child, this Court does not
find the difference to be significant or distinguishable.
* * *
The Court concludes that, so far as decedent [husband’s]
obligation under the stipulation of the divorce decree requiring that he
maintain the above-mentioned insurance coverage, he had no power
in contemplation of law to name anyone other than his daughter . . . as
beneficiary to the extent of $10,000.00 in proceeds of the only
insurance policy he secured after said divorce decree. [The second
wife], as named beneficiary of the policy, thus may claim title to the
proceeds of the policy subject to the equitable interest which [the
daughter] acquired by virtue of the divorce decree. The designation of
[the second wife] as beneficiary of the life insurance proceeds by the
insured, [the decedent], pursuant to the terms of said policy, does not
defeat the prior order of court requiring that the insured’s minor child be
named irrevocable beneficiary of life insurance proceeds to the extent
of $10,000.00. To rule otherwise would defeat the obvious intent of the
property settlement and the final divorce decree and would abrogate
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the power of any Florida court to equitably provide security for the care,
custody and maintenance of minor children. . . .
Id. at 615-16. Notably, the court refused to hold the child accountable for her
mother’s failure to enforce the divorce decree prior to the decedent’s death, and
labeled the named beneficiary’s knowledge of the terms of the divorce decree as
“irrelevant” to its analysis. Id. at 615 n.2.
In Pernick v. Brandt, 506 N.W.2d 243, 244 (Mich. App. 1993), the divorcing
husband was required to “maintain a Fifty Thousand Dollar life insurance policy”
naming the former wife as beneficiary. At the time of the divorce, the husband did
not own a life insurance policy. A few months after the divorce, the husband
complied with the divorce decree by obtaining a $50,000 life insurance policy naming
the former wife as the beneficiary. Sixteen months later, however, the husband
canceled the policy. Seven months after the policy was terminated, the husband
purchased a new $100,000 policy naming his second wife as the beneficiary. After
the husband died, the former wife brought suit to collect $50,000 of the proceeds of
the $100,000 policy. 5 The trial court granted summary disposition to the former wife,
ordering that she was entitled to $50,000 of the proceeds of the policy at issue.
On appeal, the Michigan Court of Appeals contrasted the case with existing
Michigan case law precedent “because in this case there was no life insurance policy
naming [the former wife] as beneficiary at the time of the divorce. Nor was [the
former wife] ever named beneficiary of the policy at issue in this case.” Id. at 245.
5
The second wife responded that she had already spent $75,000 of the
proceeds on expenses related to the decedent’s terminal illness.
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Nevertheless, the Court cited Flaherty, supra, and concluded that the divorce decree
vested the former wife with “an equitable interest in $50,000 of the proceeds of any
insurance policy subsequently purchased by [the decedent] on his life.” Pernick, 506
N.W.2d at 245 (emphasis added). Because the decedent did not own a life
insurance policy at the time of the divorce, the Court construed the divorce decree
as requiring the decedent to “acquire and maintain” a $50,000 policy listing the former
wife as the beneficiary. Id.
Notably, however, the Court ruled that the former wife had an equitable
interest in the proceeds of “any” life insurance policy and not necessarily the policy
listing the second wife as beneficiary. Id. Thus, the Court held that the trial court
erred in granting summary disposition to the former wife “without determining to what
extent, if any, [the second wife] also had an interest in the proceeds of the insurance
policy and whether [the former wife’s] equitable interest is superior to any interest
held by [the second wife].” Id. at 246. Citing Greenberg v. Greenberg, 264
Cal. App. 2d 896, 71 Cal. Rptr. 38 (1968), the Court indicated that if the second wife
provided consideration for the policy, she may be in the nature of a bona fide
purchaser and, thus, have a superior interest to the proceeds. Pernick, 506 N.W.2d
at 246. Noting that the trial court had failed to consider an affidavit filed by the
second wife claiming that she had no knowledge of the insurance policy provision of
the divorce decree at issue and that she had used funds from her personal
inheritance to pay premiums on the policy, the Court ruled that summary disposition
was premature. Id. at 246-47.
A different approach was taken by the Wisconsin Court of Appeals in Parge
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v. Parge, 464 N.W.2d 217 (W is. App. 1990). In this case a divorce decree required
the husband to “maintain a minimum of $7,500.00 life insurance policy with the minor
children of the parties as beneficiaries.” Id. at 218. At the time of this divorce in
1974, the husband did not own any life insurance. The husband married a second
time and had a daughter by this marriage, but this marriage also ended in divorce.
At the time of his death in 1988, the decedent had two life insurance policies in effect.
One policy, worth $15,000, was obtained in 1987 and listed his daughter by his
second marriage as the beneficiary. The second policy, valued at $1,510.89, was
originally owned by the decedent’s father until 1977 at which time it was owned by
the decedent. This second policy listed the decedent’s second wife as the
beneficiary. The minor children of the first marriage brought suit, seeking to impose
a constructive trust on the proceeds of both of the life insurance policies.
In a split decision, the Court of Appeals affirmed the trial court’s decision
granting summary judgment to the named beneficiaries. After citing precedent in
which Wisconsin courts had imposed constructive trusts on insurance proceeds in
similar cases, the majority reasoned as follows:
Distinguishably, in the case before us, there were no preexisting
policies. There was nothing for [the plaintiffs’] right to “vest” in. More
appropriately, [the decedent] could have been cited for contempt for
failure to acquire and maintain policies as ordered. The court order to
“maintain” insurance gave rise to no right to a constructive trust over
subsequently acquired insurance.
To impose a constructive trust on property transferred to a third
party, the identity of the trust fund must be established. . . . In this case,
there were no “funds” or policies in existence at the time of the [divorce]
order. There was no transfer to another fund upon which a trust could
attach because there was nothing to transfer.
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Id. at 219.6
Although the facts are not directly on point, several other cases from other
jurisdictions are also enlightening. In a majority of these decisions, courts have
tended to enforce the divorce decree obligation of the deceased former spouse by
providing an equitable remedy at the expense of the named beneficiaries. See, e.g.,
Rollins v. Metropolitan Life Ins. Co., 912 F.2d 911 (7th Cir. 1990) (interpreting Indiana
law) (finding that mandated beneficiaries of a divorce decree life insurance provision
have a vested right in certain proceeds of a decedent’s life insurance policy naming
another person as beneficiary when the decedent failed to comply with the divorce
decree); Tintocalis v. Tintocalis, 25 Cal. Rptr. 2d 655, 659 (Cal. App. 1993) (“Where,
as here, the obligor spouse violates an order to maintain life insurance, a constructive
trust may be imposed.”); Reeves v. Reeves, 223 S.E.2d 112 (Ga. 1976) (finding that
children mandated beneficiaries had vested interest in certain proceeds of the
decedent’s life insurance policy); Appleman v. Appleman, 410 N.E.2d 199 (Ill. App.
1980) (finding that former wife mandated beneficiary was entitled to the imposition
of a constructive trust pertaining to proceeds of the decedent’s life insurance policy);
Simonds v. Simonds, 380 N.E.2d 189 (N.Y. 1978) (imposing constructive trust in
favor of former wife mandated beneficiary); McKissick v. McKissick, 560 P.2d 1366(Nev. 1977) (finding that former wife mandated beneficiary entitled to life insurance
policy proceeds); Thomas v. Studley, 571 N.E.2d 454 (Ohio App. 1989) (finding that
6
The dissenting judge opined that equity dictates that the plaintiffs should
prevail due to the unjust enrichment of the named beneficiaries in violation of the
divorce decree. Id. at 220 (Fine, J., dissenting).
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mandated beneficiary child entitled to life insurance policy proceeds); Madsen v.
Moffitt, 542 P.2d 187 (Utah 1975) (finding that mandated beneficiaries were entitled
to certain life insurance policy proceeds); Nielsen v. Nielsen, 535 P.2d 1239 (Utah
1975) (finding that mandated beneficiaries entitled to amount of life insurance policy
proceeds specified in the divorce decree). But see Lock v. Lock, 444 P.2d 163 (Ariz.
App. 1968) (finding that the mandated beneficiaries’ only remedy is an action against
the decedent’s estate for breach of the divorce decree); Rindels v. Prudential Life Ins.
Co., 489 P.2d 1179 (N.M. 1971) (finding that since no fraud was shown, mandated
beneficiaries were not entitled to proceeds of life insurance policy).
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III. CONCLUSION
After carefully considering principles of law as well as principles of equity, we
conclude that no significant difference exists between circumstances in which an
identifiable life insurance policy existed at the time of the divorce, e.g.,Dossett, supra,
Goodrich, supra, and the circumstances of the present case. See Flaherty, 568 F.
Supp. at 615 (“[T]his Court does not find the difference to be significant or
distinguishable.”). The language of the life insurance policy provision of the divorce
decree in the present case requires that Elliott Holt be named as “the sole and
irrevocable beneficiary” of a $100,000 policy. When Elliott Holt reaches age twenty-
five, the decree mandates that all proceeds be paid over to him. Furthermore, the
terms of the decree are “binding upon and inure to the benefit of the parties . . ., their
personal representatives, heirs and assigns.” We believe that the clear language of
the divorce decree contemplates a continuous obligation in which Elliott Holt should
be provided for in the event of the Decedent’s death. Thus, we find that the divorce
decree creates in Elliott Holt a vested right to any life insurance policy obtained by the
Decedent that satisfies the mandate in the decree.
We agree with the district court in Flaherty that a contrary ruling would
“abrogate the power” of divorce courts in this state. See Flaherty, 568 F. Supp at
616. We believe that the public policy of this state strongly favors the enforcement
of court orders, particularly when the welfare of children is involved. When this public
policy consideration is juxtaposed with the unique facts of the present case, it
appears that the lower courts properly applied the maxim, “[e]quity regards that as
done which in good conscience ought to be done.” McCann Steel, 337 S.W.2d at
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891; Gibson’s Suits in Chancery § 21. In the present case, the Decedent, while he
and Elliott Holt were living with the Decedent’s mother, Sophia Holt, named his
mother as the beneficiary of the life insurance policy at issue. The trial court found
that the Decedent had effectively created a constructive trust in which Sophia Holt
was trustee for the use and benefit of Elliott Holt. The fact that Sophia Holt altered
her will a few days after the Decedent’s death so that her entire estate was
bequeathed to Ms. Lewis, a third party, should not, in the interest of equity, defeat
this constructive trust. We further find no merit in the contention of Ms. Lewis,
grounded in the principle of laches, that Elliott Holt should not recover the proceeds
at issue due to his mother’s failure to enforce the divorce decree while the Decedent
was alive. A minor child mandated as a beneficiary should not be forced to suffer as
a result of the neglect of the trustee. See Flaherty, 568 F. Supp. at 615 n.2.
The judgments of the lower courts granting summary judgment to the
appellees are affirmed. Costs of the appeal are taxed to Ms. Lewis.
_____________________________________
Frank F. Drowota, III,
Justice
Concur:
Anderson, C.J.
Birch, Holder, Barker, J.J.
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