Abbott v. CUNA MUTUAL INS. SOC., 24103-0-II.

• Decision Date: 08 September 2000
• Docket Number: No. 24103-0-II.,24103-0-II.
• Citation: 7 P.3d 852,102 Wash. App. 519
• Court: Washington Court of Appeals
• Parties: Eleanor ABBOTT, a single person, Appellant, v. CUNA MUTUAL INSURANCE SOCIETY; and Educational Employees Credit Union, Respondents, Eleanor Abbott, a single person; and Diane Baillargeon, Personal Representative of the Estate of Larry Ketchum, deceased, Appellants, v. Cuna Mutual Insurance Society; and Kitsap Federal Credit Union, Respondents.

7 P.3d 852

102 Wash. App. 519

Eleanor ABBOTT, a single person, Appellant, v. CUNA MUTUAL INSURANCE SOCIETY; and Educational Employees Credit Union, Respondents, Eleanor Abbott, a single person; and Diane Baillargeon, Personal Representative of the Estate of Larry Ketchum, deceased, Appellants, v. Cuna Mutual Insurance Society; and Kitsap Federal Credit Union, Respondents.

No. 24103-0-II.

Court of Appeals of Washington, Division 2.

September 8, 2000.

Gregory Mann Miller, Seattle, for Amicus Curiae Washington State Medical Association.

John Raymond Ruhl, Eisenhower & Carlson, Seattle, for Respondents.

Nick L. Markovich, Gig Harbor, for Appellants.

MORGAN, J.

Eleanor Abbott (Abbott) and Larry Ketchum's estate (Ketchum)¹ sued two credit unions and a credit life insurer to collect credit life insurance written on the life of Fred Epperly. After a bench trial, the trial court ruled for the defendants. We affirm.

In 1990, Eleanor Abbott was a licensed practical nurse. She operated a licensed adult foster care facility in her home.² One of her neighbors was Larry Ketchum. One of her patients was Fred Epperly.

Epperly had been severely injured in an on-the-job accident. He was quadriplegic and needed 24-hour-a-day care. Abbott provided such care in exchange for $15,000 per month from the Washington State Department of Labor and Industries (DLI). Epperly had no income, although DLI was paying $1,400 per month to his wife and children. Epperly could sign his name by using a mouthwand.

Epperly, Abbott and Ketchum were not related by blood or law. According to Abbott's brief on appeal, she and Epperly had "developed ... a close friendship." According to Ketchum's brief on appeal, he and Epperly had "also developed a friendship."³

On December 4, 1990, Abbott and Epperly opened a joint account at the Educational Employees' Credit Union (EECU). During the next three months, Abbott deposited approximately $149,000 of her own money into that account. Epperly deposited nothing.

On March 13, 1991, EECU made five loans totaling $149,000. Four loans were for $30,000, and one was for $29,000. All five were secured by the contents of the Abbott-Epperly joint account. The transaction was structured as five smaller loans, instead of one larger loan, so that Abbott and Epperly could obtain joint credit life insurance. Peculiarly, the insurer they proposed to use, CUNA Mutual Insurance Society (CUNA), was willing to insure five smaller loans totaling $149,000, but unwilling to insure one larger loan for the same amount.

Both Abbott and Epperly signed the loan documents. Thus, they became joint obligors of the credit union.⁴

As between themselves, according to the trial court's appropriate findings of fact, Abbott was intended to be the primary obligor and Epperly was intended to be the secondary obligor (i.e., surety or accommodation maker).⁵ In accordance with this intent, Abbott took all of the loan proceeds. According to her later testimony, she spent the entire $149,000 for "everyday expenses and bills and that sort of thing."⁶

Also on March 13, 1991, Abbott and Epperly applied to CUNA for joint credit life insurance in the amount of the five loans. CUNA accepted the application and issued a certificate of insurance. EECU paid the premium out of the loan proceeds. CUNA's insurance policy provided that for "single life coverage," the borrower is insured, and that for "joint life coverage," the co-borrower is also insured.⁷ It further provided that "[i]f a member or a joint insured dies while he is insured under this Policy for a loan, [CUNA] will pay the principal balance of his loan on the date of his death...."⁸ Finally, it provided that:

Any death benefits under this Policy will be paid to [the lending credit union].... [The lending credit union] will apply the benefits to reduce or pay off the loans for which payment is made. Any excess benefits will be paid by [CUNA] by separate check to the beneficiary named to the estate. [The lending credit union] will pay any excess benefits to the beneficiary named by him or to his estate.[⁹]

Epperly did not name a beneficiary other than his estate.

Four months later, Abbott, Ketchum and Epperly engaged in two similar transactions at the Kitsap Federal Credit Union (KFCU). On or about July 25, 1991, Abbott and Epperly opened a joint account at KFCU. Within a few days, Abbott deposited $50,000 of her own money. On August 8, 1991, KFCU loaned $50,000, taking the contents of the joint account as security. Both Abbott and Epperly signed the loan documents, thus becoming joint obligors of the credit union. As between themselves, however, Abbott was intended to be the primary obligor and Epperly the secondary obligor (i.e., surety or accommodation maker).¹⁰ Consistent with this intent, Abbott took all the loan proceeds in the same way as before.

Also on August 8, Abbott and Epperly applied for joint credit life insurance in the amount of the KFCU loan. CUNA agreed to insure under a policy identical to the one described above, and Epperly did not name a beneficiary other than his estate.

Meanwhile, on July 26, 1991, Ketchum and Epperly opened another joint account at KFCU. On August 9, 1991, Abbott deposited into the Ketchum-Epperly account the $50,000 she had borrowed from KFCU the previous day, and KFCU loaned another $50,000, secured by the contents of the Ketchum-Epperly account. Ketchum signed the loan documents and took all the proceeds. They tried to purchase a backhoe, but they returned it. Although it is unclear whether Epperly also signed the loan documents, we will assume that he did,¹¹ and that he and Ketchum became joint obligors of the credit union. As between themselves, however, Ketchum was intended to be the primary obligor and Epperly the secondary obligor (i.e., surety or accommodation maker).¹²

Also on August 9, Ketchum and Epperly applied to CUNA for joint credit life insurance in the amount of the loan. CUNA agreed to insure under a policy identical to the one described above, and Epperly did not name a beneficiary other than his estate. During the remainder of August 1991, Abbott and others engaged in several more transactions. The others, according to Abbott's testimony, included her daughter Diane; her friend Karen Boyd; and her daughter's friend Karen Byron. On August 16, 1991, Boyd and Epperly obtained a $50,000 loan from a credit union, and probably joint credit life insurance also.¹³ On August 18, 1991, Abbott and Epperly bought a $30,000 Toyota Cressida and joint credit life insurance. Also on August 18, Epperly gave Abbott a power of attorney. On August 18, Byron and Epperly (with Abbott now signing for Epperly under the power of attorney) bought a $15,000 Toyota Corolla and joint credit life insurance. On August 19, Diane and Epperly (with Abbott again signing for Epperly under the power of attorney) bought a $15,000 Toyota truck and joint credit life insurance. On August 28, 1991, Abbott and Epperly obtained a $40,000 loan from a bank, and credit life insurance also.¹⁴ On August 30, 1991, Abbott and Epperly purchased a $50,000 BMW and joint credit life insurance. None of these transactions involved CUNA, EECU or KFCU, so none is directly in issue here.

On August 31, 1991, Epperly died. Two weeks later, Abbott asked EECU and KFCU to claim against CUNA and use the proceeds to pay off the loans on which she was a joint obligor. Ketchum made a similar request to KFCU. Each credit union claimed as requested, but EECU also notified CUNA that "[t]here are unusual circumstances surrounding this claim."¹⁵ On December 31, 1991, CUNA denied the claims, stating that "there is no coverage."¹⁶

After CUNA's denial, EECU and KFCU satisfied their loans by taking money out of the joint accounts that had been pledged as security. Since then, of course, neither credit union has claimed against CUNA. Nor has Epperly's estate. But Abbott and Ketchum have.

On December 15, 1995, Abbott sued CUNA and EECU. In December 1997, Abbott and Ketchum sued CUNA and KFCU. The two lawsuits were consolidated, a bench trial was held, and the defendants prevailed. Abbott and Ketchum then filed this appeal.

Credit life insurance is insurance on the life of the debtor, not insurance on a debt. RCW 48.34.030(1) states that credit life insurance is "insurance on the life of the debtor pursuant to or in connection with a specific loan or other credit transaction."¹⁷ Leuning v. Hill states "that it is the life of the debtor which is insured, rather than the debt."¹⁸ CUNA's policy states that "for single life coverage" the borrower is insured, and "for joint life coverage" the co-borrower is also insured.¹⁹

Generally, the amount of credit life insurance declines as the balance due on the debt declines. According to Couch, "Credit... Life policies are common forms of decreasing term coverage, in which coverage is for the duration of the note[.]"²⁰ According to RCW 48.34.060, "[t]he initial amount of credit life insurance under a group policy shall at no time exceed the amount owed by the debtor which is repayable in installments to the creditor."²¹ According to RCW 48.34.050, "[t]he initial amount of credit life insurance under an individual policy shall not exceed the total amount repayable under the contract of indebtedness[,]" and that "[w]here an indebtedness is repayable in substantially equal installments, the amount of insurance shall at no time exceed the scheduled or actual amount of unpaid indebtedness, whichever is greater." In Leuning v. Hill, however, particular group policies were said to be "nonreducing term policies."²²

Even if the amount of credit life insurance declines while the insured is alive, it becomes fixed when the insured dies, at least for purposes of this case. Couch states that "the amount payable in the event of the death of the insured is the amount of debt outstanding at that time."²³ The CUNA policy in issue here states that "[i]f a member or a...