Benefit Trust Life Ins. Co. v. Union Nat. Bank of Pittsburgh

• Decision Date: 15 November 1985
• Docket Number: 84-3801 and 84-3812,Nos. 84-3780,s. 84-3780
• Citation: 776 F.2d 1174
• Parties: BENEFIT TRUST LIFE INSURANCE COMPANY v. UNION NATIONAL BANK OF PITTSBURGH, Administrator d.b.n.c.t.a. of the Estate of Michael F. DeJohn, Dawn DeJohn, and Jeffrey E. Ingram, guardian of the Estate of Michelle DeJohn, a minor. Appeal of BENEFIT TRUST LIFE INSURANCE COMPANY. Appeal of UNION NATIONAL BANK OF PITTSBURGH, Administrator of the Estate of Michael F. DeJohn. Appeal of Dawn DEJOHN and Jeffrey E. Ingram, Guardian of the Estate of Michelle DeJohn, a minor.
• Court: U.S. Court of Appeals — Third Circuit

Page 1174

776 F.2d 1174

BENEFIT TRUST LIFE INSURANCE COMPANY v. UNION NATIONAL BANK OF PITTSBURGH, Administrator d.b.n.c.t.a. of the Estate of Michael F. DeJohn Dawn DeJohn, and Jeffrey E. Ingram guardian of the Estate of Michelle DeJohn, a minor Appeal of BENEFIT TRUST LIFE INSURANCE COMPANY Appeal of UNION NATIONAL BANK OF PITTSBURGH, Administrator of the Estate of Michael F. DeJohn. Appeal of Dawn DEJOHN and Jeffrey E. Ingram, Guardian of the Estate of Michelle DeJohn, a minor.

Nos. 84-3780, 84-3801 and 84-3812.

United States Court of Appeals, Third Circuit.

Argued Oct. 2, 1985.

Decided Nov. 15, 1985.

John P. Davis, III (argued), Jones, Gregg, Creehan & Gerace, Pittsburgh, Pa., for Benefit Trust Life Ins. Co.

Michael W. Davis (argued), Columbia, Md., for Dawn DeJohn and Jeffrey Ingram.

Ronald W. Crouch (argued), Lawrence J. Kuremsky, Buchanan Ingersoll, P.C., Pittsburgh, Pa., for Union Nat. Bank of Pittsburgh.

Before HUNTER, WEIS, and MANSMANN, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

A murder prosecution against the primary beneficiary lasting for a number of years delayed the determination of the proper payees of life insurance proceeds. The district court decided that in the interim the insurance company was required to interplead and pay the proceeds into court. Having failed to do so, the company became liable for interest at the rate it had realized, one which was in excess of the legal rate. We conclude that there is no duty of interpleader in Pennsylvania and that the carrier is responsible for prejudgment interest, but only at the legal rate. Accordingly, we will remand for modification of the judgments.

This case arises out of claims for the proceeds of life insurance policies covering Michael DeJohn, who was killed on February 12, 1976. At the time of his death, he was insured by plaintiff Benefit Trust Life Insurance Company under two group policies purchased by his employer. One was a standard life policy, and the other covered accidental death. Each had a face amount of one and one-half times DeJohn's annual earnings, which resulted in the sum of $62,000 on each policy. The central issue in this case is the amount of prejudgment interest, if any, due on the proceeds of the two policies.

The primary beneficiary on each of the policies was the insured's wife, Jill DeJohn. The contingent beneficiaries on the life policy were his two minor children, Dawn and Michelle. The contingent beneficiary on the accident policy was the insured's estate.

Michael DeJohn died as a result of a gunshot wound, and, within a few days after his death, the police arrested his wife, Jill. She was indicted for murder soon thereafter. The criminal proceedings dragged on for many years. After two trials and an appeal to the state supreme court, Mrs. DeJohn finally confessed, on April 30, 1982, to the murder of her husband.

On May 6, 1976, Benefit Trust had received a claim by Jill DeJohn for the proceeds of the two policies. The company knew that Mrs. DeJohn had been indicted and was also aware that the Pennsylvania Slayers' Act, 20 Pa.Cons.Stat.Ann. Secs. 8801-8815 (1975), would bar payment to her if she were guilty of causing her husband's death.

In March, 1976, a guardian had been appointed for the estates of the two children. Mrs. DeJohn, having initially taken out letters on her husband's estate, resigned, and the Union National Bank was appointed administrator. In a letter to the insurance company dated August 23, 1976, the bank stated,

"As administrator ... the Bank has opened two separate accounts. The first account will hold the assets which are properly payable to the Estate.... The second ... has been established to hold funds which would otherwise be payable to Mrs. DeJohn and/or the two minor children. It is our intention to hold these funds pending the outcome of Mrs. DeJohn's trial.... [I]t is very important that some sort of financial assistance be forthcoming for the support of the two minor children."

In 1976, the insurance company stated it would not pay the benefits until the resolution of the criminal matter. It did, however, offer to make a partial payment to the estate or to the guardians on behalf of the children if a hold harmless agreement was signed by the parties in interest, including Jill DeJohn.

In November of that year, after reviewing the company's terms, the bank stated that,

"[I]t has been decided not to seek payment on this policy until the final outcome of the legal proceedings against the primary beneficiary, Mrs. DeJohn.... [D]ue to several complications which have developed, we do not feel that much advantage will be derived in seeking payment before the actual beneficiary has been determined."

From 1976 through 1982, regular correspondence passed between Union National Bank and the insurance company. The guardian for the children did not contact the insurance carrier until Jill DeJohn had confessed.

During the first two years, the insurance company made periodic requests about the status of the criminal case. In a letter of November 27, 1978, the attorney for the insured's estate advised the company that the state supreme court had heard arguments in Mrs. DeJohn's appeal. He continued,

"We will advise you of that outcome as soon as it becomes available so that prompt payment in full of benefits owing plus all earned interest may be effected to the appropriate party."

The status reports continued over two more years. In a letter of February 17, 1981, the bank wrote that a retrial was to be scheduled but that Mrs. DeJohn's attorney could not give a specific date. The letter concluded, "I believe all we can do at this point is to maintain the status quo."

On May 10, 1982, the bank wrote to the insurance company informing it of Mrs. DeJohn's confession and adding, "There appears to be various financial difficulties, primarily tax problems with the Estate of Michael F. DeJohn. Therefore, we are requesting that payment to contingent beneficiaries not be made until these problems are resolved." Two months later, the bank requested payment of the proceeds of the accident policy, together with "the appropriate pro rata portion of the accrued interest."

In October, 1982, an attorney representing the two children requested payment on the life policy. The insurance company paid the amounts it contended were due under the policies, but in each instance denied interest.

The insurance company then filed this declaratory judgment action, asking the court to determine that no beneficiary was entitled to interest. The beneficiaries counterclaimed, alleging that the insurance carrier had improperly computed the principal and asking for interest at a rate equivalent to that paid during the relevant period on six months' certificates of deposit.

After a bench trial, the district court found that the beneficiaries were entitled to the increased principal because the company had not included commissions earned by the decedent as part of his annual earnings. Seemingly, the insurance company had accepted the calculation by Mrs. DeJohn, whose claim asked for $38,000, and did not verify the actual earnings with the employer. That part of the adjudication has not been appealed.

The district court also determined that after May 6, 1976, when Mrs. DeJohn submitted her claim, the insurance company had a duty to interplead the proceeds of the two policies. Having failed to do so, the carrier had been unjustly enriched and owed interest, not at the legal rate of 6%, but at a higher rate approximating the net investment income the company received during those years. The district court entered judgment requiring the insurance company to pay the sum of $70,029.98 to Union National Bank, as administrator of the Estate of Michael DeJohn, and $35,014.96 to Dawn DeJohn, and the same sum to Jeffrey Ingram, guardian of the Estate of Michelle DeJohn.

The insurance company has appealed, contending that it did not have a duty to interplead and that if any interest is due it must be calculated at the legal rate. The carrier also argues that no interest is due on the additional amount attributable to the commissions because that matter had not been raised until the beneficiaries filed their counterclaim. The beneficiaries have cross-appealed, arguing that interest should have been calculated at the certificate of deposit rate.

We begin by noting that in this diversity case the law of Pennsylvania applies. The Supreme Court of Pennsylvania has concluded that "the quasi-contractual doctrine of unjust enrichment [is] inapplicable when the relationship between parties is founded on a written agreement or express contract." Schott v. Westinghouse Electric Corp., 436 Pa. 279, 290, 259 A.2d 443, 448 (1969).

The Superior Court followed this holding in Gee v. Eberle, 279 Pa.Super. 101, 119, 420 A.2d 1050, 1060 (1980): "the essence of the doctrine of unjust enrichment is that there is no direct relationship between the parties." If there is a relationship in the form of a promise to, or for the benefit of, the plaintiff, he "has a right to recover on the promise.... The existence of that right, however, precludes a claim of unjust enrichment." See also Third National Bank & Trust Co. of Scranton v. Lehigh Valley Coal Co., 353 Pa. 185, 44 A.2d 571 (1945); Roman Mosaic & Tile Co., Inc. v. Vollrath, 226 Pa.Super. 215, 313 A.2d 305 (1973).

Plaintiffs in this case have a direct contractual relationship with the insurance company. They are the third party beneficiaries of the policies which establish the carrier's obligation to pay. The beneficiaries have an undoubted right in law to sue for and receive those proceeds. Therefore, under Pennsylvania law no basis exists for an action of unjust enrichment in these circumstances.

Nor do we find any basis in Pennsylvania law for imposing a duty on a life insurance company to file an interpleader action. Although it is free to do so under...