Federal Ins. Co. v. Smith
| Decision Date | 30 May 2001 |
| Docket Number | Civil Action No. 00-397-A. |
| Citation | 144 F.Supp.2d 507 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | FEDERAL INSURANCE COMPANY, Plaintiff, v. Susan M. SMITH, et al., Defendants. |
Julia Ann Bitner, Wickwire Gavin, P.C., Vienna, VA, for Plaintiff.
Douglas Elwood Bywater, Tate & Bywater, Ltd, Vienna, VA, for Defendants.
In this diversity action, plaintiff Federal Insurance Company ("FIC") initially sued defendant Susan Smith and others, inter alia, for common-law conversion of insurance proceeds stolen by defendant's now-deceased husband and used, in part, to satisfy defendant's personal and joint obligations and expenses.1 Following pretrial proceedings, only FIC's conversion claims against Susan Smith remained for trial.2 The parties waived a jury and stipulated to many of the pertinent facts, so that only defendant's testimony was presented at trial. At the conclusion of the trial, FIC, by counsel, successfully moved orally to amend the complaint to conform to the evidence by adding a claim for unjust enrichment. The following sets forth the Court's findings of fact pursuant to Rule 52, Fed.R.Civ.P., and its conclusions of law.
Defendant Susan Smith married Myron Smith in January 1986 and lived with him in Alexandria, Virginia until October 1999. During this period, defendant worked for the Central Intelligence Agency ("CIA") as a systems administrator, and Myron Smith worked for the Armed Forces Benefit Association ("AFBA") as a life insurance claims analyst. The AFBA is a non-profit, voluntary member beneficiary organization that provides life insurance to members of the armed forces and their families. Plaintiff FIC provided insurance coverage for the AFBA, including coverage for losses resulting from employee theft.
The evidence discloses that Myron Smith, whose AFBA duties included processing life insurance benefits claims, was the central actor in an insurance fraud scheme. In essence, Myron Smith collected insurance benefits from false claims he submitted under two bogus policies he fraudulently obtained from the AFBA. More specifically, in late 1996, Myron Smith obtained the name and Social Security number of Jacqueline G. Hester, a soldier who died in New Jersey on June 6, 1996. Using Hester's name and Social Security number, Myron Smith drafted and submitted to the AFBA a falsified application for group life insurance coverage in the amount of $150,000 on Hester's life. The application identified Myron Smith's brother, Michael C. Smith, as the primary beneficiary of the policy.4 Thereafter, Myron Smith made a false claim for a death benefit by submitting to the AFBA a Report of Casualty form falsely showing that Hester died on January 15, 1997 in Grafenwoehr, Germany, and that Michael Smith was the deceased's father.
The AFBA approved this claim and paid the Hester policy death benefit by two checks: (i) an Emergency Death Benefits check for $5,000 dated January 21, 1997, payable to Michael Smith and deposited into USAA Checking Account Number 033-8833-6, a joint account in the names of Michael and Myron Smith (the "USAA account"), and (ii) a check dated February 19, 1997, for the remaining $145,000, made payable to Michael Smith and deposited into the same USAA bank account.
In 1998, Myron Smith repeated his fraudulent scheme. On this occasion, he created and processed a second fraudulent AFBA insurance policy, this time using the Social Security number of Jimmy J. Jeffries, a soldier in the United States Army who died while on active duty in California. Myron Smith submitted to the AFBA a falsified application for group life insurance coverage in the name of "Jimmy M. Smith" in the amount of $150,000. The application named Michael Smith as the policy beneficiary. Then, as in the case of the Hester fraud, Myron Smith made a false claim for a death benefit by sending the AFBA a false Report of Casualty form reporting Jeffries's death. And, once again, the AFBA paid a $150,000 death benefit by two checks, one for $5,000, dated April 21, 1998, and one for $145,000, dated April 28, 1998. Both checks were made payable to Michael Smith and both were deposited into the same USAA account of Myron and Michael Smith.
The motive for Myron Smith's fraudulent conduct is not difficult to discern. In 1996, defendant and Myron Smith were deeply in debt, and the evidence indisputably shows that the bulk of the $300,000 stolen by Myron Smith was used to pay these debts, which included defendant's personal obligations and obligations for which defendant and Myron Smith were jointly responsible. More specifically, the record convincingly reflects that $229,449.24 of the $300,000 stolen from the AFBA by Myron Smith was used (i) to pay defendant's personal debts or debts for which defendant and Myron Smith were jointly liable or (ii) to pay for defendant's personal expenses.5 The details of these disbursements are central to the disposition of FIC's claims against defendant.
Disbursements of the $229,449.24 in issue fall into four categories:
Category 1: Myron Smith issued checks totaling $57,261.52 drawn on the USAA account to satisfy defendant's individual and joint obligations.6
Category 2: Myron Smith gave defendant a $56,000 check drawn on the USAA account with instructions to deposit the funds into defendant and Myron Smith's joint North West Federal Credit Union account (the "NWFCU account")7 and to use the funds to pay off their various NWFCU loans. The evidence discloses that defendant agreed with her husband's instructions and followed them, first by depositing the $56,000 check into the NWFCU account at the NWFCU branch located at CIA headquarters and then by directing that the funds be used for the payment of various NWFCU loans on which defendant and Myron Smith were jointly obligated.8
Category 3: Myron Smith also issued a check for $137,000 on the USAA account that was deposited into the Smiths' joint NWFCU account and subsequently used to pay off various loans, bills, and other obligations of defendant.9
Category 4: Finally, Myron Smith gave defendant a $4,500 check written on the USAA account, which defendant subsequently deposited into the NWFCU account.10
Central to the disposition of FIC's claims against defendant are the details of the disbursements, which are set forth in the following tables:
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