Franklin Life Insurance Company v. Mast

• Decision Date: 10 December 1970
• Docket Number: 23570.,No. 23502,23502
• Citation: 435 F.2d 1038
• Parties: FRANKLIN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. Julie Ann MAST et al., Defendants-Appellants. FRANKLIN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. Muriel SANDUSKY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

435 F.2d 1038 (1970)

FRANKLIN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. Julie Ann MAST et al., Defendants-Appellants.

FRANKLIN LIFE INSURANCE COMPANY, a corporation, Plaintiff-Appellee, v. Muriel SANDUSKY, Defendant-Appellant.

Nos. 23502, 23570.

United States Court of Appeals, Ninth Circuit.

December 10, 1970.

James L. Richmond (argued), of Chandler, Tullar, Udall & Richmond, Tucson, Ariz., for Julie Ann Mast and others.

Lawrence Ollason (argued) of Hirsch, Van Slyke & Ollason, Tucson, Ariz., for Muriel Sandusky.

Russell E. Jones (argued), of Holesapple, Conner, Jones, McFall & Johnson, Tucson, Ariz., for plaintiff-appellee.

Before BROWNING, CARTER and TRASK, Circuit Judges.

TRASK, Circuit Judge:

This is an interpleader action filed by The Franklin Life Insurance Company to determine those persons entitled to the proceeds of a life insurance policy written on the life of Elizabeth L. Mast. The policy was a Decreasing Term Policy in the face amount of $50,000 with a double indemnity provision in the event of accidental death. Mrs. Mast was killed in an automobile accident in November 1965 while the policy was in full force and effect. The Company paid the proceeds of the policy, in the sum of $98,950, into the registry of the court when it filed the action. Mrs. Mast was the applicant for, the insured under, and the sole owner of the policy. It provided when issued that C. Lee Mast, husband, was the primary beneficiary and "children born of the insured's marriage to said husband" were the first contingent beneficiaries. Julie Ann Mast, Katherine Louise Mast and Jonathan Lee Mast, all minors, were children of the marriage. Both the husband and the children survived the insured.

An attempt to alter the shares of the beneficiaries as set forth in the policy provides the basis for this interpleader action. The policy contained a provision setting out the procedure for changing beneficiaries,¹ but that provision was not followed, and the following sequence of events occurred.

On November 22, 1958, Mrs. Mast, executed a holographic will in which she created a testamentary trust designating the Southern Arizona Bank & Trust Company of Tucson, Arizona, as Trustee and the three Mast children as beneficiaries of the specific sum of money with the residue of the estate to her husband, C. Lee Mast.

On June 9, 1963, Mrs. Mast executed the First Codicil to her will in which she changed the devisee and legatee of the residue of her estate from her husband to the testamentary trustee for the benefit of her children.²

On May 11, 1965, she signed an application for the insurance policy in question.

On May 14, 1965, she did execute a formal typewritten will in which her signature was attested and in which her husband received all income for life with the right to invade the principal.

Four days later on May 18, 1965, Mrs. Mast executed a Second Codicil to her holographic will. In this codicil she very positively revoked the formal attested will of May 14, 1965, and reaffirmed and republished the provisions of her original holographic will.³

She also, in this will, referred to the insurance policy in question in these words:

"During the past week I have also signed at the insistence of my husband a Power of Attorney and an application for an insurance policy with the Franklin Life Insurance Company whose local agent is Mr. Tracy Prater. "At my death, I assume the Power of Attorney will be null and void, which is my wish.

"The beneficiary of the insurance policy is listed as my husband, Chancey Lee Mast or C. Lee Mast. Since I was induced to sign this policy because of concern for the welfare and educational needs of the children, I would like to direct — and do so direct if at all legally possible — that the proceeds of this policy be distributed as follows: $5000 to my husband Chancey Lee Mast; the remainder to be considered a part of my estate to be used for payment of just expenses after which the remainder shall go into the body of the trust or trusts to be used for the benefit of my designated heirs."

On July 1, 1965, she executed a Third Codicil in which she republished her holographic will with the two prior codicils.⁴

In all of these handwritten instruments she had expressed fear for her own safety, her concern that she might die a death which had been made to look accidental, her fear of her husband, and her concern to provide for her children with a minimum of regard for her husband's participation in her estate. She died in an automobile accident on November 19, 1965. Her husband was indicted for murder but the charges were subsequently dismissed.

The holographic will of November 22, 1958, and the three holographic codicils were duly admitted to probate by the Superior Court of Pima County, Arizona, and executors appointed as designated. C. Lee Mast filed a Debtor's Petition in the United States District Court on September 1, 1967, seeking an adjudication to be declared a bankrupt.

Those who assert a claim to the proceeds of the policy are: (1) The Mast children under the terms of the policy itself and the renunciation by C. Lee Mast of all of his rights under this specific policy. They assert that the holographic will and codicils were ineffective to change the beneficiaries in the face of the policy provision for change of beneficiaries. (2) The Southern Arizona Bank & Trust Company as a co-executor of the estate of the deceased claims under the holographic documents, asserting that they were effective to change the beneficiaries under the policy. (3) The Trustee in Bankruptcy for C. Lee Mast claims the entire policy proceeds, asserting that neither the holographic documents nor the renunciation were sufficient to defeat the terms of the policy making Mr. Mast the sole primary beneficiary of the policy.

The trial court (1) correctly held⁵ that the adjudication of the Superior Court of Pima County admitting the holographic will and codicils to probate as the last will and testament of Elizabeth Mast, was binding on the federal courts. (2) It held also that the holographic Second Codicil of May 18, 1965, was a legally effective change of the beneficiaries of the insurance policy with the result that $5,000 of the proceeds of that policy should be paid to C. Lee Mast and the remainder should go to Mrs. Mast's estate. (3) Finally, the trial court held that the husband did not subsequent to his wife's death effectively renounce his right under the policy to receive $5,000 and therefore this amount should be paid to him or to his Trustee in Bankruptcy. We agree with the trial court except for the finding that there was no legally binding renunciation by C. Lee Mast. In this respect we disagree and hold that $5,000 of the policy proceeds directed to be paid to Chancey Lee Mast should be paid to the children of Elizabeth Mast and C. Lee Mast; namely, Julie Ann Mast, Katherine Louise Mast and Jonathan Lee Mast, through their legally appointed guardian.

Jurisdiction was conferred upon the trial court under the provisions of 28 U.S.C. § 1332 (Diversity of Citizenship). The appeal comes to us under 28 U.S.C. § 1291.

Change of Beneficiaries of Policy

The adjudication of the Arizona court that the holographic will and its similarly drawn codicils were valid testamentary instruments and properly admitted to probate, is binding here. Markham v. Allen, 326 U.S. 490, 494, 66 S.Ct. 296, 90 L.Ed. 256 (1946); Byers v. McAuley, 149 U.S. 608, 615, 13 S.Ct. 906, 37 L.Ed. 867 (1893); Republic of Iraq v. First National City Bank, 353 F.2d 47 (2d Cir.), cert. denied, 382 U. S. 1027, 86 S.Ct. 648, 15 L.Ed.2d 540 (1966). The effect of the May 18, 1965, Second Codicil which purports to change the beneficiaries of the life insurance contract is properly within the jurisdiction of the federal court for determination. Markham v. Allen, supra. It is the basis upon which the executors must rely. They pin their reliance upon Doss v. Kalas, 94 Ariz. 247, 383 P.2d 169 (1963). The issue there, as here, was whether a will executed by a policy owner effected a change of beneficiaries in the face of a policy provision which specifically set out another procedure which should be followed. An earlier case, McLennan v. McLennan, 29 Ariz. 191, 240 P. 339 (1925)⁶ had held that the method of changing beneficiaries set out in the policy contract was exclusive and must be followed strictly. The Doss court reviewed its earlier holding and noted that in McLennan the court had stated three exceptions to the general rule requiring strict compliance with policy provisions: (1) If the insurer has waived strict compliance; (2) if it be beyond the power of the insured to comply literally with the regulations, equity will treat the change as regularly made; and (3) if the insured had done all in his power to effect the change, but before the change is completed he dies, equity will treat the change as having been made.

McLennan was not an attempt to change a beneficiary by will. It was an inter-vivos transaction in which the insured did not meet the policy requirements and was so notified and instructed as to the proper manner in which to change the beneficiary. Thereafter although ample time elapsed in which the proper change could have been made, it was not. Instead, there was an indication that the insured had changed his mind. Upon such a state of facts the court did not and could not say that the original abortive attempt came within any exception. The Doss court therefore distinguished its earlier decision on the facts. Doss, supra, 94 Ariz. at 251-252, 383 P.2d at 172.

It then stated the general rule from McLennan and continued as follows:

"Other authorities, however hold that when the power to make a change of the beneficiary is reserved to the insured by the policy, and the insurer does not demand full compliance with the procedure to effect the change as set out in the policy, the insured may change his beneficiary

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