Helton v. Am. Gen. Life Ins. Co.

• Citation: 946 F.Supp.2d 695
• Decision Date: 21 May 2013
• Docket Number: Civil Action No. 4:09–CV–00118–JHM.
• Parties: Warren C. HELTON, individually and on behalf of The Warren C. Helton Irrevocable Trust, et al., Plaintiffs v. AMERICAN GENERAL LIFE INSURANCE CO.; and Lawrence A. Rasche, Defendants.
• Court: U.S. District Court — Western District of Kentucky

946 F.Supp.2d 695

Warren C. HELTON, individually and on behalf of The Warren C. Helton Irrevocable Trust, et al., Plaintiffs

v.AMERICAN GENERAL LIFE INSURANCE CO.; and Lawrence A. Rasche, Defendants.

Civil Action No. 4:09–CV–00118–JHM.

United States District Court,

W.D. Kentucky,

Owensboro Division.

May 21, 2013.

Justin Whittaker, Robert R. Sparks, Ronald R. Parry, Parry, Deering, Futscher & Sparks PSC, Covington, KY, for Plaintiffs.

Timothy L. Mauldin, Bell, Orr, Ayers & Moore, PSC, Bowling Green, KY, Christopher C. Frost, David P. Donahue, Elizabeth Prim Formby, Michael D. Mulvaney, Shema N. Mbyirukira, Maynard Cooper & Gale PC, Birmingham, AL, for Defendant, American General Life Insurance Co.Shea W. Conley, Matthew T. Lockaby, Reminger Co., LPA, Lexington, KY, Andrew J. Dorman, Reminger Co., LPA, Cleveland, OH, for Defendant, Lawrence A. Rasche.

MEMORANDUM OPINION AND ORDER

JOSEPH H. McKINLEY, JR., Chief Judge.

This matter is before the Court on Defendant Lawrence Rasche's motions for summary judgment. [DN 268, 270, 272, 278, 279]. Also before the Court is Defendant American General Life Insurance Company's motion for summary judgment. [DN 281] Fully briefed, these matters are ripe for decision. For the following reasons, the Court DENIES in part and GRANTS in part the Defendants' motions for summary judgment.

I. STANDARD OF REVIEW

Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and of identifying that portion of the record which demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party is required to do more than simply show there is some “metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The rule requires the non-moving party to present specific facts showing that a genuine factual issue exists by “citing to particular parts of materials in the record” or by “showing that the materials cited do not establish the absence ... of a genuine dispute[.]” Fed.R.Civ.P. 56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

II. BACKGROUND

This case stems from the sale of financed premium life insurance plans by Defendants American General Life Insurance Company (“American General”) and its agent Lawrence Rasch (“Rasch”). Under these plans the insurance premiums are financed through bank loans. Each insured creates an irrevocable trust, naming a close relative or spouse as Trustee and owner of the policy. Ideally, at the time of the insured's death, the death benefits would be sufficient to repay all borrowed premiums plus interest and still provide substantial insurance proceeds to the beneficiaries.

American General used two premium finance programs, the CMS program and the Tax Track program. Under the CMS program the policyholder borrowed the annual premium and paid the interest out of pocket. Under the Tax Track program, the bank that loans the premium also loans the accumulating interest to the insured and takes a security interest in the cash value of the policy up to the amount of the loan plus accumulated interest. The Plaintiffs financed their life insurance policy through the Tax Track concept of premium financing. This concept was designed by Bill Gray, a former American General agent, and it is disputed whether the concept was designed exclusively for American General. An annual term rider was supposed to be added to the policy each year to cover the interest that was accumulating. (Bill Gray Dep., Oct. 2, 2012, p. 16 [DN 271–1].) “To cover the shortfall between the cash value and the loan amount expected during the first few years, the insureds are required to deposit funds into an into an interest bearing account as additional collateral.” (American General's Mot. Summ. J., p. 5 [DN 281].)

All Plaintiffs received Tax Track illustrations in order to help them understand the proposed policy. The illustrations contained non-guaranteed benefits and values. At issue in the illustrations is Column 8, which is titled “managed account deposit.” (See Exhibit 12 [DN 271–11; 271–12; 271–13; 271–14].) Each Plaintiff obtained a letter of credit as supplemental collateral for the premium loans in the amounts specified in Column 8, but no Plaintiff placed cash into an account. Plaintiffs have alleged that they were under the impression that Column 8 of the Tax Track illustration demonstrated the amount of the annual letter of credit, which would decrease over the years. (Statement of Facts, p. 29 [DN 269].)

Warren C. Helton was issued a life insurance policy from American General on June 28, 2007. Mr. Helton and his wife, Belinda Helton (as Trustee), agreed to purchase a policy with a face amount of $3 million and annual premium of $200,000. Mr. Helton obtained financing for his life insurance policy through Old National Bank on June 25, 2007, with a letter of credit in the amount of $225,000. A second loan was obtained on June 25, 2008. On November 28, 2007, the Trust, with Mrs. Helton as Trustee, executed an assignment, assigning the policy to Old National Bank. When financing for additional premium payments was declined, Old National Bank unilaterally surrendered the policy and received the cash value on December 8, 2009. At the time the Second Amended Complaint was filed, Plaintiff Helton and the Helton Trust were indebted to ONB in the amount of $439,995.12 plus interest.

Brian D. Milligan, with Marjorie Lellie as Trustee, applied for a policy from American General which was issued on May 12, 2008. His policy had a face amount of $5 million, and required a premium of $390,000 per year. Mr. Milligan paid the first monthly premium, $32,500, with his own funds. After obtaining a letter of credit in the amount of $220,000, First Financial provided for the remainder of the premium in July of 2008. The life insurance policy was assigned to First Financial Bank. Eventually, First Financial Bank decided not to provide any additional financing and the policy lapsed. At the time the Second Amended Complaint was filed, Brian Milligan and the Brian Milligan Trust were indebted to First Financial in the amount of $421, 638.62.

John L. Worth applied for an American General Life Insurance policy on March 15, 2006, and designated his wife, Judy Worth, as Trustee and owner of the policy. The death benefit was $5 million and required a premium payment of $160,000 per year. Mr. Worth obtained financing for the premiums from Old National Bank in August of 2006 after pledging an investment account to ONB. A second loan was provided by ONB on August 1, 2007. Mr. Worth obtained a letter of credit in the amount of $485,000, which was in force between 2007 and 2008. A third loan was provided to Mr. Worth on August 1, 2008. A second letter of credit in the amount of $523,858.40 was obtained and was in force between 2008 and 2009. On August 24, 2006, the life insurance contract was assigned to Old National Bank. After additional financing was denied, Old National Bank unilaterally surrendered the policy to American General on October 13, 2009 for the cash value of the policy. At the time the Second Amended Complaint was filed, Mr. Worth and the Worth Trust were indebted to ONB in the amount of $1,209,743.18.

Harold Dane Milligan was issued a life insurance policy with the face amount of $6,700,325, and an annual premium of $825,000 by American General in April of 2007. The owner of the policy was the Harold D. Milligan Irrevocable Trust, with Donna Milligan as Trustee. While there are questions about whether Donna Milligan actually was the Trustee, the issue is not relevant for these purposes. After obtaining a letter of credit in the amount of $670,000, Old National Bank provided the financing for the premiums. The policy was assigned to Old National Bank on April 30, 2007. After additional financing was denied, Old National Bank unilaterally surrendered the policy and obtained the cash value on December 4, 2009. At the time the Second Amended Complaint was filed, Dane Milligan and the Dane Milligan Trust were indebted to ONB in the amount of $2,648,403.29.

James H. Henry, Jr. applied for insurance to American General in November of 2007. According to the record, American General issued a policy with a face amount of $5,175,000 on November 28, 2007, however, James Henry never received a copy of the policy. Sandra Kay Henry was Trustee of the James H. Henry Jr. Irrevocable Trust. Mr. Henry was unable to obtain financing before the first premium was due and he paid American General $175,000 of his own funds to secure the issuance of the policy. Financing was never obtained for Mr. Henry, and the policy lapsed May 30, 2009.

The Complaint lists eight causes of action against American General Life Insurance Company (“American General”); First Financial Bank, NA, Inc. (“First Financial”); Lawrence A. Rasche; Mark J. Rickelman; and Old National Bancorp (“ONB”). Count One alleges Rasche violated the Kentucky Consumer Protection Act; Count Two alleges Rasche violated KRS § 304.12–010 which provides that no person shall engage in...