Hilliard v. Jacobs

• Decision Date: 18 October 2007
• Docket Number: No. 28A05-0702-CV-120.,28A05-0702-CV-120.
• Citation: 874 N.E.2d 1060
• Parties: Bonita G. HILLIARD, in her Capacity as Trustee of The H. David and Bonita G. Hilliard Living Trust, Appellant-Plaintiff, v. Timothy E. JACOBS, Appellee-Defendant.
• Court: Indiana Appellate Court

874 N.E.2d 1060

Bonita G. HILLIARD, in her Capacity as Trustee of The H. David and Bonita G. Hilliard Living Trust, Appellant-Plaintiff, v. Timothy E. JACOBS, Appellee-Defendant.

No. 28A05-0702-CV-120.

Court of Appeals of Indiana.

October 18, 2007.

P. Gregory Cross, The Cross Law Firm, P.C., Muncie, William N. Riley, Jamie R. Kendall, Price Waicukauski & Riley, LLC, Indianapolis, IN, Attorneys for Appellant.

George T. Patton, Jr., Peyton L. Berg, Bose McKinney & Evans, LLP, Indianapolis, IN, Attorneys for Appellee.

Karl L. Mulvaney, Nana Quay-Smith, Bingham McHale, LLP, Indianapolis, IN, Attorneys for Amicus Curie, Association of Indiana Life Insurance Companies.

OPINION

BARNES, Judge.

Case Summary

Bonita Hilliard, in her capacity as the trustee of the H. David and Bonita G. Hilliard Living Trust, appeals the trial court's granting of Timothy Jacobs's motion for summary judgment. We affirm.

Issue

Bonita raises one issue, which we restate as whether the trial court properly determined that Jacobs was entitled to summary judgment because he was permitted to maintain the life insurance policies on David after the insurable interest that gave rise to the policies terminated.

Facts

In 1997, Jacobs and David entered into a business arrangement and created Advance Marketing Technology, LLC ("AMT"). Each had a 50% ownership interest in the business, which grew to be successful. In 1999, Jacobs and David executed a cross-purchase agreement in which they each agreed to purchase term life insurance policies on the other in the amount of $200,000 so that in the event of unexpected death of Jacobs or David, the other would be able to buy out the deceased member's shares of AMT. In 2001, they executed another cross-purchase agreement providing for the purchase of $2,000,000 policies on the life of the other.

Both agreements contained the following language:

Section 6. Disposition of the Policies. In the event that a Member should sell his units during his lifetime under the terms of AMT's Operating Agreement, or in the event of the death of a Member, the surviving or remaining Member shall have the option, exercisable within twenty (20) days of the date of such event, to purchase any life insurance policies on his life owned by the selling or deceased Member subject to this Agreement. A Member shall give written notice of his intention to buy such policies to the other Member or to the personal representative of the deceased Member. The purchase price for any such policy shall be the cash value of such policy as of the date of purchase or One Hundred Dollars, whichever is greater. If the foregoing option is not exercised within said 20-day period, AMT shall have a similar option for an additional ten (10) day period. If neither the Member nor AMT exercises the option, the policy shall no longer be subject to this Agreement.

App. pp. 191, 199.

On October 14, 2002, Jacobs and David entered into a redemption and settlement agreement regarding their interests and the sale of AMT. Eventually, AMT's assets were sold to a third party. AMT was officially dissolved on November 15, 2002. Around the time of the dissolution, David asked Jacobs if he wanted to trade the life insurance policies that they held on the other's life. Jacobs declined and continued to pay the premiums on the policies he held on David's life.

On January 13, 2003, David filed a complaint, which was subsequently amended to include in part a request for declaratory judgment. David requested that Jacobs convey the life insurance policies to him or that Jacobs cancel the policies. On April 14, 2004, the trial court granted David's motion for partial summary judgment and ordered Jacobs to terminate the life insurance policies he held on David's life.

On April 26, 2004, Jacobs filed an interlocutory appeal. On July 22, 2004, while the appeal was pending, David died from ventricular fibrillation.¹ On appeal, Jacobs argued that the trial court improperly ordered him to terminate the life insurance policies because the cross-purchase agreement did not dictate termination of the policies. We concluded:

Hilliard sold his shares of AMT to Jacobs in anticipation of a sale of the business on October 14, 2002, pursuant to the Settlement Agreement signed by both parties. From the language in Section 6 above, when a member sells his units, the remaining member has the option to purchase the policy held on his own life within twenty days from the sale. Therefore, the only right triggered by Hilliard's sale was that Jacobs had the right to purchase the policy Hilliard held on his life before November 3, 2002 (20 days after the sale), and then AMT had the option of purchasing the policy on Jacobs's life before November 13, 2002 (10 days after Jacobs's right expired). Neither option was exercised leaving the policies as "no longer . . . subject to this agreement." [App. pp. 191, 199]. Once the policies were "no longer . . . subject to this agreement," it appears from the language of the Cross Purchase Agreement that the policies were merely no longer required to be maintained. We do not read this language as mandating that Jacobs should be required to terminate his life insurance policy held on Hilliard.

Jacobs v. Hilliard, 829 N.E.2d 629, 633 (Ind.Ct.App.2005), trans. denied. We also concluded that equity did not require the termination of the policy. Id. at 633-34. Accordingly, we reversed and remanded. Id. at 634.

On remand, Jacobs moved for summary judgment. Bonita also moved for summary judgment and filed a response to Jacobs's motion for summary judgment. Jacobs then filed a response to Bonita's motion for summary judgment and replied to her response. On January 31, 2007, after a hearing, the trial court granted Jacobs's motion for summary judgment and denied Bonita's motion for summary judgment, allowing Jacobs to retain the life insurance policies. Bonita now appeals.

Analysis

Bonita argues that the trial court improperly granted Jacobs's motion for summary judgment. When reviewing the propriety of a ruling on a motion for summary judgment, we apply the same standard as the trial court. See Atlantic Coast Airlines v. Cook, 857 N.E.2d 989, 994 (Ind. 2006). A party seeking summary judgment must show that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C); Cook, 857 N.E.2d at 994. Our review of a summary judgment motion is limited to the materials designated to the trial court. Cook, 857 N.E.2d at 994. The trial court accepts as true those facts alleged by the nonmoving party, construes the evidence in favor of the nonmoving party, and resolves all doubts against the moving party. Id. at 994-95.

The parties agree that when the policies were issued, Jacobs had an insurable interest in David's life. "[A] person has an insurable interest in the life of another, where there is a reasonable probability that he will gain by the latter's remaining alive, or lose by his death. . . ." State v. Willett, 171 Ind. 296, 306, 86 N.E. 68, 71 (1908) (quotations and citation omitted); see also Miller v. Travelers' Ins. Co., 81 Ind.App. 618, 622, 144 N.E. 554, 555 (1924) ("It is well settled in this state that an insurable interest does not arise from the mere fact of the kinship shown, but must be a pecuniary one, and be disclosed by the facts alleged."). When AMT was operating successfully, there was a reasonable probability that Jacobs stood to gain from David remaining alive and would suffer a loss by his death. The parties also agree that upon the dissolution of AMT Jacobs's insurable interest in David terminated.

It is well-settled that, "Where, however, a policy is issued to one upon the life of another, the former having no insurable interest in the latter, it is void, being in the nature of a wagering contract, and hence in contravention of public policy." Miller, 81 Ind.App. at 620, 144 N.E. at 555. The question raised by Bonita² is whether an insurable interest must continue throughout the term of a life insurance policy or whether an insurable interest need only exist at the time the policy is issued.

The parties analogize and distinguish three Indiana statutes that are not directly on point. See Ind.Code §§ 27-1-12-17.1³, 27-8-1-6,⁴ & 27-8-3-8.⁵ We need not specifically address these statutes, however, because our supreme court has observed:

As a general rule, the authorities affirm that a policy of life insurance or the appointment or designation of a beneficiary, which is valid in its inception, continues and remains valid, although the insurable interest or relationship of the beneficiary has ceased or terminated, unless it is otherwise stipulated or provided in the contract to the contrary.

Farra v. Braman, 171 Ind. 529, 547, 86 N.E. 843, 850 (1909). Although Farra involved a divorce and the rights of the named...