Hood v. Jenkins

• Citation: 432 S.W.3d 814
• Decision Date: 19 December 2013
• Docket Number: No. E2011–02749–SC–R11CV.,E2011–02749–SC–R11CV.
• Parties: Erik HOOD v. Casey JENKINS et al.
• Court: Supreme Court of Tennessee

432 S.W.3d 814

Erik HOOD

v.Casey JENKINS et al.

No. E2011–02749–SC–R11CV.

Supreme Court of Tennessee,

at Knoxville.

Sept. 4, 2013 Session.

Dec. 19, 2013.

Michael S. Kelley (at trial and on appeal) and Briton S. Collins (at trial), Knoxville, Tennessee, for the appellant, The Old Line Life Insurance Company of America.

Bruce T. Hill, Sevierville, Tennessee, for the appellee, Erik Hood.

OPINION

GARY R. WADE, C.J., delivered the opinion of the Court, in which JANICE M. HOLDER, CORNELIA A. CLARK, WILLIAM C. KOCH, JR., and SHARON G. LEE, JJ., joined.

GARY R. WADE, Chief Justice.

The minor beneficiary of a $100,000 life insurance policy filed suit against his financial guardian and the insurance company after the guardian misappropriated the insurance proceeds. The trial court entered judgments in favor of the minor against both the guardian and the insurance company. On appeal by the insurance company, the Court of Appeals affirmed, holding that the insurance company breached its contractual duties by entrusting the proceeds to the guardian. The insurance company then applied for permission to appeal to this Court, contending that it could not be held liable for the loss to the minor because it had relied upon the validity of a juvenile court order of guardianship. Because the insurance company acted in good faith when it relied upon a facially valid court order establishing a financial guardianship in making payment of the life insurance proceeds, it is not liable for breach of contract. The judgment of the Court of Appeals is, therefore, reversed, and the claim against the insurance company is dismissed.

I. Facts and Procedural History

On March 28, 2002, The Old Line Life Insurance Company of America (“Old Line”) ¹ issued a $100,000 life insurance policy to David Ray Hood (“Hood”), who had named his son, Erik Christopher Hood (“Erik”), as the sole beneficiary under the policy. When Hood died on September 17, 2007, Erik, who was sixteen years old, left his father's residence in order to reside with his older half-sister, Casey Jenkins (“Casey”).² In the next month, Old Line received a “Proof of Death Claimant's Statement” signed by Erik, notifying Old Line of Hood's death and requesting a lump sum payment of the proceeds. Meanwhile, Casey petitioned the Juvenile Court for Grainger County for an appointment of guardianship over Erik, which was granted with the consent of Erik and his mother, Donna Hood. After requesting additional documentation and confirming with the juvenile court that it had entered an order appointing Casey as Erik's financial guardian, Old Line issued a check to Casey on January 11, 2008, in the amount of $100,854.88. The insurance proceeds were deposited into a joint bank account in the names of Casey and Erik. Within eight months, the entire account was depleted.

On August 31, 2009, Erik filed a complaint in the Chancery Court for Grainger County, asserting that Old Line had “breached its duty to [Erik], a third party beneficiary of the policy,” by releasing the insurance proceeds to Casey “without confirming that she was properly appointed and duly authorized to act as the guardian over [his] finances,” and by failing to investigate whether Casey had met “all statutory requirements” of the guardianship laws in Tennessee. The complaint also alleged that Casey had breached her fiduciary duties by converting and spending “most, if not all,” of the insurance proceeds and by also converting for her own use the Social Security death benefits payable to Erik. Erik later amended his complaint to claim both a breach of contract and negligence by Old Line; he specifically asserted that Old Line acted negligently by disbursing the insurance proceeds without properly investigating the appointment of Casey as guardian and without requiring adequate proof of the guardianship. Erik further alleged that Casey “had no legal authority to receive said funds.”

Casey did not respond to the complaint and the trial court entered a default judgment against her.³ In its answer to the complaint, Old Line asserted four affirmative defenses, claiming (1) that it was entitled to rely upon the order of the juvenile court in disbursing the insurance proceeds to the guardian; (2) that it acted in good faith when it disbursed the insurance proceeds; (3) that even if negligent by disbursing the proceeds, its fault should be reduced in proportion to the fault of others, including that of the juvenile court judge; and (4) that its acts were not a proximate cause of the damage to Erik. Old Line also filed a cross-claim against Casey to recover any funds that Old Line might be ordered to compensate Erik. The trial court later denied competing motions for summary judgment and conducted a bench trial.

Charlotte Swanks, the claims examiner who had processed the insurance claim for Old Line at its Houston, Texas office, testified that after she had first reviewed the “Proof of Death Claimant's Statement,” she requested additional documentation, including Hood's death certificate and a copy of the insurance policy.⁴ She recalled that she subsequently received a copy of the death certificate from Lloyd Richardson, an independent insurance agent in Knoxville, who informed her that Erik was a minor. In letters dated November 2, 2007, and December 11, 2007, Ms. Swanks informed the agent that Old Line could not release the insurance proceeds without “guardianship papers for the finances of the minor beneficiary.” ⁵ In response, the agent faxed to Ms. Swanks Casey's “Petition for Guardianship,” an exact copy of which appears below:

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The agent also included the “Appointment of Guardian of the Person” appearing below, which the juvenile court judge had signed on December 11, 2007, and asked Ms. Swanks whether the “attached appointment papers suffice”:

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In response, Ms. Swanks sent a letter on December 17, 2007, informing the agent that “the documents received only indicate Guardianship and do[not] indicate Guardianship for the Finances of the Minor.” She again specifically asked for “guardianship papers for the finances of the minor beneficiary” as a condition to the release of the insurance proceeds. On January 3, 2008, the agent faxed to her the following “additional financial guardianship papers”:

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Upon receiving this additional documentation, Ms. Swanks, concerned because the word “Financial” was handwritten, faxed the documents she had received from the agent to the Juvenile Court Clerk for Grainger County, “requesting [a] document in writing that this Petition for ‘Financial’ guardianship is valid.” In response, she received an “Exemplification,” signed by the clerk and the juvenile court judge, which provided that the order appointing “Eri[k] Hood Financial Guardian” was a true and perfect copy of the original order in the juvenile court. After reviewing the exemplification with the other documentation and consulting with her supervising manager, Ms. Swanks issued a check in the amount of $100,854.88, which included interest from the date of death, to “Casey Jenkins as financial guardian [for the benefit of] Erik Christopher Hood, minor [beneficiary].”

During her cross-examination, Ms. Swanks conceded that she did not ask Old Line's legal department to review any of the documentation and that she had relied on the exemplification by the juvenile court and consultation with her supervising manager. She acknowledged that she had processed “[v]ery few” applications for minor beneficiaries and admitted that she was unfamiliar with Tennessee law governing the establishment of a guardianship. Ms. Swanks further conceded that she was unaware that the statute the juvenile court judge had cited in the orders of appointment, Tennessee Code Annotated section 37–228 (1977 & Supp.1983), was outdated at the time of their entry. ⁶

Erik, who was twenty years old at the time of trial, testified that after the death of their father, Casey had asked him to move in with her and her family. He recalled that the insurance agent had informed him that someone would need to be appointed as his financial guardian in order to gain access to the insurance proceeds and that Casey had agreed to “take care of everything.” Erik remembered joining Casey in the juvenile court on three separate occasions. The first proceeding established the guardianship of his person; a second proceeding related to the guardianship involved the presence of his mother; and a third proceeding was conducted to create the financial guardianship. Erik testified that he did not consult an attorney during this time and stated that the juvenile court judge did not appoint a guardian ad litem to represent his interests in any of the proceedings. He stated that although he believed he was mature enough, at sixteen years old, to manage the insurance proceeds, he had trusted the juvenile court judge to properly appoint Casey as his financial guardian and had trusted Casey to “guard [his] proceeds” until he was of “legal age or ... an appropriate age to accept that much money.”

Erik further testified that he later saw a manila envelope containing the insurance check, but he denied accompanying Casey to the bank in order to deposit the check. Although his name was on the bank account in which the insurance proceeds were deposited, he denied knowing that he had access to the account, claiming that he only spent the benefits he received through Social Security and the amount of private donations he had received after his father's death.⁷ Erik stated that Casey had used the insurance proceeds to purchase liquor, to dine at restaurants, to pay the employees of a construction company owned by her husband, to purchase sex paraphernalia, and to fund extensive renovations at his father's residence. He claimed that he first became suspicious that Casey may have misused the account when she refused to provide him with the related bank statements.

Donna Hood, the mother of Erik...