In re Estate of Sullivan

• Decision Date: 22 February 2021
• Docket Number: C.A. No. 2018-0741-PWG
• Parties: IN THE MATTER OF THE ESTATE OF MEREDITH L. SULLIVAN
• Court: Court of Chancery of Delaware

IN THE MATTER OF THE ESTATE OF MEREDITH L. SULLIVAN

C.A. No. 2018-0741-PWG

COURT OF CHANCERY OF THE STATE OF DELAWARE

Date Submitted: November 19, 2020

February 22, 2021

MASTER'S REPORT

Scott E. Swenson, Brandon R. Harper, and Charles J. Durante, CONNOLLY GALLAGHER, Wilmington, Delaware, Attorneys for Petitioner

Jason C. Powell, THE POWELL FIRM, LLC, Wilmington, Delaware, Attorney for Respondent

GRIFFIN, Master

A spouse, who was recently divorced in Delaware but moved to Pennsylvania, dies unexpectedly, leaving her former husband as the named primary beneficiary on her life insurance policies. There is a conflict of laws issue whether Delaware law or Pennsylvania law applies. Unlike Delaware, Pennsylvania has a revocation-upon-divorce law that would divest the former husband of his beneficiary status for the life insurance proceeds. The former husband has moved for judgment on the pleadings, arguing that, based upon a choice of laws analysis, he is entitled to the proceeds under Delaware law. He also requests dismissal of the equitable claim filed by the deceased spouse's estate. In contrast, the deceased spouse's estate and life insurance contingent beneficiaries claim that Pennsylvania law governs since the deceased spouse had changed her domicile to Pennsylvania by the time of her death. I recommend the Court deny the former husband's motion for judgment on the pleadings, in part, and grant it, in part. I find that Pennsylvania law governs the disposition of the deceased spouse's individual life insurance proceeds so the former husband is not entitled to those proceeds as a matter of law, and recommend that he be ordered to pay those proceeds to the deceased spouse's estate. In addition, I find that Delaware law governs the disposition of the deceased spouse's group life insurance proceeds and the former husband is entitled to those proceeds as a matter of law. Finally, I recommend that the Court dismiss the equitable claim of deceased spouse's estate. This is a final report.

I. Background

Meredith Sullivan ("Decedent") and Petitioner Luke Chapman were married on September 12, 2009 and lived in Delaware during most of their marriage.¹ On February 22, 2018, Petitioner filed for divorce, with the Delaware Family Court entering a divorce decree ("Decree") on April 13, 2018.² Decedent was the victim of an unexpected, violent crime, which caused her death on April 23, 2018.³ At her death, Decedent was insured on three life insurance policies ("Policies") - two individual Massachusetts Mutual Life Insurance Company ("MassMutual") policies, and a University of Delaware group life insurance policy through Metropolitan Life Insurance Company ("MetLife").⁴ Petitioner was the sole beneficiary on the MassMutual policies and the named primary beneficiary on the MetLife policy.⁵ Respondents Faye Sullivan ("Sullivan"), Decedent's mother, Jessica Sullivan ("Jessica"), Decedent's sister, and Thomas Sullivan III ("Thomas"), Decedent's brother, (together "Respondents") were the named contingent beneficiaries on theMetLife policy.⁶ Sullivan is the administrator of Decedent's probate estate opened in Pennsylvania, which would receive the MassMutual proceeds if Petitioner is determined not to be entitled to those proceeds.⁷ Life insurance proceeds ("Proceeds") from the Policies were paid out to Petitioner on or about September of 2018.⁸

Petitioner filed a petition for review of revocation of his letters of estate administration and for declaratory judgment on October 15, 2018, seeking a declaratory judgment that Decedent was domiciled in Delaware at the time of her death, and Delaware is the proper jurisdiction for the administration of Decedent's estate.⁹ Sullivan's response denied that Decedent was domiciled in Delaware at her death.¹⁰ The matter was stayed for mediation, which was unsuccessful.¹¹ In theamended petition ("Amended Petition") filed on June 4, 2019, Petitioner added the claim that, based upon conflicts of laws principles, Delaware law governs the disposition of the Proceeds, making him the proper recipient of the Proceeds.¹² Respondents, in their counterclaims, ask the Court to declare that Petitioner is not entitled to receive any of the Proceeds under Pennsylvania's revocation-upon-divorce law, which operates to divest Petitioner of his beneficiary status for the Proceeds by reason of divorce.¹³ In addition, Sullivan, in her counterclaim, argues it would be inequitable for Petitioner to retain the Proceeds since Decedent did not intend for Petitioner to remain as beneficiary on her life insurance policies and Petitioner, as her insurance agent and financial advisor, breached his fiduciary duty when he failed to advise her that she could change her beneficiary designation while divorce proceedings were pending.¹⁴

Petitioner filed a motion for judgment on the pleadings on August 15, 2019, and an amended motion ("Motion") on October 28, 2019, arguing that he is entitled to judgment as a matter of law, irrespective of Decedent's domicile, because, under Delaware choice of law principles, Delaware law governs the distribution of theProceeds.¹⁵ He claims the effects of the Decree are determined by Delaware law, and that the Policies' most significant relationship is with Delaware.¹⁶ Further, Petitioner asserts Sullivan's equitable claim should be dismissed.¹⁷ Respondents oppose the Motion, arguing that choice of law principles support looking to the law of the insured's new domicile - Pennsylvania - to determine whether the former spouse's beneficiary designation would be automatically revoked by the divorce, which it would be under Pennsylvania law.¹⁸ Sullivan contends that her equitable claim focuses on Decedent's intent, a disputed factual issue, and that Petitioner could conceivably be found to have breached his fiduciary duty.¹⁹

An oral argument on the Motion was held by Zoom on April 9, 2020, followed by the parties filing additional submissions on May 11, 2020.²⁰ On July 1, 2020, the Court ordered the Motion stayed to schedule an evidentiary hearing on Decedent's domicile.²¹ Petitioner filed exceptions to the Court's July 1, 2020 Order, on July 13,2020, but withdrew those exceptions on August 13, 2020.²² Discovery disputes arose, with the Court addressing those disputes in a telephonic oral argument on November 18, 2020, staying discovery pending a decision on the Motion.²³ During that argument, Petitioner conceded that Decedent was domiciled in Pennsylvania at the time of her death.²⁴ The choice of law issue remains and I address it below.

II. Standard of Review

In determining a motion for judgment on the pleadings under Court of Chancery Rule 12(c), "a trial court is required to view the facts pleaded and inferences to be drawn from such facts in a light most favorable to the non-moving party."²⁵ The Court takes all well-pleaded factual allegations in the pleadings as admitted and can only grant a motion for judgment on the pleadings "when no material issue of fact exists and the movant is entitled to judgment as a matter of law."²⁶ "The court also may consider the unambiguous terms of exhibits attached tothe pleadings, including those incorporated by reference."²⁷ "The Court need not, however, accept conclusory allegations or draw unreasonable inferences from the pleadings."²⁸

III. Analysis

A. Which state's law governs the disposition of the life insurance proceeds?

This case involves a conflict of laws issue - whether Delaware or Pennsylvania law governs the disposition of life insurance proceeds paid on individual and group life insurance policies. The issue appears to involve questions of first impression in Delaware. "Under general conflict of laws principles, the forum court will apply its own conflict of laws rules to determine the governing law in a case."²⁹ Therefore, I apply Delaware's choice of law principles in a conflict of laws analysis between Delaware and Pennsylvania laws. Since the Policies are silent on choice of law, I first "compare the laws of the competing jurisdictions to determine whether the laws actually conflict," or would "produce different results when applied to the factors of the case."³⁰ Pennsylvania has a revocation-on-divorcestatute that deems a former spouse of a life insurance policyholder domiciled in Pennsylvania "to have predeceased the policyholder for beneficiary purposes under the terms of the life insurance policy."³¹ If Pennsylvania law applies, Petitioner is treated as if he predeceased Decedent, divesting him of his beneficiary status for the Proceeds. In contrast, Delaware does not have a statute automatically revoking beneficiary designations upon divorce, so under the terms of the insurance policies (without other considerations), Petitioner, as the primary beneficiary on the Policies, is entitled to the Proceeds.³² Because the competing jurisdictions' laws conflict, I conduct a choice of laws analysis.

"It is well established that Delaware decides choice of law questions based upon the "most significant relationship test" set forth in the [Restatement (Second) of Conflict of Laws]."³³ "The Court's interpretation of an insurance policy is a matterof law."³⁴ The Delaware Supreme Court found that the Second Restatement generally provides

three layers of guidance for determining the state with the most significant relationship to the dispute and thus the applicable state law. First, the Second Restatement provides specific presumptions. If the facts of a case don't fit those specific presumptions, there are broader subject-matter-specific factors to use. Regardless, courts use the general policy considerations for choice of law articulated in [Second Restatement's] §6 to guide the overall analysis.³⁵

I first consider the effect of the Decree on the choice of law for determining the distribution of the Proceeds. Petitioner argues that the dispute "centers on the effect of the Divorce on the distribution of the Proceeds" and, because the Decree was issued in...