Life v. Wilson

• Decision Date: 16 December 2015
• Docket Number: 4:13CV3210
• Parties: LINCOLN BENEFIT LIFE, Plaintiff, v. JAMES W. WILSON, Defendant.
• Court: U.S. District Court — District of Nebraska

LINCOLN BENEFIT LIFE, Plaintiff, v. JAMES W. WILSON, Defendant.

4:13CV3210

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA

December 16, 2015

MEMORANDUM AND ORDER

In a memorandum and order entered on July 7, 2015, the court advised the parties that it was inclined to rule as a matter of law, in deciding cross-motions for summary judgment, that the plaintiff is collaterally estopped from proving its damage claims, but that ruling on the motions would be deferred pending supplementation of the record and additional briefing. See Filing No. 139 at CM/ECF p. 22 (citing Fed.R.Civ.P. 56(e)(1); Fed. R. Evid. 104).¹ The motions are now ripe for decision,without oral argument.² For the reasons discussed below, and in the court's previous memorandum and order, the plaintiff's motion for summary judgment will be denied and the defendant's motion for summary judgment will be granted in part and denied in part. As a result, the plaintiff's damage claims will be dismissed and the case will proceed to trial on the defendant's counterclaim for damages.

I. Background

The plaintiff, Lincoln Benefit Life ("LBL"), is a life insurance company. The defendant, James W. Wilson, is an insurance broker. LBL sues Wilson to recover approximately $15 million in damages, claiming a right to indemnity or contribution at common law (count I), breach of contract (count II), and negligence (count III). LBL also seeks to obtain a declaratory judgment that no additional commissions are owed to Wilson (count IV). Wilson counterclaims to recover approximately $2.7 million in damages, alleging a single claim for breach of contract for nonpayment of commissions.

In 1999, Wilson was retained by shareholders of Lollytogs, Inc., to procure insurance on the life of one of the company's co-founders, Samuel Gindi, in order to fund a buyout of Gindi's interest in Lollytogs upon his death. The shareholders wanted to replace an existing policy that had been issued by a company other than LBL. Wilson entered into a special agent's agreement with LBL, which then issued two term policies with 10-year level premium periods. After 10 years the premiums would escalate, but the term policies allowed for conversion to permanent insurance "[p]rior to the earlier of the policy anniversary next following the insured's seventieth birthday or the end of the level premium period" (Filing No. 103-14 at CM/ECF p. 10; Filing No. 104-1 at CM/ECF p. 10). Gindi was 75 years old when the term policies were issued.³

After receiving the term policies in 2000, the shareholders questioned Wilson about the policies' convertibility, and he in turn questioned LBL. A faxed response from LBL, dated July 13, 2000, stated: "This policy will have conversion privileges up to the term of the policy" (Filing No. 106-2). In 2003, Wilson again contacted LBL regarding the policies' conversion rights. This time LBL took the position that the policies were not convertible due to Gindi's advanced age, but stated that "due to the misinformation that was provided on July 13^th, 2000, we will honor a conversion of both policies within 30 days" (Filing No. 106-11). LBL subsequently issued five universal life insurance policies for a "free look" period, but these policies were not accepted by the Lollytogs shareholders. LBL then reinstated the two term polices.

In 2007, the Lollytogs shareholders notified LBL that they intended to convert the two term policies before the end of their 10-year level premium periods in 2009. LBL responded that although an exception was made in 2003, "these policies are not convertible due to the insured's age" (Filing No. 106-15).

In 2009, the Lollytogs shareholders filed suit for breach of contract against LBL in the United States District Court for the Southern District of New York.⁴ Annual premiums were ordered paid into escrow while the case was pending. Gindi died in 2012. In 2013, after the jury returned a verdict in favor of the Lollytogs shareholders, the court entered a judgment that required LBL to pay a death benefit of $29 million (the total amount of two the term policies) and that directed the escrow agent to pay LBL approximately $7.3 million for premiums due during 2009-2012. In the words of the presiding judge, "[t]he jury handed [the Lollytogs shareholders] a resounding victory" (Filing No. 113-1, at CM/ECF p. 4).

In the present action, LBL seeks to collect from Wilson the difference between the $7.3 million premium amount that was determined by the jury and the amount it otherwise would have received as premium payments under the two term policies. Wilson meanwhile seeks to collect from LBL the amount of additional commissions he would have earned if LBL had allowed conversion of the term policies in 2009.

I. DISCUSSION

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A material fact is one that "might affect the outcome of the suit under the governing law," and a genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248 (1986). In determining whether a genuine issue of material fact exists, the evidence is to be takenin the light most favorable to the nonmoving party, Adickes v. S.H. Kress & Co.,

398 U.S. 144, 157 (1970), and the court must not weigh evidence or make credibility determinations, Anderson, 477 U.S. at 249.

A. LBL's Damage Claims

In September 1999, LBL appointed Wilson to sell insurance products pursuant to a "Special Agent's Agreement - Appointment" (Filing No 102 (LBL's statement of material facts), ¶ 12; Filing No. 103-4). The appointment was made at Wilson's request, in connection with his shopping for life insurance for Samuel Gindi (Filing No. 102, ¶ 12; Filing No. 105 (Wilson's statement of material facts), ¶ 6).

The special agent's agreement generally provided that Wilson, while acting as an independent contractor, was to "solicit applications for the policies of insurance ... written by LBL ... and ... submit such applications received to LBL," and to "deliver policies issued by LBL, collect the first premium therefor, transmit all collections immediately to LBL, and make every effort to maintain in force all policies issued by LBL" (Filing No. 102, ¶ 14; Filing No. 103-4, at CM/ECF p. 3). Wilson had only limited authority to act on behalf of LBL, however, as the special agent's agreement specified:

Limitation of Authority - You shall not exercise any authority on behalf of LBL other than expressly conferred by this Agreement. Specifically, but not in limitation of the foregoing, you shall have no authority on behalf of LBL to:

(1) Make, alter, or discharge any contract.

* * *

(4) Waive or modify any terms, conditions, or limitations of any policy.

(Filing No. 103-4, at CM/ECF pp. 4).

The special agent's agreement provides that it "shall be governed by and construed according to the laws of the State of Nebraska" (Filing No. 103-4, at CM/ECF p. 4). The parties are in agreement that Nebraska substantive law applies in the present action.

LBL claims that Wilson breached the special agent's agreement because he "'modif[ied] terms, conditions, or limitations of [the] polic[ies]'" with "assurances and representations to Gindi and/or Sutton⁵ regarding the conversion rights available" (Filing No. 1-3, ¶¶ 64, 65). Alternatively, LBL claims that Wilson "acted negligently in misrepresenting and/or failing to clarify the rights and obligations of Lincoln Benefit, Gindi, and/or Lollytogs [shareholders] both prior to and after the issuance of the policies" (Filing No. 1-3, ¶ 69).

LBL also claims it "is entitled to common law indemnity/contribution from Wilson for his wrongful conduct in connection with the sale and procurement of the policies" (Filing No. 1-3, ¶ 53). Combining elements of its claims for breach of contract and negligence, LBL alleges that "[i]n the [New York] litigation, Lollytogs claimed that, after communicating the importance of conversion rights in prospective policies, Wilson made assurances and representations to Gindi and/or Sutton concerning the convertible nature of the policies" and that "[t]he assurances and misrepresentations were false, misleading, and negligent" (Filing No. 1-3, ¶¶ 50, 51). The court construes LBL's complaint as seeking indemnity rather than contribution.⁶

As an affirmative defense, Wilson alleges that LBL's claims are barred under the doctrine of collateral estoppel because it was determined in the New York litigation "that the policies had conversion rights as a result of Plaintiff Lincoln Benefit's actions (a) when the policies were sold [in 1999]; (b) when the policies were modified by Plaintiff's officers' and employees' statements in the July 13, 2000 fax; (c) under the doctrine of [promissory] estoppel; and (d) under the doctrine of waiver ...." (Filing No. 17, ¶¶ 90, 94). As discussed in the court's previous memorandum and order, the preclusive effect of the judgment that was rendered against LBL must be evaluated by applying New York law. See Ideker v. PPG Industries, Inc.,

788 F.3d 849, 852 (8th Cir. 2015) (in a diversity case, a federal court applies state substantive law in deciding whether to apply collateral estoppel, giving a judgment preclusive effect if a court in that state would do so; this rule applies even when the original judgment is that of another federal court sitting in diversity).

In New York, "collateral estoppel, or issue preclusion, 'precludes a party from relitigating in a subsequent action or proceeding an issue raised in a prior action or proceeding and decided against that party or those in privity.'" MLCFC 2007-9 ACR Master SPE, LLC v. Camp Waubeeka, LLC,

999 N.Y.S.2d 202, 206 (N.Y.A.D. 3 Dept. 2014) (quoting Weston v. Cornell Univ., 983 N.Y.S.2d 353, 355 (N.Y.A.D. 3 Dept. 2014))....