Marineau v. General American Life Ins. Co.

• Decision Date: 13 April 1995
• Docket Number: No. 2-93-090-CV,2-93-090-CV
• Citation: 898 S.W.2d 397
• Parties: Constance MARINEAU, Appellant, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 397

898 S.W.2d 397

Constance MARINEAU, Appellant, v. GENERAL AMERICAN LIFE INSURANCE COMPANY, Appellee.

No. 2-93-090-CV.

Court of Appeals of Texas Fort Worth.

April 13, 1995.

Rehearing Overruled June 8, 1995.

J. Patrick Gallagher, Gallagher Law Office, H. Dustin Fillmore, K. Marvin Adams, The Fillmore Law Firm, P.C., Fort Worth, for appellant.

William L. Latham, Greg S. Hargrove, David W. Kirkman, McDonald Sanders, Fort Worth, for appellee.

Before LATTIMORE and DAY, JJ.

OPINION

LATTIMORE, Justice.

Appellant Constance Marineau appeals from a partial summary judgment and final judgment in favor of appellee General American Life Insurance Company ("General American") creating a constructive trust and holding that General American was entitled to retain that part of the proceeds of a life insurance policy in proportion to the percentage of the premiums paid with funds appellant's husband embezzled from General American. The final judgment set the division of the proceeds at 68.1% for General American and 31.9% for appellant. Appellant contends in sixteen points of error that the trial court erred in: (i) awarding part of the insurance policy proceeds to General American; (ii) failing to award attorney's fees, statutory penalties, pre-judgment interest, and post-judgment interest; and (iii) making the various findings of fact and conclusions of law supporting the judgment. In three cross-points, General American contends that the trial court erred in awarding any part of the proceeds to appellant.

We affirm in part, reverse and render in part.

Charles Marineau, appellant's late husband, was an agent for General American. From 1985 to 1989, Charles forged and converted checks meant for General American and deposited those checks into his own account (the "Account"). The total amount of converted checks was $434,077.55. Of this amount, $83,993.91 was returned to General American or its customers. Thus, the net amount embezzled was $349,083.64. The net amount deposited into the Account during this period was $512,594.32. In August of 1985, Charles purchased a $300,000.00 life insurance policy from General American on his life, with his wife Constance as beneficiary. Premiums were paid out of the Account which contained the embezzled funds. In March of 1989, Charles committed suicide, and Constance demanded the entire face amount of the policy, even though the embezzlement is conceded. General American sought a declaratory judgment determining the rights of the parties to proceeds of the life insurance policy. The only witness to address the question of which funds were used to pay the premiums simply determined the proportion of embezzled deposits to legitimate deposits over the life of the Account. The court then applied this proportion in dividing the proceeds of the policy.

In her third point of error, appellant asserts that the trial court erred in making conclusion of law no. 3 that "Constance Marineau has the burden of proving what portion of the premiums of the life insurance policy were paid with funds not converted from General American by Charles E. Marineau." A plaintiff seeking to recover embezzled funds has the initial burden to trace the embezzled funds into specific property. Meyers v. Baylor University, 6 S.W.2d 393, 394 (Tex.Civ.App.--Dallas 1928, writ ref'd). Once the plaintiff traces the embezzled funds into specific property, that property becomes the subject of a constructive trust. Moseley v. Fikes, 126 S.W.2d 589, 597 (Tex.Civ.App.--Fort Worth 1939), aff'd, 136 Tex. 386, 151 S.W.2d 202 (1941); Meyers, 6 S.W.2d at 395. If property is purchased with funds from an account containing both embezzled funds and funds belonging to the wrongdoer, that property is the subject of the trust, unless the wrongdoer can prove that the subject property was purchased with the wrongdoer's own funds, and not embezzled funds. Maryland Casualty Co. v. Schroeder, 446 S.W.2d 117, 120-21 (Tex.Civ.App.--El Paso 1969, writ ref'd n.r.e.); Moseley, 126 S.W.2d at 597; Meyers, 6 S.W.2d at 394-95. Here, appellant does not contest the court's findings that Charles Marineau did embezzle money from General American, that the embezzled funds were deposited in the subject account, and that the policy premiums were paid out of the commingled account. General American thus met its initial burden of tracing the embezzled funds into specific property. The burden then shifted to appellant to prove that the premiums were paid with Charles' funds, either in whole or in part. Point of error three is overruled.

In points of error one, eight, and nine, appellant contends the trial court erred in (1) granting a partial summary judgment decreeing that "General American Life Insurance Company is the owner of that portion of the proceeds of the life insurance policy issued on the life of Charles Marineau which is a ratio of the amount of premiums paid by embezzled funds bears to the total amount of premiums paid on the policy" because such partial summary judgment is in contravention of article 21.22 of the Texas Insurance Code; (8) making conclusion of law no. 10 that "General American's right to a portion of the proceeds of the life insurance policy is based upon its ownership of the policy and not its status as a creditor of Marineau"; and (9) making conclusion of law no. 11 that to the extent of General American's ownership interest in the life insurance policy, article 21.22 of the Texas Insurance Code does not preclude General American from receiving that portion of the insurance proceeds. This provision of the Insurance Code, as it existed during the times pertinent to this case, (March 24, 1987 through August 31, 1991), provided:

No money or benefits of any kind to be paid or rendered to the insured or any beneficiary under any policy of insurance issued by a life ... insurance company ... shall be liable to execution, attachment, garnishment or other process or be seized, taken or appropriated or applied by any legal or equitable process or operation of law to pay any debt or liability of the insured or of any beneficiary, either before or after said money or benefits is or are paid or rendered, except for premiums payable on such policy or a debt of the insured secured by a pledge thereof.

Act of March 12, 1987, 70th Leg., R.S., ch. 5, § 1, 1987 Tex.Gen.Laws 22 (emphasis added). Appellant argues that this statute prohibits the trial court's declaration that General American is a part owner of the policy under a constructive trust theory.

There is no Texas law directly on point. The general rule followed by a majority of jurisdictions is that a person who wrongfully uses stolen or fraudulently obtained funds to purchase an insurance policy shall hold that policy and its proceeds in trust for the benefit of the one from whom the funds were stolen or taken. ¹ This may be true even where a statute protects the proceeds of insurance policies from actions by creditors. See First Nat'l Bank v. Pope, 270 Ala. 202, 117 So.2d 174 (1959); Mullikin v. Pedersen, 161 Neb. 22, 71 N.W.2d 485 (1955); R.L. Mowson, Annotation, Right with Respect to Proceeds of Life Insurance of One Whose Funds Have Been Wrongfully Used to Pay Premiums, 24 A.L.R.2d 672 (1952) (Later Case Service 1982 & Supp.1994).

The only Texas cases which even peripherally address the issue are Maryland Casualty Co., 446 S.W.2d at 120-21, and Davis v. Tennessee Life Ins. Co., 562 S.W.2d 868, 871 (Tex.Civ.App.--Houston [1st Dist.] 1978, writ ref'd n.r.e.). In Maryland Casualty, an employee embezzled money from a savings and loan association, and used those funds to purchase property, including insurance policies. The court of appeals held it was error for the trial court to fail to impose a constructive trust on the property, including insurance policies, purchased in part with the embezzled funds, where the finder of fact traced the embezzled funds to the property. The Maryland Casualty court did not consider Texas Insurance Code section 21.22 because the insured was still alive at the time of the suit.

In Davis, an employee was insured under a life insurance policy owned by his employer. The employee designated his mother as the beneficiary of the policy. When the employee died, his wife sued for half of the proceeds of the policy, on the theory that the policy was community property. The appeals court, in affirming the trial court's take-nothing judgment against the wife, reasoned as follows:

The right to receive insurance proceeds payable at a future but uncertain date is "property." Such property is said to be in the nature of a chose in action which matures at the death of the insured. When the policy is purchased with community funds, the ownership of the unmatured chose belongs to the community, unless, in the absence of fraud, it has been irrevocably given away under the terms of the policy. The proceeds at maturity are likewise community in character, except where a named beneficiary is surviving, in which case a gift of the policy rights to such beneficiary is presumed to have been intended and completed by the death of the insured. Brown v. Lee, 371 S.W.2d 694 (Tex.1963).

The same principles would seem to be applicable in the case where the insurance premiums were paid with partnership funds. Even in a case where such a payment is made by one partner without the authorization of the other partners, the proceeds of the policy would belong to the named beneficiary rather than to the partnership. While the partner who is guilty of the unauthorized use of the partnership funds might be liable to his partners for the funds used, his conduct would not affect the insurance company's liability to the named beneficiary, or create a right in his partners against the insurance company.

Davis, 562 S.W.2d at 871 (emphasis added). Again, the court did not mention section 21.22 of the Texas Insurance Code in its reasoning, nor was it raised by the facts of ...