McCarney v. Knudsen

• Decision Date: 02 December 1983
• Docket Number: No. 10436,10436
• Citation: 342 N.W.2d 380
• Parties: Robert P. McCARNEY and Elizabeth Ann McCarney, Plaintiffs v. Eric J. KNUDSEN and Dann G. Knudsen, as Personal Representatives of the Estate of Jerry M. Knudsen, Susan F. Knudsen and Lela Knudsen, Defendants and Eric J. KNUDSEN and Dann G. Knudsen, as Personal Representatives of the Estate of Jerry M. Knudsen, deceased, Cross-Plaintiffs and Appellants v. Susan F. KNUDSEN, Cross-Defendant and Appellee. Civ.
• Court: North Dakota Supreme Court

Page 380

342 N.W.2d 380

Robert P. McCARNEY and Elizabeth Ann McCarney, Plaintiffs v. Eric J. KNUDSEN and Dann G. Knudsen, as Personal

Representatives of the Estate of Jerry M. Knudsen,

Susan F. Knudsen and Lela Knudsen,

Defendants

and

Eric J. KNUDSEN and Dann G. Knudsen, as Personal

Representatives of the Estate of Jerry M. Knudsen, deceased, Cross-Plaintiffs and Appellants v. Susan F. KNUDSEN, Cross-Defendant and Appellee.

Civ. No. 10436.

Supreme Court of North Dakota.

Dec. 2, 1983.

E.J. Rose, Bismarck, for cross-plaintiffs and appellants; argued by E.J. Rose.

Mills & Moore, Bismarck, for cross-defendant and appellee; argued by William R. Mills, Bismarck.

SAND, Justice.

This is an appeal by Eric J. Knudsen and Dann G. Knudsen, as personal representatives of the estate of Jerry M. Knudsen, from a judgment of dismissal entered upon the trial court's order granting Susan F. Knudsen's motion for a directed verdict of dismissal of the cross-claim. We affirm.

The cross-claim in this appeal revolves around the proceeds of a policy of insurance on the life of Jerry M. Knudsen. Eric and Dann Knudsen assert that Susan Knudsen, who was the named beneficiary of the policy, should be required to use the proceeds of the policy to pay a note to Robert P. McCarney and Elizabeth Ann McCarney that is secured by a mortgage on certain real property.

Jerry M. Knudsen was the owner of 65 acres of land in Burleigh County, North Dakota, that was burdened by two mortgages in favor of two banks. When the loans, totaling approximately $130,000.00, became due in the fall of 1978, Jerry Knudsen requested that the McCarneys lend him the money to pay them off. Jerry and Susan executed a promissory note dated October 23, 1978, payable to the McCarneys in the amount of $130,000.00. The note was secured by a mortgage executed by Jerry and Susan on the 65-acre parcel as well as a mortgage on another parcel of land.

Through Mr. V.J. Spaedy, an insurance agent, Jerry Knudsen's professional corporation, Jerry M. Knudsen, M.D., P.C., applied for a life insurance policy on the life of Jerry Knudsen on November 3, 1978. The policy was approved with an effective date of March 1, 1979. Susan Knudsen was named as the beneficiary.

After Jerry Knudsen's accidental death on October 2, 1979, Susan received $180,000.00 in settlement of her claim as beneficiary under the policy. Eric and Dann now assert that Susan must pay off the McCarney loan out of those funds. ¹

The McCarneys brought this foreclosure action, which resulted in a judgment in their favor. They are not parties to this appeal.

Eric and Dann Knudsen have stated the following issue:

"Did the trial court err in directing a verdict for the Cross-defendant, Susan F. Knudsen, on the grounds:

"1. No evidence had been submitted during the trial to prove that Susan F. Knudsen during the life of her husband ever entered into any agreement with him that she would use the proceeds from the insurance policy to pay the McCarney debt; and,

"2. Section 26-10-18 (NDCC) provides in essence that the proceeds of a life insurance contract are not subject to the debts of the deceased except by special contract and no evidence of any contract, let alone a special contract required by the statute has been shown."

They argue that:

"The merits of the cross-plaintiffs' claim is not at this time before the court. The only issue is whether or not any evidence was presented during the trial to raise a question of fact as to whether or not such claim had merit or not."

We do not agree that the "issue is whether or not any evidence was presented during the trial to raise a question of fact."

In affirming a directed verdict, we said in the Syllabus in Askew v. Joachim Memorial Home, 234 N.W.2d 226, 229-230 (N.D.1975):

"10. A motion for a directed verdict is to be denied unless the evidence is such that reasonable men, without weighing the credibility of witnesses or otherwise considering the weight of the evidence, could not disagree upon the conclusion to be reached.

"11. A mere scintilla of evidence in favor of the party against whom the motion for a directed verdict is made does not preclude the granting of the motion.

"12. A motion for a directed verdict should not be granted unless the moving party is entitled to a judgment on the merits as a matter of law. In determining whether or not the moving party is entitled to a judgment on the merits as a matter of law, the evidence should be evaluated in the light most favorable to the party against whom the motion is made."

See also, Farmers Co-op. Elevator of Cavalier v. Lemier, 328 N.W.2d 833 (N.D.1982). Thus the question

"... is not whether there is literally no [or any] evidence supporting the party against whom the motion is directed but whether there is evidence upon which the jury could properly find a verdict for that party." 9 Wright and Miller, Federal Practice and Procedure: Civil Sec. 2524, p. 543 (1971).

The standard of review on appeal is the same as in the trial court. A directed verdict is granted as a matter of law, which is fully reviewable on appeal. Haggard v. OK RV Sales, 315 N.W.2d 475 (N.D.1982).

Directed verdicts should be sparingly granted and ought not usually be granted where very little time or expense is saved and there is a risk of a new trial becoming necessary. Here, the motion was granted after all the evidence was in and all parties had rested. As we said in Starr v. Morsette, 236 N.W.2d 183, 189 (N.D.1975):

"... It is a better practice to let the case go to a jury verdict because the trial court may then consider postverdict motions on the basis of a complete record, and any appellate court is in a position to reinstate or affirm or modify the verdict, if it disagrees with the trial court's disposition, and another trial may thus be avoided. See 5A Moore's Federal Practice, Sec. 50.05."

See also, 9 Wright and Miller, Federal Practice and Procedure: Civil Sec. 2533 (1971). Nevertheless, evaluating the evidence presented at trial in the light most favorable to Eric and Dann, we affirm the trial court's order granting Susan's motion for a directed verdict of dismissal.

In order to require Susan to apply the proceeds of the insurance policy to the debt owed to the McCarneys, Eric and Dann by competent evidence must establish that an implied trust was created, imposing upon Susan such duty and responsibility. This is a heavy burden.

"As a general rule, the insured has the right to designate the person or persons who shall be beneficiaries under the insurance contract and they are entitled to its proceeds.

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"... Nor do the proceeds belong to the insured's estate, where there is a named beneficiary ...." 2 Appleman, Insurance Law and Practice Sec. 771 (1966 Ed.)

We have held that where the insured set up an insurance trust under which the proceeds of life insurance were to be used by the trustees to pay the expenses of the administration of his estate and the balance paid to his children, the proceeds never became a part of the estate. Maher v. Ramsey County, 75 N.D. 760, 32 N.W.2d 679 (1948). See also, 5 Couch on Insurance 2d Sec. 27:166.

In addition to the right to name beneficiaries, the insured usually also has the right to change beneficiaries. See, Manikowske v. Manikowske, 146 N.W.2d 880 (N.D.1966), clarifying Manikowske v. Manikowske, 136 N.W.2d 465 (N.D.1965).

In granting the motion for a directed verdict, the trial court stated two principal reasons for granting the motion. One was that he found no evidence to prove that Susan ever agreed with Jerry that she would use the proceeds from the insurance policy to pay the McCarney debt. The second was his view that Sec. 26-10-18, N.D.C.C., provides that the proceeds of a life insurance contract are not subject to the debts of a deceased, except by special contract.

Jerry Knudsen's Group Insurance Record Card relating to the policy in issue shows the primary beneficiary to be Susan Knudsen and the contingent beneficiary to be his estate. It provides, inter alia, that "I hereby designate the above beneficiary to receive the proceeds of my insurance payable at the time of my death." It indicates that Jerry Knudsen signed the card on November 3, 1978, and that the policy was to become effective March 1, 1979. The card contained spaces for changing beneficiaries. The policy in issue provided that "The insured Employee may, from time to time and without the consent of the Beneficiary, change the Beneficiary by filing written notice of the change...."

Section 26-10-18, N.D.C.C., provides, in part:

"26-10-18. Avails of life insurance policy payable to deceased or to his heirs, personal representatives, or estate--Exemption--Distribution.--The avails of a life insurance policy ... when made payable to the deceased, to the personal representatives of the deceased, to his heirs, or to his estate, shall not be subject to the debts of the decedent upon the death of such insured or member of such society except by special contract.... Nothing contained in this section shall:

1. Affect, in any manner, any life insurance policy or beneficiary certificate which is made payable to a designated person, including the spouse of the insured, or to persons or to members of a family designated as a class, such as 'all children' or 'all brothers and sisters', even though the members of such class are not designated by name; or...."

The statute has been the subject of much litigation. After citing 18 cases involving Sec. 26-10-18, N.D.C.C., and its predecessors, this Court summarized the holdings in those cases in Hill v. Schroeder, 156 N.W.2d 695, 698 (N.D.1968):

"Under the various forms of the statute we have held, as may be found from a reading of the foregoing cases, that the subject matter of the statute is the distribution of the avails of such life insurance; that the avails do not become a part of the estate of the deceased but belong to the heirs...