New England Mutual Life Insurance Co. v. Lauffer

• Decision Date: 11 March 1963
• Docket Number: Civ. No. 478-61,171-61.
• Citation: 215 F. Supp. 91
• Court: U.S. District Court — Southern District of California
• Parties: NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation, Plaintiff, v. Carl H. LAUFFER, etc., et al., Defendants. PASADENA CHRISTIAN SCHOOL, INC., Plaintiff and Cross-Defendant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant and Cross-Complainant.

215 F. Supp. 91

NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation, Plaintiff, v. Carl H. LAUFFER, etc., et al., Defendants.

PASADENA CHRISTIAN SCHOOL, INC., Plaintiff and Cross-Defendant, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant and Cross-Complainant.

Civ. Nos. 478-61, 171-61.

United States District Court S. D. California, Central Division.

March 11, 1963.

Meserve, Mumper & Hughes, Los Angeles, Cal., for plaintiff New England Mutual Life Ins. Co.

Thomas S. Bunn, Jr., Wiley D. Bunn, Los Angeles, Cal., for plaintiff and cross-defendant Pasadena Christian School, Inc.

Adams, Duque & Hazeltine, Los Angeles, Cal., for defendant and cross-complainant Prudential Ins. Co.

Newlin, Tackabury & Johnston, Los Angeles, Cal., for defendants Carl H. Lauffer, individually and as guardian of estate of Charles Henry Lauffer, a minor, Charles Henry Lauffer and Union Trust Co.

Watson, Hart, Mieras & Cutler, Los Angeles, Cal., for defendants and cross-defendants, Stephen Lazarian and Eldon Eby.

BYRNE, District Judge.

These are actions under the Federal Interpleader Act.¹ Both actions involve the same or related facts and are here consolidated for trial.

These actions require the determination of the proper recipient of the proceeds of two life insurance policies on the life of Ruth E. Laboshin, née Ruth E. Lauffer. One of the policies was issued by Prudential Life Insurance Co. ("Prudential"), and the other by New England Mutual Life Insurance Co. ("New England Mutual").

In each case the claimants to the proceeds of the policy are, on the one side, Carl H. Lauffer, individually and as guardian of the Estate of Charles Henry Lauffer, a minor, Charles Henry Lauffer, and Union Trust Company. This side is sometimes hereinafter referred to as the "prior beneficiaries". The claimants on the other side are Pasadena Christian School, Inc., and Eldon Eby and Stephen Lazarian, co-executors of the Estate of Ruth E. Laboshin, deceased.

It is the contention of the prior beneficiaries that there was no effective change of beneficiaries of the policies under the applicable law. It is the contention of Pasadena Christian School that there was an effective change designating the school as beneficiary of the policies.

The Prudential policy contains the following provision:

"Change of Beneficiary—If the right to change the Beneficiary has been reserved, the Insured may at any time while this policy is in force, by written notice to the Company at its Home Office, change the Beneficiary or Beneficiaries under this policy, such change to be subject to the rights of any previous assignee and to become effective only when a provision to that effect is endorsed on or attached to the policy by the Company, whereupon all rights of the former beneficiary shall cease."

The New England mutual policy provides:

"No change of Beneficiary shall take effect until endorsed hereon by the Company."

No endorsement for the purported change of beneficiary appears on either of the subject insurance policies.

Ruth Lauffer died in California on or about November 12, 1960.

The Prudential policy had been issued to Ruth Lauffer in 1938, and on May 20, 1941, a rider form was attached to that policy providing in essence that interest payments should be made to Carl H. Lauffer and Charles H. Lauffer, the nephew of Ruth Lauffer, in equal shares during their respective lives and on the death of either of them a one-half share of the policy proceeds were to be paid to Union Trust Company of St. Petersburg, Florida, as trustee under a trust agreement dated April 24, 1941, and executed by Charles A. Lauffer, Ruth Lauffer's father, as Trustor, and Ruth E. Lauffer of Polk County, Florida, and Union Trust Company, as trustees.

The New England Mutual policy had been issued to Ruth Lauffer in 1938, and by a special settlement request dated September 29, 1941, the insured, Ruth Lauffer, instructed that the proceeds of the policy be retained by New England Mutual at her death under an interest option, one-half for the benefit of Carl H. Lauffer and one-half for the benefit of Charles Henry Lauffer, each of whom was to receive interest payments on his share of the policy during his lifetime. On the death of Carl H. Lauffer and Charles Henry Lauffer, their one-half shares of policy proceeds were to be paid to Union Trust Company, as Trustee under the trust agreement referred to above. This special settlement request was endorsed on the policy on October 2, 1941.

The trust agreement of April 24, 1941, was executed in Florida, and pursuant to that agreement each of the subject policies was itself deposited with the Union Trust Company and remained in its possession until after the death of the insured.

The trust agreement pursuant to which Ruth Lauffer deposited the policies with Union Trust Company provided as follows:

"Ruth Emily Lauffer agrees to leave said policies with the corporate Trustee for safekeeping at all times, and the corporate Trustee hereby acknowledges their receipt and is charged with their safekeeping. Ruth Emily Lauffer agrees not to change the beneficiary under said policies, or any of them, without the consent of Carl Henry Lauffer and, if any such change of beneficiary is made without his consent, the Trustees shall thereafter, annually during the life of Ruth Emily Lauffer, withhold from income and add to the corpus of this trust an amount equal to the annual premium paid on each and every policy on which the beneficiary was so changed for the year last preceding the date of such change."

The trust agreement reveals that nowhere did Ruth E. Lauffer entrust the ownership of the subject insurance policies to the Union Trust Company or to anyone else. Rather Charles A. Lauffer entrusted certain securities which became part of the trust estate. The income from the trust estate was to be used to pay all premiums on the insurance policies on the life of Ruth E. Lauffer. Although Ruth E. Lauffer agreed not to change the beneficiary under those policies without the consent of Carl Henry Lauffer and that if such change be made without his consent, the trustees should thereafter withhold from income and add to corpus the amount of the annual premium to be paid annually on each policy on which the beneficiary was so changed, this agreement under orthodox analysis did not transfer ownership of the policies to the Union Trust Company. Legal title appears to have remained in Ruth E. Lauffer, and with it the power to exercise the incident of ownership of changing the beneficiaries remained in Ruth E. Lauffer. Thus Ruth E. Lauffer had the power to change the beneficiaries of both the Prudential and the New England Mutual policies without anybody's consent.

Ruth Lauffer executed a document in which she instructed Union Trust Co. to change the beneficiary designations on the New England Mutual and the Prudential policies. This document stated: "The primary beneficiary is to be the Pasadena Christian School, Inc., located at 1464 North Garfield, Pasadena, California. The method of payment shall be lump sum. If for any reason these proceeds cannot be paid within twelve months to the primary beneficiary, then my estate shall be named as secondary beneficiary." It appears that this instruction was signed by the insured on the date it bears, Oct. 13, 1960. Mr. Mieras, attorney for the insured, mailed the instruction to the Union Trust Company along with a letter written by Mieras which stated: "In view of the fact that we do not have the policies to initiate these beneficiary changes direct with the insurance companies involved, we are forwarding her letter of instructions to you and trust that you as Trustee can accomplish the same. This letter was dated October 19, 1960. The letter and instruction were received by Mr. Cohoe, a trust officer of Union Trust Company, on October 21, 1960. There then followed correspondence between Cohoe and Mieras.

Although there was no written notice to the insurance companies of the attempted change of beneficiaries, and no endorsement of any change of beneficiaries on the policies, Pasadena Christian School contends that the insured did all that was within her power to change the beneficiaries before her death and that consequently the sending of the written instruction to the Union Trust Company, along with Mieras' letter, should be sufficient in contemplation of law to change the beneficiaries. It is argued that if Union Trust Company had sent the policies and forwarded the instruction to the respective insurance companies, the changes of beneficiary would have been effective immediately on receipt by the insurance companies of the instruction and the policies themselves even if the changes of beneficiary were not then endorsed on the policies, all this because of a substantial compliance rule which is followed in some jurisdictions. The argument is made that under this rule there need not be endorsement of the change of beneficiaries on the policy, as required by the strict letter of the policy provisions, where the policy is in the hands of a prior beneficiary who refuses to surrender the policies. Pasadena Christian School contends that the substantial compliance rule is applicable herein, and that the insured did enough to change the beneficiaries effectively under that rule.

The prior beneficiaries contend that under the applicable law, strict compliance with policy provisions is required to complete the change of beneficiary, and that since there was no endorsement of any change of beneficiaries on the policies, as required by policy provisions, there was no effective change of beneficiaries. They also contend that even if the substantial compliance rule is applicable, there was no effective change of beneficiaries.

Carl H. Lauffer is a citizen and resident of Mississippi. Charles Henry Lauffer is a citizen and resident of Mississippi. Union Trust Company is a Florida corporation...