Rollins by Rollins v. Metropolitan Life Ins. Co.

• Decision Date: 04 September 1990
• Docket Number: No. 89-2698,89-2698
• Citation: 912 F.2d 911
• Parties: Donald R. ROLLINS, Douglas R. Rollins and Misty D. Rollins, infants, by next friend, Kellen S. ROLLINS, Plaintiffs-Appellants, v. METROPOLITAN LIFE INSURANCE COMPANY and Nancy J. Rollins, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 911

912 F.2d 911

Donald R. ROLLINS, Douglas R. Rollins and Misty D. Rollins infants, by next friend, Kellen S. ROLLINS Plaintiffs-Appellants, v. METROPOLITAN LIFE INSURANCE COMPANY and Nancy J. Rollins Defendants-Appellees.

No. 89-2698.

United States Court of Appeals Seventh Circuit.

Argued May 7, 1990.

Decided Sept. 4, 1990.

Mary M. Runnells, Robert C. Price, Price & Runnells, Bloomington, Ind., for plaintiffs-appellants.

David W. Sullivan, Cox, Zwerner, Gambill & Sullivan, Terre Haute, Ind., Richard S. Harrison, Cotner, Andrews, Mann & Chapman, Bloomington, Ind., James L. Crawford, Effner, Wagner & Crawford, Terre Haute, Ind., for defendants-appellees.

Before BAUER, Chief Judge, CUDAHY, Circuit Judge, and WILL, Senior District Judge. ¹

BAUER, Chief Judge.

This case, concerning the imposition of a constructive trust on federal life insurance benefits, comes before us now for the second time. At the time of his death, Donald Rollins held a $100,000 life insurance policy under the Federal Employees Group Life Insurance Act (FEGLIA). Rollins, however, had failed to name a beneficiary on his policy. Under the plain terms of FEGLIA, Rollins' second wife, Nancy, became the beneficiary in the absence of a named party. ² Rollins' three children by a previous marriage contended that they were entitled to the benefits under the doctrine of constructive trust. On the first appeal, we determined that FEGLIA did not preempt the equitable remedy of constructive trust under state law. Rollins v. Metropolitan Life Insurance Co., 863 F.2d 1346 (7th Cir.1988) ("Rollins I "). The district court, on remand, imposed the constructive trust and awarded the children $10,000. The children appeal again, contending that although the constructive trust was properly imposed, the amount of the award was insufficient. Appellee Nancy Rollins contends that the trust was improperly imposed, and that the award was in any event sufficient. We believe the trust proper and the amount sufficient, and therefore affirm.

I. Background

Donald Rollins and Kellen Rollins, his first wife, were married in 1968. They had three children together: Donald R. Rollins, Douglas R. Rollins and Misty D. Rollins (hereafter "the children"). Donald and Kellen were divorced in 1981 by the Indiana Circuit Court. In its final decree, the court stated, this "Court now orders the Petitioner [Donald Rollins] to maintain life insurance upon his life with the children named as beneficiaries thereon and further maintain life insurance policies on the lives [sic] of each child." ³ At the time of the decree, Rollins held a life insurance policy from Western and Southern Life Insurance Company in the amount of $10,000 which named Kellen Rollins as his beneficiary. This policy eventually lapsed and was replaced by a policy for $10,000 from Bankers Life Insurance Company naming his children as beneficiaries. Rollins was also insured at the time of this divorce under a group life insurance plan from his employer, RCA, for $24,000. The beneficiary of this policy was the woman who was to become his second wife, Nancy J. Rollins.

Donald and Nancy Rollins were married on April 20, 1982. No children were born to that marriage. Nancy did have one child from a previous marriage, but Rollins did not adopt the child. During this second marriage, Rollins left work at RCA and took a job as a civilian employee with the federal government. As part of his federal benefits package, Rollins was covered through the FEGLIA program by a life insurance policy from Metropolitan Life Insurance Company in the amount of $100,000. Rollins failed to designate any beneficiary on this policy.

In April of 1986, Donald and Nancy began living apart due to their marital difficulties. Nancy petitioned for divorce and filed for a temporary restraining order to prevent Rollins from harassing or molesting her. A hearing was scheduled for July 14, 1986. The hearing was never held. On May 14, 1986, Rollins was found dead in his trailer; an apparent suicide. The only life insurance remaining at the time of his death was the $100,000 federal policy. The $24,000 policy from RCA lapsed when he terminated his employment there. Similarly, the $10,000 policy from Bankers Life, which had been payable to his children, lapsed when Rollins failed to pay the premiums.

II. Procedural History

The children filed a complaint in the Southern District of Indiana against Metropolitan Life Insurance Company and Nancy Rollins in 1986, seeking the benefits of the FEGLIA policy. Metropolitan Life was dismissed from the case after depositing the proceeds of the FEGLIA policy in the registry of the district court. Nancy, as the remaining defendant, counterclaimed and filed a motion for summary judgment. The district court initially granted her motion, holding that (1) Nancy was indeed the proper beneficiary in the absence of any named party on the policy, according to the strict language of 5 U.S.C. Sec. 8705(a); and (2) that federal law preempted the imposition of a constructive trust on the FEGLIA proceeds. The children then appealed to this court.

On appeal, we held that although Nancy was the insured's spouse for purposes of FEGLIA, the issue of the constructive trust was not preempted by federal law. Thus, although Nancy, as Rollins' widow, was the beneficiary in the absence of a named party for purposes of FEGLIA, the children could have superior equitable rights in the FEGLIA benefits. Rollins I, 863 F.2d 1346. We therefore remanded the case to the district court with instructions to apply Indiana state law to the question of whether a constructive trust should be imposed. Id. at 1356.

On remand, the district court determined that Indiana law would support the imposition of a constructive trust on the insurance proceeds. The court, therefore, entered judgment on this issue and then requested additional briefs on the question of the proper amount to be covered by the trust. Following submission by the parties of a list of stipulated facts and the additional briefs, the court then granted summary judgment for the children and awarded them $10,000--the amount of the Bankers Life policy. The court did not include the $24,000 RCA policy in its award, as this policy had never named the children as beneficiaries, nor was there any evidence that the Indiana Circuit Court had considered the policy when it fashioned its decree requiring the maintenance of existing life insurance. The children now appeal the amount of this award.

III. Discussion

On appeal, the children raise two issues. First, they contend that the district court, by requiring a second proceeding on the amount of the constructive trust, improperly shifted the burden of proof to the appellants. Second, they argue that by awarding them only $10,000, the court misconstrued the divorce decree rendered by the Indiana Circuit Court. In response, Nancy argues that the constructive trust was improperly imposed and, in the alternative, that the amount awarded under the constructive trust was proper and the children are entitled to no more than $10,000. We will consider these issues in turn.

A. Constructive Trust Principles

The equitable remedy of constructive trust has proved a difficult concept for courts to define. As usual, Judge Cardozo expressed its vague contours most eloquently: "A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him to a trustee." Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378 (1919), quoted in A.W. Scott and W.F. Fratcher, The Law of Trusts, Sec. 462 (1989). Indiana courts, like most jurisdictions, have long recognized this equitable remedy where a party "through fraud or mistake or by any means ex malificio acquires the property of another." Brown v. Brown, 135 N.E.2d 614 (Ind.1956).

Under current Indiana law, equity will create a constructive trust "where there is actual fraud or there exists a breach of duty arising out of a confidential or fiduciary relationship which necessitates the presumption that fraud be found." Givens v. Rose, 383 N.E.2d 448, 453 (Ind.App.1978). The courts have imposed a constructive trust where this confidential or fiduciary duty has been breached, and a third party unjustly enriched as a result of that breach, even absent wrongdoing by the party unjustly enriched. See Kopis v. Savage, 498 N.E.2d 1266 (Ind.App.1986); see also Hunter v. Hunter, 283 N.E.2d 775, 779 (Ind.1972). Thus, equity may collect proceeds from an innocent party in order to protect the equitable rights of those who have suffered the wrong. See Ridgway v. Ridgway, 454 U.S. 46, 71-72, 102 S.Ct. 49, 63-64, 70 L.Ed.2d 39 (1987) (Stevens, J., dissenting).

The party seeking to invoke a constructive trust has the initial burden of demonstrating that a confidential or fiduciary relationship exists. Reiss v. Reiss, 516 N.E.2d 7 (Ind.1987). Such a relationship must be established by clear and convincing evidence. Melloh v. Gladis, 309 N.E.2d 433 (Ind.1974); Terry v. West, 524 N.E.2d 343 (Ind.App.1988). Once the plaintiff has established such a relationship and a breach of the resulting duty, the burden necessarily shifts to the defendant to prove good faith, the absence of undue influence, or any other affirmative defense, which would bar the creation of the constructive trust. See Givens, 383 N.E.2d 448; Hall v. Indiana Dept. of Revenue, 351 N.E.2d 35 (Ind.App.1976). See also 28 Indiana Law Encyclopedia ("I.L.E.") Trusts Sec. 78, p. 553.

B. The Children's Claims

Applying these principles of equity to this case, it is apparent that the children have met their initial burden of proof. The divorce decree entered by the Indiana Circuit Court demanded that Rollins maintain life insurance policies with his children as...