Rubenstein v. Mutual Life Ins. Co. of New York, Civ. A. No. 82-4884.

• Decision Date: 09 April 1984
• Docket Number: Civ. A. No. 82-4884.
• Parties: Alan M. RUBENSTEIN v. The MUTUAL LIFE INSURANCE CO. OF NEW YORK.
• Court: U.S. District Court — Eastern District of Louisiana

584 F. Supp. 272

Alan M. RUBENSTEIN v. The MUTUAL LIFE INSURANCE CO. OF NEW YORK.

Civ. A. No. 82-4884.

United States District Court, E.D. Louisiana.

April 9, 1984.

COPYRIGHT MATERIAL OMITTED

E. Gordon Schaefer, Jr., New Orleans, La., for plaintiff.

Raymond J. Salassi, Jr., New Orleans, La., for defendant.

CHARLES SCHWARTZ, Jr., District Judge.

This matter was tried before the Court, sitting without a jury, on a former day, at which time it was taken under submission. After considering the record herein, the evidence adduced at trial, the memoranda of counsel, and the law, the Court finds as follows.

To the extent that any of the following findings of fact constitute conclusions of law, they are adopted as such, and to the extent that any of the conclusions of law constitute findings of fact, they are so adopted.

FINDINGS OF FACT

Plaintiff, Alan M. ("Mike") Rubenstein, instituted this action to recover the proceeds of a $240,000 credit life insurance policy issued by defendant, The Mutual Life Insurance Company of New York (MONY), insuring the life of Harold J. Connor, Jr. Connor died on November 6, 1979. Plaintiff is the beneficiary and owner of said policy; MONY claims that plaintiff is not entitled to recovery under the policy for reasons that are the subject of this suit, and refunded to plaintiff the premiums paid by plaintiff.

Plaintiff is a resident of Louisiana; defendant is a corporation incorporated and domiciled in New York, authorized to do and doing business in Louisiana. Prior to, during, and after July, 1979, plaintiff was employed as a fulltime owner and operator of a taxi cab associated with the United Cab Company of New Orleans. After attending a local seminar, he purportedly became interested in starting and developing "TV Journal," a publication similar in concept to "TV Facts," to be circulated free of charge in St. Tammany Parish. Revenues were to be derived solely from paid advertisements contained in the publication. In late July, 1979, Connor contacted plaintiff through the Louisiana Unemployment Commission in Slidell, where plaintiff had placed a notice requesting assistance in developing and operating the "TV Journal." On August 7, 1979, shortly after their initial meeting, plaintiff and Connor entered into a partnership agreement making Connor a 25% partner in the "TV Journal" business until January 1, 1980; thereafter, plaintiff would "grant" Connor a franchise for the publication of a tabloid in the St. Tammany Parish area to be entitled "TV Journal." Under the franchise aspect of the agreement, Connor was required to pay plaintiff $1000 per month for 20 years beginning on February 1, 1980, but could terminate the agreement at any time upon 60 days notice without penalty.

Also on August 7, 1979, plaintiff and Connor met with Earl Moreau, a MONY agent, regarding life insurance on Connor. Based on discussions between plaintiff, Connor and Moreau concerning plaintiff's newly established business relationship with Connor, Moreau recommended and plaintiff applied for, a $240,000 credit life insurance policy on Connor's life, who was then 23 years old.¹ As of the date of application, Connor had done little if any work for the "TV Journal" business; and no edition of it had been published, and no advertisements sold. No evidence was introduced to demonstrate the need for this fledgling and undercapitalized business to expend its limited resources for insurance on the life of an apparently healthy 23 year old man.

In providing information for the insurance application, plaintiff and Connor represented that Connor's annual income at the time of the application was $26,000 when in fact Connor's sole source of income was the "TV Journal" business, from which he received approximately $100 to $150 a week. Had MONY known Connor's actual income, it would not have issued the policy herein since an insured earning such limited income has no reasonable prospect of repaying a debt of $1000 per month for twenty years without the life insurance. Testimony of William J. Daly of MONY. Since plaintiff and Connor knew Connor's actual income, and knew that he never had an income of that amount and was unemployed just prior to their association, and since there is such a large discrepancy between Connor's stated and actual income, we find that they had knowledge of the falsity of the representations regarding Connor's income. We further find from the circumstances that plaintiff and Connor believed said misstatement to be material because in their discussions with Moreau, they collectively sought to find the "most viable" insurable interest; since individuals of even limited experience with insurance realize that an insurance company would not accept the risk of a $240,000 debt when the debtor earns only $7800 annually; and because plaintiff on being questioned failed to provide any other explanation for the misstatement in the application he signed except to deny any awareness of it having been made.

Plaintiff and Connor also failed to disclose to Moreau that Connor could terminate the partnership-franchise agreement at his whim with 60 days notice. The effect of the termination provision is to limit the maximum debt that Connor could have incurred to $2000 (for two months). Had MONY known of the provision, it would not have issued a credit insurance policy for $240,000. Testimony of Daly. We find that plaintiff and Connor knew that their failure to disclose the termination provision resulted in a false statement as to the amount Connor could be indebted to plaintiff. We further find from the circumstances that plaintiff in particular knew of the materiality of said nondisclosure since had he disclosed it he could not have claimed a debt for an amount over $2000, and because there was no evidence to suggest any other reason why the provision was not disclosed when plaintiff had disclosed other particulars of the partnership agreement during his discussions with Moreau.²

The evidence further establishes that when plaintiff applied for the insurance policy, and when Connor died on November 6, 1979, Connor was not at all indebted to plaintiff because Connor was not obligated to begin making payments to plaintiff until February 1, 1980.

Based on the information before it, MONY agreed to issue the policy on September 28, 1979; it was thereafter delivered to plaintiff on October 6, 1979.

According to plaintiff's testimony, Connor was to do all the work in preparing the "TV Journal" for publication, while plaintiff was to provide the capital. However, Connor's education was limited to high school, and prior to August 7, 1979, he had no experience in publishing and only limited experience in sales, having worked for approximately two months without success as a furniture salesman, according to Paula Andrus, Connor's girlfriend at the time. Ms. Andrus also attested to Connor's inability to balance his own checking account, further evidence of his lack of business skill.

Plaintiff, too, had no prior experience in publishing or in selling advertisements, his only sales experience of any nature having occurred "years" ago, by his own admission. Plaintiff did observe the operations of "TV Tempo" for the purpose of learning the operations of such a weekly, and prior to August 7, 1979 had taken some preliminary steps in furtherance of the "TV Journal" (e.g. contacting printers, obtaining proofs and TV listings, and figuring possible advertising rates). But, after that date, plaintiff's involvement in the operations of the "TV Journal" was nominal at best; he testified that he did not even know whether Connor had sold a single advertisement, and plaintiff himself had made only a few calls for that purpose. Plaintiff also stated that he was not aware of what bills Connor was paying, or how much he was paying Connor in salary. As further evidence of his own lack of business acumen, plaintiff explained the origin of the provision requiring Connor to pay him $1000 per month beginning February 1, 1980 by saying that they "both came up with the idea of $1000," with no further justification for the projection.

Regarding the financing of "TV Journal," plaintiff explained that he bought some furniture for the office, which was located in Connor's apartment, and that he paid Connor's salary and "whatever" else Connor needed. The evidence indicates, however, that at most $5000 was available as of late August, 1979 to develop the "TV Journal" until it became profitable or generated significant advertising revenues. Most of the $5000 apparently originated from a $5433 loan issued by the Bunkie Bank & Trust Company on August 22, 1979, for which Connor signed the note and plaintiff provided the collateral. Of the $5433, however, $1400 was used by plaintiff to pay off a previous personal loan from Bunkie Bank & Trust, and $1000 was given to Connor for his personal use. Disposition of the remaining $3000 is unclear, although it appears that the money was deposited in plaintiff's personal account with the Hibernia National Bank, which account he used to pay Connor's salary. This account showed a balance of $1246 on November 7, 1979, which was immediately before Connor had planned to print the first issue. Plaintiff's only other account was one he maintained with Bunkie Bank & Trust from November, 1976 to November, 1979. It had an average balance of $1500 to $1800 before it was closed. The "TV Journal" account at the Fidelity Bank & Trust Company shows a balance that was overdrawn twice in a two month period. Defendant's Exhibit No. 16.

The limited capital available to the "TV Journal" immediately prior to when Connor intended to print the first issue, and the inexperience of plaintiff and Connor lead to the inescapable conclusion that there was no reasonable chance that "TV Journal" could become a profitable publication, much less a publication capable of supporting $1000 monthly payments from Connor to plaintiff....