Starleper v. Hamilton

• Decision Date: 01 September 1995
• Docket Number: No. 983,983
• Citation: 666 A.2d 867,106 Md.App. 632
• Parties: Sharon Ann STARLEPER, et al. v. Sandra L. HAMILTON. ,
• Court: Court of Special Appeals of Maryland

Page 632

106 Md.App. 632

666 A.2d 867

Sharon Ann STARLEPER, et al. v. Sandra L. HAMILTON.

No. 983, Sept. Term, 1995.

Court of Special Appeals of Maryland.

Oct. 31, 1995.

Russell R. Marks (Mackley, Gilbert, Marks & DiGirolamo, Chtd. on the brief), Hagerstown, for appellants.

Karen L. Smith (Barton & Williams, on the brief), Hagerstown, for appellee.

Argued before WILNER, C.J., SALMON, J., and PAUL E. ALPERT, Associate Judge of the Court of Appeals (retired), Specially Assigned.

WILNER, Chief Judge.

This case reaches us as an expedited appeal founded upon an agreed statement of the case. It presents the single issue of whether the Circuit Court for Washington County erred in refusing to impose a constructive trust on the proceeds of a life insurance policy. We believe that the court erred in its analysis of the law, and we shall therefore remand for further proceedings.

THE FACTS

Gary Hamilton was once married to appellant, Sharon Starleper, by whom he had a son, Justin. In 1984, Gary and Sharon separated and entered into a separation agreement. At the time, Gary owned a life insurance policy issued by one of the State Farm insurance companies. Paragraph 10 of the separation agreement provided:

"Husband agrees to keep his current State Farm life insurance policy in effect to be used for the support, maintenance and education of the Child in the event of Husband's death. The said fund shall be administered by Wife, and, if Husband so desires, another party as trustee. Husband agrees to provide periodic proof of payment of premium to Wife.

To the extent that Husband shall fail to comply with the provisions of this Paragraph, his estate shall be charged with the obligations hereinabove assumed."

When the agreement was executed, and when the eventual divorce was granted, the policy listed Sharon as the primary beneficiary and Justin as a successor or contingent beneficiary.

Gary married Sandra Hamilton, appellee, in August, 1991. Sandra knew nothing about the insurance policy and never saw, or knew the contents of, the 1984 separation agreement. Unknown to Sharon (or apparently Justin), in September, 1991, Gary made Sandra the primary beneficiary of the State Farm policy, although he kept Justin as the successor or contingent beneficiary.

Gary and Sandra lived together, with Sandra's son from an earlier marriage, until shortly before Gary's death in April, 1994. Upon his death, Sandra was contacted by a State Farm agent and informed that she would be receiving the policy proceeds of $29,887. At the time, Justin was still a minor, 13 years old.

Sandra and her son had left the marital home shortly before Gary's death because Gary had begun using drugs, and, indeed, his addiction was a factor in his taking his own life. At the time she received the insurance proceeds, Sandra was living in the basement of her brother's home. She initially invested the proceeds in a certificate of deposit but, on July 1, 1994, she contracted to purchase a home. Settlement occurred on August 12, 1994.

One day before settlement, Sandra received a letter from Sharon's attorney, informing her, for the first time, of a claim by Justin to the insurance proceeds. Notwithstanding that letter, Sandra used $20,000 of the proceeds toward the purchase price of the house, because she believed that she was obligated to complete settlement. Sharon, for herself and on behalf of Justin, sued Sandra, seeking to have a constructive trust imposed on the insurance proceeds. At the time of trial, Sharon had $1,400 of the proceeds remaining in her possession. We are informed that the constructive trust was sought not only on the $1,400, but on Sandra's home as well, at least up to the amount of the insurance proceeds used in the purchase of the home. ¹

Both Sharon and Sandra receive Social Security benefits by reason of Gary's death. Sharon receives $605/month; Sandra receives, for herself, $326/month and another $580/month for her son. The evidence established that Gary's estate was insolvent, having only $500 in assets and creditors' claims far exceeding that amount. Sharon testified that she did not file a claim against the estate because of the insolvency. She also acknowledged that she had never requested Gary to provide proof of premium payment.

Sandra argued that a constructive trust was not warranted because she had not been unjustly enriched by the proceeds. This was apparently based, at least in part, on the claim that she had lent Gary certain sums that had not been repaid and that, in addition, she had been obliged to pay certain debts of Gary. The agreed statement of the case does not indicate the amounts in either category.

In refusing to impose a constructive trust, the court stated:

"By accepting the insurance money from State Farm after her husband's suicide, [Sandra] breached no duty to anyone, therefore, the retention of that sum and the use of that money to secure the purchase of real estate was not wrongful. Accordingly, imposing a constructive trust upon [Sandra's] home, the remaining money or other acquisition derived from the insurance payment would be contrary to the existing law of our State."

DISCUSSION

As both parties acknowledge, the appellate courts of Maryland have not yet had occasion to rule on the general question presented here--whether, when a person undertakes a contractual obligation to maintain life insurance for the benefit of a designated person and then, in derogation of that obligation, changes the beneficiary of the policy, the court may properly impose a constructive trust upon the proceeds of the policy in the hands of the substituted beneficiary, even in the absence of any evidence of wrongdoing by that substituted beneficiary.

In Wimmer v. Wimmer, 287 Md. 663, 414 A.2d 1254 (1980), the Court, though declining to find a constructive trust appropriate in that case, described the purpose of such a trust. At 668, 414 A.2d 1254, it said:

"A constructive trust is the remedy employed by a court of equity to convert the holder of the legal title to property into a trustee for one who in good conscience should reap the benefits of the possession of said property. The remedy is applied by operation of law where property has been acquired by fraud, misrepresentation, or other improper method, or where circumstances render it inequitable for the party holding the title to retain it. [citations omitted.] The purpose of the remedy is to prevent the unjust enrichment of the holder of the property."

(Emphasis added.)

The Court made clear that the remedy was not to be used to "right every wrong." It observed that, in the earlier cases in which it had approved the imposition of a constructive trust, there had been some transaction in which "the alleged wrongdoer has acquired property in violation of some agreement or in which another person had some good equitable claim of entitlement to property resulting from the expenditure of funds or other detrimental reliance resulting in unjust enrichment," and it concluded that "in most cases, unless there is an acquisition of property in which another has some good equitable claim, no constructive trust may be imposed." Id. at 671 414 A.2d 1254. See also Brown v. Coleman, 318 Md. 56, 566 A.2d 1091 (1989).

Although Wimmer makes clear that a constructive trust is an extraordinary remedy, to be afforded only in limited circumstances, it does confirm that imposition of such a trust is not necessarily dependent on a finding that the person whose property is subjected to it has committed some impropriety, but may rest as well upon a finding of unjust enrichment arising from other circumstances that "render it inequitable for the party holding the title to retain it." Id. at 668, 414 A.2d 1254.

As Sharon points out, courts in other States have addressed the issue raised here, and nearly all of them have concluded that imposition of a constructive trust is a proper means of enforcing agreements to maintain insurance for designated beneficiaries. Perhaps the clearest and most succinct expression of this view is the holding of the New York Court of Appeals in Markwica v. Davis, 64 N.Y.2d 38, 484 N.Y.S.2d 522, 523, 473 N.E.2d 750, 751 (1984):

"Where as an incident of a separation agreement a decedent husband has agreed to continue his children as beneficiaries of a policy of insurance on his life, a constructive trust for their benefit will be impressed on the proceeds of such insurance in the hands of the decedent's second wife to whom they had been paid under a change of beneficiary designation."

See also Brown v. Brown, 604 So.2d 365 (Ala.1992); Perkins v. Stuemke, 223 Ill.App.3d 839, 166 Ill.Dec. 103, 585 N.E.2d 1125 (1992); Green v. Green, 13 Mass.App.Ct. 340, 433 N.E.2d 92 (1982); Thiebault v. Thiebault, 421 N.W.2d 747 (Minn.App.1988); Herrig v. Herrig, 199 Mont. 174, 648 P.2d 758 (1982); Hirsch v. Travelers Ins. Co., 134 N.J.Super. 466, 341 A.2d 691 (1975); Aetna Life Ins. Co. v. Hussey, 63 Ohio St.3d 640, 590 N.E.2d 724 (1992); Taylor by...