Tillman ex rel. Estate v. Camelot Music, No. 03-5172.

• Decision Date: 11 May 2005
• Docket Number: No. 03-5172.
• Citation: 408 F.3d 1300
• Parties: Betina L. TILLMAN, Personal Representative of the ESTATE OF Filipe M. TILLMAN, Deceased, Plaintiff-Appellant, v. CAMELOT MUSIC, INC., Defendant-Appellee, Wal-Mart Stores, Inc., Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

408 F.3d 1300

Betina L. TILLMAN, Personal Representative of the ESTATE OF Filipe M. TILLMAN, Deceased, Plaintiff-Appellant, v. CAMELOT MUSIC, INC., Defendant-Appellee Wal-Mart Stores, Inc., Amicus Curiae.

No. 03-5172.

United States Court of Appeals, Tenth Circuit.

May 11, 2005.

COPYRIGHT MATERIAL OMITTED

Michael D. Myers of McClanahan & Clearman, L.L.P., Houston, TX (Scott M. Clearman and Robert H. Espey, II, of McClanahan & Clearman, L.L.P; James C. Hodges and Shanann P. Passley of Eller & Detrich, Tulsa, OK, with him on the briefs), for Plaintiff-Appellant.

Myron Kirschbaum of Kaye Scholer LLP, New York, N.Y. (Howard Kleinhendler of Kaye Scholer LLP; Richard M. Eldridge and Thomas E. Steichen of Eldridge, Cooper, Steichen & Leach P.L.L.C., Tulsa, OK, with him on the brief), for Defendant-Appellee.

David L. Bryant, Craig A. Fitzgerald, and Janna Dunagan Hall of the Bryant Law Firm PLLC, Tulsa, OK, on the brief for Amicus Curiae Wal-Mart Stores, Inc.

Before EBEL, McKAY, and O'BRIEN, Circuit Judges.

McKAY, Circuit Judge.

Defendant Camelot, in an effort to take advantage of a provision in the Internal Revenue Code, purchased life insurance on all of its full-time employees, including Mr. Tillman. When Mr. Tillman subsequently died, Camelot received approximately $340,000 in life insurance proceeds. Upon learning of the life insurance policy and its subsequent pay out, Plaintiff, the personal representative of Mr. Tillman's estate, brought suit pursuant to Oklahoma Insurance Code, which provides in substance that if anyone takes out a contract of insurance, delivered or issued for delivery within the state, on a person in whom it does not have an insurable interest, the insured or his representative may maintain a cause of action to recover the proceeds. See Okla. Stat. Ann. tit. 36, §§ 3601, 3604(B) (West 1999). Plaintiff also alleged an alternative theory of unjust enrichment.

The parties do not dispute the material facts; and, except as otherwise noted, the facts set forth here are undisputed.

As a full-time employee, Mr. Tillman was extended a "complete benefits package, including medical insurance, profit sharing/401(k) and life insurance...." Aplt.App., Vol. IV, at 831. On February 16, 1990, Camelot purchased approximately 1,400 corporate-owned life insurance ("COLI") policies to insure the lives of all of its full-time¹ employees. The stated purpose of purchasing the COLI policies was to ease its tax burden, which would then help offset the cost of employee health benefits. Id. at 824-25. Although purchased to insure the lives of its employees, Camelot actively concealed the existence of the COLI policies from the insured employees. Aplt.App., Vol. I, at 190.

In 1996, four years after Mr. Tillman's death and Camelot's receipt of the policy proceeds, Camelot filed for bankruptcy protection in the District of Delaware. As part of the bankruptcy proceedings, Camelot was disallowed from continuing its COLI-based interest deductions because the policies lacked economic substance and portions of the program were shams-in-fact.

After the above-mentioned lawsuit was filed, Camelot moved the district court to dismiss Plaintiff's second amended complaint arguing that Plaintiff failed to state a claim because the statute of limitations had run. The district court converted the motion to dismiss to a summary judgment motion and denied that motion. Camelot has not appealed that denial. Thereafter, Plaintiff filed a motion for partial summary judgment averring that Camelot did not have an insurable interest in Mr. Tillman's life. Camelot filed a cross-motion for summary judgment contending that judgment should be granted in its favor. Camelot articulated the following arguments: (1) Georgia law, not Oklahoma law, applied to this case; (2) Plaintiff's claims were discharged by Camelot's bankruptcy; (3) § 3604 of Oklahoma's insurance code did not apply to the case because the insurance policy at issue was not issued for delivery or delivered in Oklahoma; (4) Camelot had an insurable interest in Mr. Tillman; and (5) Camelot was not unjustly enriched.

The district court held that Oklahoma law applied to the instant dispute, the insurance policy at issue was constructively delivered in Oklahoma, Camelot did have an insurable interest in Mr. Tillman's life, and Camelot was not unjustly enriched when it received approximately $340,000 as a result of Mr. Tillman's death. Based on these holdings, the court denied Plaintiff's motion for partial summary judgment and granted Camelot's motion for summary judgment.

We review de novo a district court's grant of summary judgment. Timmons v. White, 314 F.3d 1229, 1232 (10th Cir.2003). In so doing, we apply the same legal standard employed by the district court to determine whether there is a genuine issue of material fact and whether either party is entitled to judgment as a matter of law. Gossett v. Okla. ex rel. Bd. of Regents for Langston Univ., 245 F.3d 1172, 1175 (10th Cir.2001).

Delivery of the Policy

Title 36 of the Oklahoma Statutes ("Oklahoma Insurance Code"), which governs insurance practices, states in relevant part: "This article shall not apply to ... (2) Policies or contracts not issued for delivery in Oklahoma nor delivered in Oklahoma...." Okla. Stat. tit. 36 § 3601. Unfortunately, the statute does not separately define what it means to "deliver" or "issue" a policy. Additionally, there are no reported Oklahoma cases specifically interpreting this statute.

The only context in which these terms are discussed is in cases dealing with the validity of an insurance contract that is conditioned on the issuance or delivery of the policy to the policyholder. The following summary of the law is helpful:

Contracts of insurance are frequently conditioned upon the execution, issuance or delivery of the policy. These terms can have distinct meanings but may also be used interchangeably. For example, the term "issuance" has been employed to refer to the preparation and signing of the policy, the delivery and acceptance of the policy, and to the preparation, execution, and delivery of the instrument as a binding obligation. A distinction between "issuance" and "delivery" is sometimes recognized in construing a statute or determining when a contract of insurance is in effect. "Delivery" is not essential to the completion of a contract which becomes effective, according to its terms, upon the "issuance" of the policy.

Lee R. Russ & Thomas F. Segalia, Couch on Insurance § 14:1 (3d ed.1995). Under Oklahoma law, actual physical delivery is not always required; it may be constructive. Mid-Continent Life Ins. Co. v. Dees, 269 P.2d 322, 323 (Okla.1954).

The instant case is particularly difficult because the insurer never produced, and Camelot never actually received, a physical copy of Tillman's policy. Instead, the insurer provided a form insurance contract to Camelot in Ohio and generated the rest of the contracts electronically, which it then stored on disk. But, despite the fact that the physical policy was never actually delivered to either Tillman or Camelot in Oklahoma, we believe that the policy was constructively delivered.

Dees provides support for this contention. In Dees, the insured died just one day after the issuance of the policy. 269 P.2d at 322. Although the first premium had been paid and the contract executed, the company had not yet physically delivered a copy of the policy to the insured. Instead, the insurance company mailed a copy of the policy to the local insurance agent with instructions to send it on to the insured, but the agent did not personally deliver the policy before the insured's death. Id. The insurance company refused to pay the death benefit on the grounds that delivery of the policy was an express condition to its liability under the contract. Id. at 323. Because all of the other steps involved in the issuance of the policy had been completed, the Oklahoma Supreme Court treated the insurer's delivery of the policy to the local agent as constructive delivery to the insured. Id.

In this case, the insurance contract does not specifically condition its effectiveness on delivery to either Camelot or Mr. Tillman. However, there is one important reference to delivery in the document. The policy states that information regarding the method of calculating policy value and cost of insurance "has been filed with the insurance official in the jurisdiction in which this policy is delivered." Aplt.App., Vol. IV, at 851, 853. Defendant concedes that it filed the COLI policy with the Oklahoma Department of Insurance for approval. Id. at 1032. Analyzing this action in conjunction with the language in the contract, it is clear that Camelot and its insurance company intended the policy to be delivered in Oklahoma. Otherwise, there would have been no reason to file the policy with the Oklahoma Department of Insurance.

Like the delivery of the policy to the agent in Dees, Camelot's delivery of the COLI policy to the Department of Insurance raises an inference of constructive delivery. Furthermore, we note that interpreting the statute to require physical delivery of the contract within state borders would allow all insurance companies to skirt Oklahoma insurance regulations merely by electronically storing the insurance contracts in another jurisdiction.

Insurable Interest

Having concluded that § 3601 was met, we turn to the question of whether Camelot had an insurable interest in Mr. Tillman's life, one of its rank-and-file employees. Camelot's purchase of life insurance to insure the lives of its employees is not a novel idea. "Corporations have, for many years, purchased life insurance on the lives of their most valuable employees in order to protect the corporation against economic losses which would occur as a result of the untimely death of such an employee." American Elec. Power, Inc. v. United States, 136 F.Supp.2d 762, 768 (S.D.Ohio 2...