Wood v. Martin

• Decision Date: 22 October 2020
• Docket Number: Record No. 190738
• Citation: 299 Va. 238,848 S.E.2d 809
• Parties: Cheryl H. WOOD, et al. v. Tracey L. MARTIN
• Court: Virginia Supreme Court

299 Va. 238

848 S.E.2d 809

Cheryl H. WOOD, et al.

v.Tracey L. MARTIN

Record No. 190738

Supreme Court of Virginia.

OCTOBER 22, 2020

Yama A. Shansab (Ferguson Walton & Shansab, on briefs), Reston, for appellants.

Thomas W. Repczynski (Alyssa Davies, on brief), Tysons Corner, for appellee.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

During a divorce proceeding in 2010, John Wood agreed to maintain a preexisting life insurance policy for the partial benefit of his soon-to-be ex-wife, Tracey L. Martin. The circuit court ratified the agreement and incorporated it into the final divorce decree. Six years after the final divorce decree, in defiance of that court order, Wood removed Martin as a beneficiary and designated his new wife, his brothers, and a friend as new beneficiaries on the policy. Two days later, Wood committed suicide. After the insurer interpleaded the policy proceeds in a suit initiated by Martin, the circuit court awarded Martin her agreed-upon share of the proceeds consistent with the earlier divorce decree. Claiming that the court erred by doing so, the new beneficiaries appeal. We disagree and affirm.

I.

In 2004, during the marriage of Martin and Wood, American General Life Insurance Company ("AGLIC") issued a $1.5 million term life insurance policy to Wood. In 2008, Wood assigned that policy to Access National Bank in order to secure a loan, and AGLIC confirmed that assignment. Wood and Martin separated in 2010 and entered into a Separation and Property Settlement Agreement that was later amended by an Addendum and Modification Agreement (collectively, the "PSA"). The couple filed for divorce, and the circuit court's final divorce decree ratified, affirmed, and incorporated the PSA.

The PSA required Wood to maintain Martin "as 50% beneficiary in the unencumbered amount of $750,000" on the $1.5 million life insurance policy or a comparable policy as long as Wood "has a spousal support obligation, and/or until the youngest child graduates from a 4-year college or reaches her 23rd birthday, whichever last occurs." J.A. at 138. The PSA further provided that "[i]n the event either of the parties dies and has not complied with the required terms as set forth" in the life insurance provision, "the insurance death benefits as set forth above shall become a charge against the decedent's estate in favor of the other party." Id. at 139.

In 2014, the circuit court found Wood in contempt for willfully defaulting on his obligations imposed by the final divorce decree. See id. at 61 n.1. On June 9, 2017, the court entered another order stating that "Wood remains in willful contempt of this court's orders" and directed that he be "released from incarceration" only upon payment of his "various obligations and arrearages" imposed by the court's final divorce decree and later enforcement orders. Id. at 61-62; see also id. at 89. In a handwritten note at the bottom of the June 9, 2017 contempt order, the court ordered Wood to provide Martin with information regarding the AGLIC life insurance policy, including the named beneficiaries and the percentage of the proceeds allotted to each. See id. at 63. Shortly thereafter, as of June 15, 2017, Martin was listed as a 50% primary beneficiary of the life insurance policy. See id. at 89.

Approximately three months later, Wood executed a change-of-beneficiary designation that named (i) his new wife, Cheryl H. Wood, as a 45% primary beneficiary; (ii) his brother, Thomas M. Wood, as a 40% primary beneficiary; (iii) his brother, Timothy M. Wood, as a 5% primary beneficiary; and (iv) his friend, Mark W. Klopfenstein, as a 10% primary beneficiary (collectively, the "new beneficiaries"). See id. at 176. In a handwritten note signed with his initials at the bottom of the change-of-beneficiary designation, Wood stated: "The omission of my ex-wife, Tracey Martin, is intentional." Id. (altering capitalization). Two days later, Wood committed suicide. At the time of his death, Wood remained obligated under the PSA to maintain Martin as a 50% primary beneficiary of the AGLIC life insurance policy.

After Martin attempted to submit a claim against the policy and discovered that Wood had removed her as a beneficiary, Martin filed suit in January 2018 against the new beneficiaries, AGLIC, Access National Bank, Wood's estate, and unnamed trustees of Wood's living trust. Martin's four-count complaint requested injunctive relief and a declaratory judgment confirming her entitlement to 50% of the life insurance proceeds against all defendants, alleged unjust enrichment against the new beneficiaries, and asserted a breach of contract claim against Wood's estate and living trust. A consent order required AGLIC to deposit $750,000 (representing Martin's disputed 50% share) with the court, to pay $74,062.50 to Access National Bank to satisfy Wood's assignment, and to distribute the remainder of the life insurance proceeds to the new beneficiaries. See id. at 66. Upon AGLIC's payments, the circuit court dismissed both AGLIC and Access National Bank as defendants and dismissed Martin's claim for injunctive relief. Martin also nonsuited her breach of contract claim against Wood's estate and living trust and withdrew her unjust enrichment claim against the new beneficiaries. With only Martin's claim against the interpleaded funds remaining, Martin and the new beneficiaries filed cross-motions for summary judgment. In a joint stipulation of facts, the parties agreed that the only issue left in the case was the contest over "the remaining Life Insurance Policy's proceeds, or $750,000, plus accrued interest thereon, as interpleaded with the [c]ourt." Id. at 90.

Martin argued that she alone was entitled to the interpleaded $750,000 of life insurance proceeds because the PSA and the final divorce decree had bound Wood to maintain Martin as a 50% beneficiary. Id. at 184-85. Wood's change-of-beneficiary designation, Martin argued, could not divest her of this right. In response, the new beneficiaries argued that Martin's claim was barred by Code § 38.2-3122(B), which protects insurance items from creditor claims, and that the PSA had stipulated that her exclusive remedy was a breach of contract claim against Wood's estate, a claim that Martin had nonsuited. See J.A. at 200-05. The circuit court disagreed with both arguments and awarded the interpleaded insurance proceeds to Martin.

II.

On appeal, the new beneficiaries assert three assignments of error that collectively make two points. First, they argue that Code § 38.2-3122(B) bars any claim that Martin may have because she is a "creditor" seeking to obtain the insurance proceeds by "other legal process." Second, they contend that Martin's equitable claim to the proceeds is precluded because the PSA stipulates that her sole remedy is a breach of contract action against Wood's estate. We disagree with both assertions.¹

A.

The dispute in this case is not uncommon.² Its procedural posture, however, is unique. Prior to the circuit court's entry of summary judgment, the parties had stipulated that the only remaining issue was the contest over the $750,000 in life insurance proceeds — the res "interpleaded with the Court." J.A. at 90. The court's final judgment limited itself to this issue by awarding Martin the "insurance proceeds and accrued interest ... as previously interpleaded with the Court and being held by the clerk of the Court," id. at 286. Given this context, Martin's claim to the interpleaded res is an equitable one. See Day v. MCC Acquisition, LC , ––– Va. ––––, ––––, 848 S.E.2d 800, 807-08 (2020) (distinguishing an in personam judgment from an in rem judgment that determines "competing ownership claims against the res" and "operates directly on the property itself" (citations omitted)).

The equitable nature of Martin's claim answers the new beneficiaries’ first argument that Code § 38.2-3122(B) bars Martin from asserting it. In relevant part, the statute protects certain "insurance item[s]," such as life insurance proceeds, from being "liable to execution, attachment, garnishment, or other legal process in favor of any creditor" of the insured. Code § 38.2-3122(B). Subsection C of the statute, however, clarifies that this protection "shall not apply to any claim by a creditor with respect to a life insurance policy ... that was ... assigned in writing for the benefit of the creditor." Code § 38.2-3122(C) (emphasis added). A related statute clarifies this point:

Since the purpose of §§ 38.2-3122 and 38.2-3122.1 is to confer additional rights, privileges, and benefits upon beneficiaries and assignees of policies, no beneficiary or assignee shall by reason of these sections be divested or deprived of or prohibited from exercising or enjoying any right, privilege, or benefit that he would have or could exercise or enjoy had §§ 38.2-3122 and 38.2-3122.1 not been enacted.

Code § 38.2-3125. This clarification confirms that prior substantive law governing underlying rights and liabilities still governs any "right, privilege, or benefit" that "assignees" have under existing law, id.

In this case, we need not determine whether Martin qualifies as a "creditor" or, even if she were one, whether her in rem claim constitutes "other legal process" subject to Code § 38.2-3122. Under existing law, Martin's claim is based upon an equitable assignment that arose by operation of law when the circuit court ratified the PSA's life insurance provision and entered a final divorce decree incorporating the PSA and ordering Wood to comply with it.³

1.

An equitable assignment is "[a]n assignment that, although not legally valid, will be recognized and enforced in equity — for example, an assignment of a chose in action." Black's Law Dictionary 148 (11th ed. 2019). Both chancery and common-law courts have applied the doctrine of equitable assignment broadly to include "an assignment or transfer of the fund or some definite portion of it, so that the person owing the debt...