Case Title: Rice v. Garrison

Citation: 258 Kan. 142

Docket Number: 72,146

State: kansas

Court: Kansas Supreme Court

Date: 1995-07-14T00:00:00Z

Document:
258 Kan. 142 (1995)
BEVERLY J. RICE, Appellee/Cross-appellant,
v.
JANET S. GARRISON, KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM, and THE SECURITY BENEFIT GROUP/SECURITY BENEFIT LIFE INSURANCE COMPANY, Appellants/Cross-appellees.
No. 72,146

Supreme Court of Kansas.
Opinion filed July 14, 1995.
Arthur A. Glassman, of Sloan, Listrom, Eisenbarth, Sloan & Glassman, of Topeka, argued the cause, and R. Scott Seifert, of the same firm, was with him on the brief for appellee/cross-appellant.
Bruce C. Harrington, of Topeka, argued the cause and was on the brief for appellant/cross-appellee Janet S. Garrison.
David C. Wetzler, of Bennett, Lytle, Wetzler, Martin & Pishny, L.C., of Prairie Village, was on the briefs for appellant/cross-appellee Kansas Public Employees Retirement System.
The opinion of the court was delivered by
McFARLAND, J.:
This is a declaratory judgment action brought by the surviving spouse of a deceased state employee seeking a determination that she is the owner of certain pension benefits and life insurance proceeds, notwithstanding the fact the decedent's former wife is the designated beneficiary thereof. The district court, on equitable principles of unjust enrichment, established a *143 constructive trust in favor of the surviving spouse on the bulk of the proceeds. Alternatively, the district court held that the Kansas Public Employees Retirement System (KPERS) benefits were subject to the widow's right of election under K.S.A. 59-602 (Ensley); throughout this opinion the Ensley version of chapter 59 will be the applicable version. Appeals and cross-appeals have been filed by the various parties hereto from those portions of the judgment adverse to their respective positions.
The evidence presented at trial essentially falls into one of two categories, which shall be characterized as relating to "events," or as relating to oral statements made by the deceased Dale A. Rice. There is no claim by the widow nor did the trial court find that the events facts, alone, provide any grounds for the invalidization of the deceased's designation of his beneficiary.
The events facts are uncontroverted and are summarized as follows. Janet Sue Custenborder and Dale were married on May 18, 1957. Between January 1958 and November 1963, six children were born to the marriage. At some point, both Janet and Dale became dissatisfied with the marriage but opted to stick it out until all of their children had become adults.
Dale was employed at the Kansas Division of Printing from August 21, 1972, until May 21, 1982, when he terminated his employment and withdrew his KPERS pension contributions. In September 1982, Janet filed for a divorce which was granted in January 1983. Dale was involved with plaintiff Beverly J. Kinnett (now Rice) at the time, and Janet, also, was seeing someone else. All marital assets were divided pursuant to a property settlement agreement and no order of support was entered. Sometime in the spring of 1983 Dale and the plaintiff began living together. Dale was approximately 18 years older than Beverly.
In September 1983, Dale resumed his employment with the state printer. He had debts from an abortive entry into the trucking business. Upon resuming his state employment, Dale executed a KPERS enrollment application. He designated Janet Sue Custenborder "ex-wife" as his beneficiary. At the time of his reemployment Dale applied for $50,000 life insurance through the Kansas Public Employees Retirement System Optional Group Life Insurance. *144 As a state employee under KPERS, Dale received automatically, at no cost to him, a basic group life insurance policy in an amount equal to one and one-half times his annual salary. The life insurance program was administered by KPERS, but the actual insurer was defendant Security Benefit Life Insurance Company (SBL).
The application form for the optional life insurance provided, in pertinent part:
Both the basic group life and the optional group life insurance are term insurance with no cash value and payable only on the death of the insured. SBL has no contact with the insured. Once optional group life insurance is approved, KPERS issues an insurance certificate to be delivered to the insured. KPERS does not keep copies thereof. The certificate was not located in Dale's possessions after his death. There is no record of its actual delivery to Dale.
On November 13, 1984, Beverly and Dale were married. On September 12, 1985, Dale applied for an additional $50,000 of optional life insurance. This was approved, thereby giving Dale $100,000 of such insurance. Payment for optional life insurance is through payroll deductions.
In October 1986, Dale enrolled in a public employees deferred compensation plan issued in conjunction with Aetna Life Insurance and Annuity Company. Beverly was designated by Dale as his beneficiary. Proceeds of $11,000 therefrom were received by Beverly and are not at issue herein.
In the fall of 1988, Dale and Beverly applied for a loan to provide funds to build a home on land they owned in Auburn. On their loan application they listed total life insurance in the aggregate amount of $130,000. The life insurance was stated to have a cash value of $25,000. Dale's insurance at issue was term insurance with no cash value.
*145 On September 19, 1989, Beverly purchased optional group term life insurance through her employer, designating Dale as her beneficiary.
On September 27, 1989, Dale applied for additional insurance. In all relevant parts, the application form was the same as the first application for optional life insurance. The application was approved by SBL. Effective January 1, 1990, Dale had a total of $200,000 optional life insurance provided through the KPERS optional life insurance plan underwritten by SBL.
The specimen copies of the insurance certificates for the optional insurance provide:
The Basic Group Life Insurance Certificate states that death benefits will be paid to the person or persons designated as the beneficiary designated on the KPERS form. If no person is designated or if the designated beneficiary does not survive the KPERS employee, the proceeds are paid as specified in K.S.A. 74-4902(7).
Effective on the first anniversary of his reemployment, as per statute, monthly deductions of Dale's KPERS retirement contributions began. An employee may change his beneficiary designation at any time. Dale did not do so. Janet Custenborder, Dale's ex-wife, continued to be his designated beneficiary. A KPERS eligible employee cannot designate one beneficiary for pension benefits and another for life insurance. All KPERS benefits, whether pension, basic life insurance, or optional group life insurance must carry the same beneficiary designation.
Each year KPERS-eligible employees receive an annual statement of benefits on which, in the upper left-hand corner, is prominently displayed the name or names of the employee's designated beneficiary or co-beneficiaries. There was no testimony that Dale actually received or did not receive these annual statements. Beverly testified she never saw any such form.
*146 One of Dale's six children, Derrick, has a severe hearing disability and is a schizophrenic. Although Derrick received federal and state disability payments and did not live with either parent, both parents assisted him financially and in securing necessary medical treatment. Derrick's future was an ongoing concern of Dale and of other family members.
After leaving his state employment. Dale engaged in the trucking business. He went into debt. Beverly assisted in the payment of these debts and often worked two jobs. Beverly was the couple's money manager and wrote most of the checks. During the marriage the couple shared a joint bank account and filed joint tax returns with Beverly being responsible for the preparation of the annual tax returns.
Dale died suddenly of a massive heart attack on December 2, 1991. He was 55 years old at his death with no history of heart disease. He died intestate. At Dale's death the following were available through KPERS for distribution:
Janet Custenborder was the designated beneficiary of all such proceeds.
We now turn to the oral statements upon which Beverly relied, and which the district court found warranted the granting of equitable relief, invalidating Dale's legally executed designation of beneficiary form. The district court found each of Dale's statements admissible under either K.S.A. 60-460(d)(3) or (l)(1). No complaint is made as to this determination.
The testimony at trial reflected that Dale discussed his life insurance with an amazingly large number of people, including friends, relatives, coworkers, and others. In virtually all of the conversations, Dale initiated the topic of his insurance. Beverly, and many of the individuals she called as witnesses, testified to various oral statements Dale had made to the effect he had taken out the optional life insurance so that Beverly would be taken care of and/or so that she would be able to keep their home if something happened *147 to him. Beverly also testified that Dale wanted her to treat his children "fairly" and give them an unspecified part of his life insurance proceeds.
Janet presented the testimony of herself and certain of her children that Dale made oral statements that Janet was his beneficiary on all state benefits and that Beverly would have the house. One of Dale's daughters testified that Beverly overheard one of these conversations, expressed anger over its content, but acknowledged she was aware that Janet was the named beneficiary of the state benefits.
Beverly testified she did not know Janet was the designated beneficiary. Thus, the only controverted testimony is that of the daughter relative to Beverly's knowledge. The conversation, involving the daughter, Dale, and Beverly, is the only confrontational conversation in evidence. Put another way, it is the only instance where Dale is alleged to have made statements relative to the beneficiary of his life insurance which displeased the object of the statement and evoked a disapproving reaction. There was also testimony that Dale had made statements that he had left life insurance to his children.
The district court bifurcated its decision herein. On August 25, 1993, the district court held that all three categories of KPERS benefits at issue were subject to the plaintiff widow's right of election under K.S.A. 59-602. KPERS and Janet appeal therefrom. On May 23, 1994, the district court entered its final order disposing of the remaining issues. Specifically, the district court held:
KPERS and Janet appeal from the district court's finding of unjust enrichment and imposition of the constructive trust of the two *148 categories of benefits and the court's application of K.S.A. 59-602. Beverly appeals from the district court's refusal to include the basic group life insurance proceeds in the constructive trust.
Inasmuch as the district court held its later order controlled over the earlier order, we shall first consider the issues arising thereunder.
The district court's rationale was as follows:
"Conclusions of Law
It is said:
Id. at 641-42.
The district court went through the unusual facts herein and did not find there were any villains or bad guys. As the court stated, it did "not find that the actions of Dale Rice were intentional, in bad faith or with a purpose to deceive." The district court, understandably, had great empathy for the financial worries which have added to Beverly's bereavement. The court evidently concluded that Beverly had ended up being treated unfairly by Dale and determined to remedy the perceived wrong through its application of equitable *151 powers. Did the district court err or abuse its discretion in invoking its equitable powers to invalidate Dale's designation of beneficiary? We believe that it did.
A court of equity has broad but not unlimited powers to grant relief. Unlike Zorro or the Scarlet Pimpernel, a court under the guise of exercising its equitable powers may not right what it perceives as a wrong or unfairness absent an adequate equitable basis therefor.
As is stated in 30A C.J.S., Equity § 2, pp. 159-61:
The same concept was expressed in Seguros Banvenez, S.A. v. S/S Oliver Drescher, 761 F.2d 855, 863 (2d. Cir 1985), in the following language:
Hile v. DeVries, 17 Kan. App.2d 373, 836 P.2d 1219 (1992), relied upon by the trial court, is clearly distinguishable. The deceased had signed a legally binding property settlement agreement to maintain his children as beneficiaries on $50,000 worth of life insurance. In contravention of this legal obligation, he changed the beneficiary on the policy to his new wife. The big issue in Hile was whether fraud had to be proven before a constructive trust could be imposed. It was undisputed that the deceased had changed the beneficiary on his insurance when he had no legal right to do so.
In the case before us, Dale had every right to designate Janet, his ex-wife, as his KPERS beneficiary in September 1983. In essence, the district court imposed the constructive trust herein because Dale failed to change the beneficiary when the court concluded he had an obligation to do so arising from his "promises" to Beverly.
The use of the term "promise" by the trial court is a misnomer. Black's Law Dictionary 1213 (6th ed. rev. 1990) defines promise:
By Beverly's own testimony, Dale did not "promise" to make her his beneficiary. She testified as follows:
....
"A. '90 or '91.
[Janet's attorney]: "Thank you.
Dale was not promising to do anything in these conversations. At most, the comments were just statements relative to acts previously done. Promises relative to KPERS benefits were not made or exchanged between Dale and Beverly. The evidence does not support the existence of a contract between Dale and Beverly whereby Dale had the obligation to change his designation of beneficiary.
Invalidating a deceased's designation of his or her beneficiary on life insurance or pension benefits on equitable grounds is nothing to be undertaken lightly and would require some compelling factual situation not present herein. We conclude that the district court's determination that Janet had been unjustly enriched and that a constructive trust should be imposed on the optional life insurance proceeds and the accumulated pension contributions constitutes an inappropriate exercise of the court's equitable power under the facts herein and cannot stand. The district court's refusal to invoke its equitable powers to invalidate Dale's designation of beneficiary as to his basic group life insurance is affirmed.
We turn now to the issues raised relative to the district court's August 25, 1993, determination that Beverly had a right of election relative to the pension benefits pursuant to K.S.A. 59-602(2). This statute, in the form applicable herein, provides:
*155 This election issue arose as an alternative request for relief. Beverly contended that she was entitled to all of the three categories of KPERS proceeds. If she did not prevail thereon, she sought half of the proceeds in each category under authority of K.S.A. 59-602(2). Chronologically, the district court decided this alternative claim for relief first, holding that all three categories were subject to the right of election. When, later, the district court imposed a constructive trust on the accumulated pension contributions and the optional group term life insurance, it reaffirmed its earlier election ruling but held the later ruling controlling. Thus, Beverly received all of the proceeds of the two categories and Janet received the basic group term life insurance proceeds. KPERS and Janet contend the district court erred in holding the statutory right of election exists relative to any proceeds herein.
Beverly and Janet agree that K.S.A. 59-602 is inapplicable herein as Dale died intestate. Therefore, there is no will for Beverly to elect to take against. The correct statute is K.S.A. 59-504 which provides:
In order for the statute to apply the proceeds in question must properly be part of the decedent's estate. It should be noted that Beverly J. Rice is also in this case as the Administratrix of the Estate of Dale A. Rice, deceased. The district court concluded that the KPERS benefits were in an inter vivos trust and accordingly, they were subject to K.S.A. 59-602.
The district court reasoned as follows:
*156 14 Kan. App.2d at 557.
Id. (Emphasis added).
192 Kan. at 333.
Id. at 333.
The district court then held the KPERS benefits were subject to Beverly's right of election. Its rationale was expanded in its later constructive trust decision when it held:
By statute KPERS operates a trust fund. K.S.A. 74-4921. It does not follow that participation in KPERS is the equivalent of creating a revocable inter vivos trust such as was discussed in Newman v. George, 243 Kan. 183, 755 P.2d 18 (1988), and Taliaferro v. Taliaferro, 252 Kan. 192, 843 P.2d 240 (1992). Dale did not create a revocable inter vivos trust and then transfer marital assets thereto. By becoming a state employee, Dale was immediately enrolled in the basic group life insurance at no cost to him. This insurance *158 program is administered by KPERS, and Dale designated Janet as his beneficiary. At the same time Dale also applied for the first $50,000 in optional life insurance. Janet was the beneficiary therein, automatically. No one claims that Dale had no right to have Janet as his beneficiary at this time. After being employed by the State for one year, Dale was, by law, subject to the state pension plan administered by KPERS, and an amount over which he had no control was deducted each month as his KPERS contribution. As an employee cannot have different beneficiaries for different aspects of the KPERS package, no new beneficiary designation was necessary. As will be recalled, Dale and Beverly were not married on Dale's first anniversary of his reemployment by the state. There is no claim that Janet's being Dale's beneficiary at this time is in any way improper. So Janet is the lawful beneficiary on all three elements  basic and optional life insurance and employee pension contributions on Dale's first anniversary of employment.
The district court cites no authority for its conclusion that the purchase of optional term life insurance through KPERS is the transfer of assets to a trust in possible violation of a spouse's statutory rights. The purchased insurance had no cash value, and KPERS acquired no title to property therein. The premiums paid provided coverage for specified periods of time. The payment of such premiums is just a current expense  not an asset transfer. The basic group insurance was wholly paid for by the state and involved no marital assets. The ruling of the district court, in effect, makes the purchase of group term life insurance through KPERS subject to a spouse's consent if the beneficiary is other than the spouse of the insured.
We conclude the district court erred in holding that Dale's basic group life and optional group life insurance were assets subject to the limitations set forth in the probate code (designated by the court as K.S.A. 59-602, but actually is K.S.A. 59-504).
This leaves the question of the propriety of the district court's ruling as it relates to the accumulated pension contributions. For all but a month or two, Dale and Beverly were married during the period the deductions were being made from Dale's paycheck for such contributions. So, essentially, these contributions were made *159 from marital assets and represent a transfer thereof to a trust fund. However, the district court's decision is premised on Dale's participation in KPERS being the equivalent of his having created a revocable inter vivos trust and transferred assets therein to deprive his spouse of assets she would otherwise be entitled to. Dale did not create the KPERS trust. His contributions thereto were in the amount mandated by law as deductions from his paycheck. Dale's participation was a required condition of his employment by the State of Kansas.
K.S.A. 74-4916(1) provides: "Upon the death of a member before retirement, the member's accumulated contributions shall be paid to the member's beneficiary."
Janet was Dale's beneficiary at the time of his death.
We conclude the district court erred in holding that Beverly had a right of "election" as to the accumulated pension contributions.
The judgment of the district court is affirmed in part and reversed in part, and the case is remanded for entry of judgment consistent with this opinion.
SIX, J., concurring in the result.
LOCKETT, J., dissenting:
I respectfully dissent. The majority does not cite a case supporting its finding that a constructive trust cannot be imposed on the proceeds of the optional life insurance policy issued through KPERS. The majority merely concludes that because of the nature of the trust fund and because KPERS has a rule that requires an employee to have the same beneficiary under the State retirement plan and the additional insurance policy, the district court was precluded from using its equitable powers to impose a constructive trust.
The general rule is that the insured's designation of a beneficiary is ordinarily controlling. There are exceptions to the general rule. See Brown v. Modern Woodmen, 97 Kan. 665, 156 Pac. 767 (1916). Under one exception, the district court has the equitable power to create a constructive trust of the proceeds of an insurance policy when it determines there is an unjust enrichment to the named beneficiary. Tivis v. Hulsey, 148 Kan. 892, 84 P.2d 862 (1938). *160 Under our prior decisions, the exception would also apply to the optional life insurance policy issued through KPERS.