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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-3892

___________

United of Omaha Life Insurance *

Company, *

*

Plaintiff - Appellant, * Appeal from the United States

* District Court for the

v. * Eastern District of Arkansas.

*

Ross C. Honea, *

*

Defendant - Appellee. *

___________

Submitted: April 21, 2006

Filed: August 17, 2006

___________

Before LOKEN, Chief Judge, BOWMAN and BYE, Circuit Judges.

___________

LOKEN, Chief Judge.

United of Omaha Life Insurance Company issued a $500,000 term life policy

effective August 1, 1996. The insured, John L. Rauch, died on June 26, 1998. The

beneficiary of record, Pioneer Nursing and Rehab Center, Inc. (“Pioneer”), filed a

claim for the policy proceeds that United of Omaha denied. Pioneer sued. United of

Omaha eventually settled the lawsuit for $390,500 and commenced this suit for

indemnification against the broker who procured the policy application, Ross Honea.

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1

The HONORABLE JOHN F. FORSTER, JR., United States Magistrate Judge

for the Eastern District of Arkansas, to whom the case was referred with consent of

the parties pursuant to 28 U.S.C. § 636(c). 

2

We say allegedly because United of Omaha attached inconsistent application

documents to its complaint and to its response to Honea’s motion for summary

judgment. No deposition testimony in the record on appeal resolves or even

acknowledges the inconsistencies.

-2-

The district court1

 granted summary judgment in favor of Honea, concluding that

under Arkansas law Honea was an agent of the prospective insured, not United of

Omaha, and therefore had no affirmative duty to disclose that the application was in

substance identical to a prior application United of Omaha had rejected. On appeal,

United of Omaha asserts new breach of contract theories that are not supported by the

sparse factual record. Accordingly, we affirm.

Honea and United of Omaha entered into a Broker’s Contract providing that

Honea would procure applications for United of Omaha’s insurance products,

“comply with all Company practices and procedures,” and act “in an ethical,

competent and professional manner.” The Contract further provided that Honea

would indemnify United of Omaha against third party claims resulting from “the

Broker’s wrongdoing, or the Broker’s breach of this Contract.” 

In early 1996, Pioneer engaged Linco Construction Company (“Linco”) to build

a nursing home in Melbourne, Arkansas. Rauch was Linco’s president and owner.

When Linco could not obtain a sufficient performance bond, Honea submitted an

application to United of Omaha for a $750,000 “key person” term life insurance

policy, naming Rauch as the insured and Pioneer as the policy owner and beneficiary.

United of Omaha rejected the application. Honea then submitted a second application

for a $750,000 policy, allegedly naming Rauch as the insured, Linco as the policy

owner, and Rauch’s estate as the beneficiary.2

 United of Omaha accepted the new

application and sent a printed policy to Honea on July 29, 1996, conditioning its

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acceptance on Linco agreeing to reduce the face amount of the policy from $750,000

to $500,000. Rauch signed an amendment to this effect on August 28. United of

Omaha issued the policy on September 10, effective August 1.

The policy provided that the policyholder “may change the ownership of this

policy or pledge it as collateral by assigning it,” so long as United of Omaha recorded

and acknowledged the assignment. On August 2, 1996, after United of Omaha mailed

the policy to Honea but before Rauch accepted the reduced face amount, Rauch in

Honea’s presence signed a United of Omaha form entitled Absolute Assignment. This

document irrevocably assigned Linco’s ownership interest in the policy to Pioneer and

named Pioneer the beneficiary of record. United of Omaha received and recorded the

assignment on September 12. Thereafter, United of Omaha received premium

payments from Pioneer and mailed premium reminder notices to Pioneer. On two

occasions before Rauch’s death, United of Omaha sent policy lapse letters to Pioneer

and reinstated the policy when Pioneer applied for reinstatement and paid the required

premiums. 

In its complaint, United of Omaha sought indemnification on the ground that

Honea violated his duties to United of Omaha “under the law and his broker’s

contract” by submitting an application that negligently failed to disclose or

fraudulently concealed information that Honea knew would make the risk

unacceptable to United of Omaha -- that Pioneer was the intended policy owner and

beneficiary. Honea moved for summary judgment, arguing that Arkansas law does

not recognize the tort of negligent misrepresentation and that United of Omaha could

not prove fraudulent concealment because Honea disclosed the policy assignment to

Pioneer. In response, United of Omaha argued that it was entitled to indemnification

because Honea as United of Omaha’s agent breached his fiduciary duty by submitting

a policy application that he knew to be “directly contrary to United of Omaha’s

interests.” 

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The district court rejected United of Omaha’s contention, concluding that under

Arkansas law as well as the Broker’s Contract, Honea was an agent of the insured, not

the insurer. See Ark. Code Ann. 23-64-102(3) (“A broker shall be deemed to be the

agent of the insured.”). The court then granted summary judgment in favor of Honea

because United of Omaha failed to prove either “wrongdoing” or a breach of the

Broker’s Contract that would obligate Honea to indemnity United of Omaha for

amounts paid on Pioneer’s claim for the policy proceeds.

On appeal, United of Omaha abandons its contention that Honea breached an

agent’s fiduciary duty by acting contrary to United of Omaha’s interests. Conceding

that Honea acted as agent for the prospective insured, United of Omaha argues that

genuine issues of material fact exist as to whether Honea breached the Broker’s

Contract or was guilty of wrongdoing. United of Omaha asserts that Honea acted

unethically and contrary to the “practices and procedures” referred to in the Broker’s

Contract. He knew that United of Omaha would not issue a term life policy “to serve

as a guarantee of Linco’s performance of the construction contract” because the

company does not issue term life policies when circumstances make it likely that the

policy will be cancelled within five years. With that knowledge, Honea intentionally

submitted the second policy application concealing the true intent of the proposed

transaction, which was then achieved by the assignment to Pioneer. 

We reject this new theory because it is completely unsupported by the summary

judgment record on appeal. United of Omaha submitted no evidence, other than

conclusory assertions in unverified pleadings: (i) why it rejected the first application;

(ii) that Honea was told the reasons for the rejection; (iii) that United of Omaha has

a practice or policy requiring rejection of the second application if Linco had disclosed

its intent to assign the policy to Pioneer and name Pioneer the beneficiary -- actions

which the policy unqualifiedly permitted; (iv) that Honea knew of this policy and

intentionally circumvented it; (v) that Honea violated United of Omaha’s instruction

to deliver the new policy to Linco instead of Pioneer; and (vi) what recognized ethical

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standard for Arkansas insurance brokers Honea breached in a manner that could be

found to be “wrongdoing” within the meaning of the Broker’s Contract. These are not

facts that can be reliably assumed. United of Omaha required a reduction in the face

amount before issuing the policy, was immediately advised of the assignment to

Pioneer and recorded it without protest, and then treated Pioneer as the policy owner

and beneficiary for nearly two years until Rauch died. Even if United of Omaha had

an informal underwriting or business practice not to issue key person term life policies

in these circumstances, any business is free to depart from ordinary practice, for

example, if the customer makes sufficient concessions. 

When theories are properly raised and challenged in the district court, the party

opposing summary judgment may not rest on the allegations in its pleadings; it “must

set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ. P.

56(e); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986); Baucom v.

Holiday Companies, 428 F.3d 764, 768 (8th Cir. 2005). Here, United of Omaha did

not argue these breach-of-contract theories in the district court. We ordinarily do not

consider issues raised for the first time on appeal. Given the mandate of Rule 56(e)

as applied by the Supreme Court, it is particularly appropriate not to consider new

theories that are “entirely without support in the record.” Wever v. Lincoln County,

388 F.3d 601, 608 (8th Cir. 2004). That is the situation here.

The judgment of the district court is affirmed. 

______________________________

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