NOT RECOMMENDED F OR F ULL-TEXT PUBLICATION F ile Nam e: 13a0345n.06 No. 11-5503 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT

BRANCH B ANKI

NG & TRUST COMP ANY, a s Trustee of the Char les A. B rown a nd Elise A. B rown I rre vocable L ife I nsuranc e Trust, Plaintiff-Appellee ,

v. PACI FI C L I FE I

NSURANCE COMPANY, Def endant- Appellant. ) ) ) ) ) ) ) ) ) ) ON APPEALFROM THE UNI TED STATES DI STRI CT COURT FOR THE WESTERN DI STRI CT OF KE NTUCKY

BEF ORE: BATCHEL DER, Chief J udg e; GRI FF I N, Circuit J udg e; and COHN , Senior District J udg e. * COHN, Senior District Judge. Thi s i s a dispute over a life insurance policy g overne d by Kentucky law. Def endant/Appe llant Pacific L ife I nsuranc e Company (“Pac ific L ife” ) appea ls the district court’s entry of summary judgme nt in fa vor of Plaintiff/Appellee Br anch Ba nking & Trust Company (“B B& T”) as trustee of

the Charles A. Br own & Elise A. Brown irrevoca ble l ife insurance trust. BB &T owned a varia

ble life insurance policy issued by Pacific L ife. BB &T attempted to exchang e the Pacific L ife policy (“PL Policy ”) for a policy issued by J ohn Hanc ock L ife I nsuranc e Company (“John Hanc ock”) using a transac tion known as a “1035 Ex chang e.” As will be explained, there was

The Honor able Ave rn Cohn, Senior United States District J udg e for the Easter

n District of * Michig an, sitting by

desig nation.No. 11-5503

Branch Bank

ing v. Pacific Life

a d e la y b e tw e e n B B & T ’ s r e quest to surre nder the policy and Pacific L ife’s eff ectua ting the surre nder. During the period of del ay , t h e v al u e of t he poli cy decr ease d by $259,926.33 due to a precipitous decline in the stock marke t. BB &T soug ht to rec over that amount from Pacific L ife, contending that the PL Policy was properly surre ndere d on the day Pacific L ife rece ived t he re quest from B B& T. The district court ag ree d with BB &T and g rante d its mot ion for summary judgme nt based on a brea ch of contra ct claim. The district court later awa rded BB &T damag es of $259,926.33, plus pre- 1 and post-judg ment interest. Pacif ic L ife a ppeals the district c ourt’s dec ision in favor of B B& T. For the rea sons that follow, we find that there are g enuine issues of materia l fac t as to when the PL Policy was proper ly surre ndere d. We there fore reve rse and rema nd for further proce eding s consistent with this opi nion. I . Ba ckg round I n 2 001, Charles and Elise Br own established an irrevoc able life insurance trust for the benef it o f t h eir children (the “Trust” ). The Trust purcha sed a varia ble life insurance policy from Pacific L ife. The PL Policy provided a $12. 8 m i l l i o n death benef it. A varia

ble universal life insurance policy allows policy owner s to invest the cash value in a wide varie ty of varia ble acc ounts (or investment options), which are simil ar to mutual funds. The “var iable” component ref ers to the

owner ’s ability to invest in options whose values vary , beca use the investments are in stock and/or

BB &T also broug ht claims for promissory estoppel, detrimenta l relianc e, and misre prese ntation, 1 but stipul ated to dismiss these claims. The district cour t denied summary

judgme nt on BB &T ’s other state la

w claims for

brea ch of f

iduciary duty , brea ch of duty

of best execution, and br eac h of duty of g ood faith and f

air de aling , finding no “re asonable infere nce tha t Pacific L ife bre ache d any fiduciar y duty or g ood faith re sponsibili ty in its dealings with either BB &T or John Hanc ock.” B B& T does not cha lleng e the district cour t’s dismiss al of these claims. 2No. 11-5503

Branch Bank

ing v. Pacific Life bond marke ts. The choice of which varia ble acc ounts to use is entirely at the owner ’s discretion, as the policy owner assumes the risks of inve stment perfor mance in these ac counts. I n Fe b ruar

y 2003, BB &T repla ced Ba nk One as owner of the PL Policy

. To make t h i s chang e, the Br owns submitt ed a Pacific L ife form entitled Owner ship, Name or Be nefic iary Chang e Request do cu m enti ng that BB &T , in its capa city as trustee of the Trust, was the PL Policy ’s new

owner and benef

iciary

. This form amende d and beca me part of the PL Policy , thus requiring Pacific L ife to send a ll “future pr emium and other notice s to” BB &T , attention Shery l L . Kee n. I n ear ly 2008, BB &T notified Pacific L ife that Walter Koczot ha d repla ced Shery l K een as BB &T ’s authorized ag ent and that notices should be sent to the attention of Mr. Koczot rathe r than Ms. Keen. I n Aug ust of 2008, BB &T decide d to substitut e for the PL Policy a J ohn Hanc ock policy with

more benef

icial terms. I n order to acc om p l i s h t h is without neg ative tax conseque nces, BB &T undertook a tax fre e exchang e of the policies u n d er Section 1035 of the I nterna l Revenue Code, known in the industry as a “1035 Ex chang e.” A 1035 Ex chang e involves three steps: First, BB &T transfe rs owner ship of the PL Policy to J ohn Hanc ock. Secon d , af t er the owner ship chang e is eff ective, J ohn Hanc ock surre nders the PL Policy and uses the proce eds to purcha se a J ohn Hanc ock policy . Finally , J ohn Hanc ock assig ns the new policy to BB &T

. BB &T beg an the 1035 E x ch an ge proce ss on Aug ust 18, 2008, when it executed an assig nment of the PL Policy t o J o h n Hancock. I n ear ly September, J ohn Hanc ock submitt ed a d o c u m e n t t o P a c i f

i c Li f e e n t i t l e d “ E X T E R N A L 1 0 3 5 ( N o n - Q u a l i f i e d A b s o l u t e A s s ig nment/Be nefic iary Chang e” (the “1035 Ex chang e D o c u me n t” )

. T h e 1 0 3 5 E xc h a

n g e D o c u me n t 3No. 11-5503

Branch Bank

ing v. Pacific Life purported to a ccomplish all the nec essar y steps of a 1035 Exchang e, by (1) naming J ohn Hanc ock the new benef

iciary of the PL Policy , (2) assig ning the PL Policy from BB &T to J ohn Hanc ock and (3) a uthorizi ng the surre nder of the net ca sh surrende r value to J ohn Hanc ock. On September 9, 2008, Pacific L ife rec eived the 1035 Ex chang e Document. On that day , the PL Policy had a ne t cash surr ender

value of $779,818.19. The next day , Pacific L ife sent a letter to BB &T , t o Kocz ot’s attention, stating that it had “bee n advised by J ohn Hanc ock L ife I nsuranc e Company (U.S.A.) that y our Pacific L ife Policy may be repla ced,” and provided contac t information should BB &T “dec ide to keep y our exis ting policy and ca ncel y our surre nder r equest.” Pacific L ife also sent a letter to J ohn Hanc ock, acknow ledg ing rec eipt of the 1035 reque st. Howeve r, Pacifi c L ife stated that the reque st was incomplete beca use Pacific L ife “re quire[d] the signa ture of a corpor ate office r for Br anch Ba nking & Trust Company , as trustee to include title and corpor ate seal or notary .” This letter also stated that Pacific L ife “will proce ss the exchang e eff ective the date the final require ment is rec eived.” This require ment of a “title and corpor ate seal or notary ” derive s from the PL Policy ’s require ment that a surre nder reque st be a “wr itten reques t ” which is define d as “re quest in writing signe d by y ou that is satisfac tory to [P acif ic L ife] and filed at its Home Offic e.” I t is Pacific L ife’s p o s i tion that beca use it did not have rec ords containing Koczot’s signa ture, it neede d the “title and corpor at e s ea l o r n o tary ” require ment in order to eff ectua te the 1035 Ex chang e, i.e. in orde r for the documents to be “ satisfac tory ” to Pacific L ife. On September 16, 2008, J ohn Hanc ock sent an email to a BB &T employ ee, who was not involved in the 1035 Ex chang e, informing them of the additional require ment. The corr espondenc e, 4No. 11-5503

Branch Bank

ing v. Pacific Life which the district court corr ectly descr ibed as “cr y ptic,” stated that there are “Require ments Nee ded for Policy I ssue” and stated: “A letter was sent to J H & rec ’d o n 9 / 16 reque sting the office r’s signa ture either be notarized on the 1035 form or a Corporate Seal w/ the Offic er’ s signa ture & title.” The email also stated that these requi re m en t s would be neede d to obtain the “1035 Funds.” Unfortuna tely , Arthur Swain Be ard, who was responsible for the 1035 Ex chang e int e r n a ll y a t B B & T , should have re ceive d the notification fr om J ohn Hanc ock. He did not. O n O c to b e r 1 , 2 0 0 8 , B B & T personne l, including Koczot, contac ted Pacific L ife v ia te le p h o n e to inquire as to th e s t at u s of the 1035 Ex chang e. During that phone call, Pacific L ife informed Koczot of the signa ture/sea l r equire ment. After the phone c all, BB &T added a notary block and a corpor ate se al to Koczot’s signa ture in the 1035 Exchang e Doc ument. BB &T did not immediately submit the 1035 Ex chang e Document containing the notarized signa ture of K oczot to Pacif ic L ife. I n the interim, BB &T also reque sted that Pacific L ife proc ess the surre nder r equest a s of the September 9, 2008 rec eipt date. Pac ific L ife re fused. Finally , on Dec ember 11, 2008, Pacif i c L i fe re ceive d the notarized signa ture of Koczot. Pacific L ife proce ssed the surre nder reque st as of Dec ember 11, 2008. On that date, the PL Policy ’s
net ca sh surrende r value had droppe d by $259.926.33. BB &T sued Pacific L ife to rec over for the loss in value. The parties filed cross motions for summary judgme nt. The district co u rt g rante d BB &T ’s motion on its brea ch of contra ct claim, fi n d i n g t h at the effec tive surre nder date of the P L Policy was S eptember 9, 2008, the date Pacific L ife first rec eived the 1035 Ex chang e documents. The district c ourt g rante d Pacific L ife’s motion as to BB &T ’s other c laims. Pacific L ife a ppeals the judg ment in favor of BB &T

. 5No. 11-5503

Branch Bank

ing v. Pacific Life I I . Standard of Re view We revie w de novo a district court’s decision to g rant summary judgme nt. Huck aby v. Priest, 636 F.3d 211, 216 (6th Cir. 2011). Summary judgme nt is appropr iate wher e “the movant shows that there is no g enuine dispute as to any materia l fac t and the movant is entitled to judgme nt as a matter of law.” Fe d. R. Civ. P. 56(a)

. A motion for summary judgme nt should not be g rante d “if the evidenc e is suc h that a re asonable jury could re turn a ve rdict for the nonmoving party .” Anderson v. Liberty Lobby, Inc ., 477 U.S. 242, 248 (1986). The inquiry is “whethe r the e vidence prese nts a sufficie nt disag ree ment to require submissi on to a jury or whe ther it is so one-sided that one party must prevail as a

matter of la

w.” Id. at 251–52.

I I I . Discussion A. The parties ag ree that BB &T validly assig ned the PL Policy to J ohn Hanc ock. Howeve r, the parties disag ree as to the eff ectivene ss of the surre nder. BB &T say s that the surre nder provision in the PL Policy was an unconditional offe r that J ohn Hanc ock acc epted when Pacific L ife rec eived the 1035 Ex chang e Doc ument on September 9, 2008. The district court ag ree d, finding that althoug h Pacific L ife had the rig ht to assure that the surre nder reque st be “sati s factory ” to it by requiring a notarized signa ture, that did not aff ect Pacific L ife’s obliga

tion to acc ept J ohn Hanc ock’s surre nder reque st on the date it first rec eived the 1035 Ex chang e Document. Pacific L ife and others, howeve r, 1 contend that an insurer has a rig ht to impose require ments, such as a notarized signa ture or corpor ate

An amicus brie f wa s filed by the Amer ican Council of L ife I nsurer s, supporting Pac ific L ife. 1 6No. 11-5503

Branch Bank

ing v. Pacific Life seal, to complete a s u rr en d er in a 1035 Ex chang e. When and only when it rec eives the nece ssary document s i n t h e require d form is Pacific L ife obliga ted to proce ss the surre nder reque st and eff ectua te the 1035 Exchang e. B. The district court relied on Farmers Bank & Capital Trust Co. of Frankfort Ky. v. N.W

. Mut. Life Ins. Co., 891 S. W

. 2 d 4 1 3 (Ky

. Ct. App. 1995). I n Farmers Bank , the Kentucky Court of Appea ls addre ssed a life insurance polic y that included an unconditional rig ht of surre nder. The Kentucky Court of Appea ls stated that a surre nder “pro v i s i o n is a continuous, irrevoc able offe r which become s a binding contra ct when acc epted by the owner of the policy .” Id. at 416 (interna l quotation marks omitted). “[W ]hen the owner of a policy acc epts the outstanding offe r, the insurer then has ‘no rig ht, option or privileg e to reje ct th e u n co n d i t i onal notification of the exercise’ ” of

surre nder. Id. (citation o m i t t ed ). “[W ]hen so notified in unqualified terms, the obliga tion of the company to pay the cash surre nder value beca me then and there a fix ed and perf ecte d obliga tion.” Id. (empha sis added and internal quotation marks omitted). Whil e the court in Farmers Bank trea ted
t h e s u rre nder clause as unconditional offe rs, the problem here is that Pacific L ife’s surre n d er provision say s more than did the surre nder lang uag e at issue in Farmers Bank

. The PL Policy states that “upon written reque st while either insured is living y ou m ay surre nder this policy for its Net Cash Surrende r Value. The policy will terminate on the date the reque st is re ce i v ed at the Home Offic e.” A “wr itten reque st” is define d as “a reque st in writing signe d by y ou that is satisfac tory to [P acif ic L ife] and filed at its Home Offic e.” The inclusion of the lang uag e “satisfa ctory to PL ” alters the leg al landsca

pe and distinguishes this case from F a r me r s B a n k

. Whil e the court in Farmers 7No. 11-5503

Branch Bank

ing v. Pacific Life Bank found an unconditional offe r and an unqualified acc eptanc e, the PL Policy here is not the same. The PL Policy provides that it may be surre ndere d when it rec eives a “satisfa ctory ” written reque st. Contrary to the district court, we believe that the “satisfa ctory to [P acif ic L ife]” lang uag e is leg ally signific ant. To conclude otherwise would be to eff ectively ignor e the lang uag e in th e P L P olicy

. This is improper. The rea l question is what “satisfa ctory to [P ac i fi c L ife]” means under the circ umstances. To construe an insurance contra ct, one beg ins with the text of the policy itself. “The words employ ed in insurance policies, if clea r and unambig uous, should be g iven their plain and ordinary meaning .” See Nationw i d e Mu t

. In s . C o. v. Nolan, 10 S.W .3d 129, 131 (Ky

. 1999). And, if no

am b i g uity exis ts, a rea sonable interpre tation of an insurance contra ct is to be consistent wi t h t h e plain meaning of the lang uag e in the contra ct. Brown v. Ind. Ins. Co., 184 S.W .3d 528, 540 (Ky

. 2005). Fur

thermore , “althoug h a rule of strict construction has been used in many case s involving insurance companies, it does not mean that every d o u b t m u s t be resolved ag ainst an insurance company nor does it chang e the mandate that t h e p o l i cy must rec eive a rea sonable interpre tation consistent with the parties’ expression in the lang uag e of the contract.” Pryor v. Colony Ins., No. 2012–CA–000227–MR, __ S.W .3d ___, 2013 WL 386880 at *5 (Ky

. Ct. App. Fe b. 1, 2013) (citing St. Paul Fire & Marine Ins. Co. v. Pow el l–W alton–Milwar d, Inc., 870 S.W .2d 223, 226–27 (Ky

. 1994)). Her e, Pacific L ife arg ues that it was rea sonable for it t o ask for a notarized signa ture of Koczot beca

use i t h ad n o re co rd of his signa ture. I n other words, “satisfa ctory to [P acif ic] L ife]” under the circ umstances meant obtaining a notarized signa ture. We find that there is a g enuine issue 8No. 11-5503

Branch Bank

ing v. Pacific Life of materia l fac t display ed in the rec ord as to whether Pacific L ife’s decision was rea sonable, that is, whether Pacific L ife did, in fac t, rec eive a “satisfa ctory ” surre nder reque st on September 9, 2008. I n rea ching this conclusion, we note that Pacific L ife tw i ce sent BB &T confirma tions that its “re cords have been updated to ref lect” that Koczot had repla ced Kee n, and there afte r Pacific L ife’s addre ssed all acc ount statements, corr espondenc e and other notices that it sent to BB &T to Koczot’s attention. The express terms of the PL Policy require that all notices conce rning the PL Policy and all repor ts conce rning its acc umulated or surre nder value and any policy illust rations be sent to the

owner of the PL Policy

. Thes e statements and communications that Pacific L ife sent to Koczot betwee n Fe bruar

y and Augu s t 2 0 0 8 included quarte rly statements of acc ount value and a policy illust ration, and Pacific L ife’s addre ssing corr espondenc e to Kocz o t as “De ar Trustee ” may justifiably lead to the conclusion that Pacific L ife had rec og nized Koczot as BB &T ’s authorized ag ent prior to Aug ust 2008. Thus, when Pacific L ife rec eived the 1035 Ex chang e Document on September 9, 2008 which contained Koczot’s name, but not a notarized signa ture, a rea sonable mind could conclude that the 1035 Ex chang e Document was, in fac t, “satisfa ctory to [P acif ic L ife].” Howeve r, a r easona

ble mind could also conc lude t hat under the complex circ umstances of a 1035 Ex chang e, Pacific L ife’s reque st for a notarized signa ture of Koczot befor e surre ndering a policy to

a third party was proper . That is to say that Pacific L ife did not rec eive a surre nder reque st that was “satisfa ctory ” until Dece mber 11, 2008. Be cause we conclude that BB &T is not entitled to summary j u d gm ent on its brea ch of
contra ct claim, we decline to addre ss the issue of whether the district court corr ectly deter mined damag es as a

result of the a lleg ed bre ach. 9No. 11-5503

Branch Bank

ing v. Pacific Life I V. Conclusion For the rea sons stated above, the district court’s judgme nt is REVERSED and this matter is REMANDED f

or fur ther proc eeding s consistent with this opi nion.

10