IN THE COURT OF APPEALS OF IOWA

No. 14-2138

Filed October 28, 2015

KATHY A. SCHINDLER,

Claimant-Appellant,

vs.

MICHAEL DEAN DRAHOS and JAMES MATTHEW 

DRAHOS, FIDUCIARIES OF THE ESTATE OF 

DENNIS ALBIN DRAHOS, DECEASED,

Defendants-Appellees.

________________________________________________________________

Appeal from the Iowa District Court for Linn County, Ian K. Thornhill, 

Judge.

A plaintiff appeals the probate court’s rejection of her subrogation claim. 

AFFIRMED.

Gregory J. Epping of Terpstra & Epping, Cedar Rapids, for appellant.

Erin R. Nathan, Philip D. Brooks, and Larry G. Gutz of Simmons Perrine 

Moyer Bergman, P.L.C., Cedar Rapids, for appellees.

Heard by Vogel, P.J., and Vaitheswaran and Bower, JJ.
2

VOGEL, Presiding Judge.

Kathy Schindler appeals the district court’s denial of her subrogation claim 

against the Estate of Dennis Drahos.

1

 She claims the court did not correctly 

apply the law of subrogation when it denied her claim against some of the assets 

of the Estate. We agree with the court’s analysis and conclusion that Kathy did 

not prove she had the right of subrogation, and we therefore affirm the district 

court’s decision.

I. Background Facts and Proceedings.

Kathy first met Dennis at work in the late 1970s—at a business that 

Dennis would later own. Their relationship progressed, and they would take trips 

together. Kathy described Dennis as her life, both business and personal. Kathy 

assisted Dennis in securing credit for his business ventures by giving her 

personal guarantees. Dennis Drahos died on January 28, 2013, and his will was 

admitted to probate March 1, 2013. Dennis appointed two of his sons, James 

Drahos and Michael Drahos, to serve as co-executors. The will devised Dennis’s 

property to his five children in equal shares. Kathy filed a claim in probate on 

April 5, 2013, asserting she was the beneficiary of five life insurance policies on 

Dennis’s life that had been assigned to Cedar Rapids Bank & Trust (the Bank) as 

security for Dennis’s debts and those of his company, Timberlake Enterprises, 

Ltd. Kathy did not dispute the validity of Dennis’s assignment of those policies to 

 

1 The Estate filed a counterclaim against Kathy for slander of title and interference with a 

prospective economic advantage because Kathy filed a lien against the Estate’s real 

property to secure the claim she made in probate. The court rejected the counterclaims,

finding Kathy did not act with malice when she placed a lien on the property owned by 

the Estate. While her subrogation claim was ultimately not successful, the court 

concluded Kathy was acting reasonably and in good faith. The Estate does not appeal 

this ruling of the district court. 
3

the Bank, as she gave her written consent at the time of the assignments and 

consented to the Bank’s request for payment of those policies upon Dennis’s 

death. However, Kathy asserted in her claim in probate that she was 

“subrogated to all rights of [the Bank] as concerns the estate and/or Timberlake 

Enterprises, Ltd., including security in and to property of the estate and/or 

Timberlake Enterprises, Ltd. pledged to [the Bank]” to the extent of the death 

benefits paid under the life insurance policies. The total amount paid to the Bank 

from the life insurance policies for Dennis’s death was $606,709.53. The Estate 

disallowed the claim, and Kathy requested a hearing, which took place on May 

27, 2014. 

District court ruled that Iowa law applied with respect to the allocation of 

the burden of proof on Kathy’s claim. The court determined Kathy needed to 

prove by “a fair preponderance of the evidence” that she was subrogated to the 

rights of the Bank. The court concluded that there was nothing in the law or the 

facts presented to support the conclusion that Kathy had subrogation rights to the 

Bank’s property lien by virtue of being a named beneficiary on the life insurance 

policies properly assigned to the Bank. The court concluded that to find to the 

contrary would undermine long-standing Iowa law recognizing the assignability of 

life insurance policies as consideration for loan contracts. Kathy filed a 1.904(2) 

motion, asking the district court to enlarge its factual and legal findings. The 

motion was denied, and Kathy now appeals. 

II. Scope and Standard of Review. 

This is an action involving a contested probate claim, and as such, it was 

tried in probate court as a law action. See Iowa Code § 633.33 (2013). Our 
4

review is therefore for correction of errors at law. In re Estate of Crabtree, 550 

N.W.2d 168, 170 (Iowa 1996). “We are bound by the trial court’s findings of fact 

provided they are supported by substantial evidence.” Id. 

III. Subrogation of Bank’s Rights as a Creditor of Estate.

Our courts have long ago recognized the right to assign a life insurance 

policy to secure a debt. See Anderson v. Aetna Life Ins. Co., 188 N.W. 883, 884 

(Iowa 1922) (“The general rule is that, where one has a valid policy on his own 

life, made payable to assigns, he may make such disposition of the proceeds of 

said policy as he sees fit, and can assign the same to one who has no insurable 

interest in his life, where the assignment is made in good faith and is not a mere 

subterfuge for the purpose of securing insurance by one without an insurable 

interest.”). Kathy does not seek to alter, set aside, or subordinate any aspect of 

the assignment of the life insurance proceeds to the Bank. She agreed to the 

assignment when it was made and consented to the payment of the policy 

proceeds to the Bank when Dennis died. However, she asserts she is entitled to 

recover the value of the life insurance proceeds from other assets of the Estate 

by way of being subrogated to the Bank. 

The Bank had a pool of assets that collateralized the loans the Bank made 

to Dennis, which included the life insurance assignment. Because the Bank 

chose to collect a portion of the debt from the life insurance proceeds upon 

Dennis’s death, instead of seeking to satisfy Dennis’s debt obligation from other 

estate assets, Kathy asserts she is entitled to seek the amount of money she 

would have collected from the life insurance policies, but for the Bank’s 

assignment, from the other assets in the collateral pool from which the Bank 
5

could have satisfied the debt. She claims the Estate gained the benefit of the life 

insurance proceeds that should have gone to her. She seeks a subrogation 

interest on $606,709.53 of the Estate’s assets—the money she lost out on when 

the Bank used the life insurance proceeds to satisfy some of Dennis’s debt 

obligation upon his death. 

Subrogation is a doctrine, grounded in equity, that gives “relief to a person 

or entity that pays a legal obligation that should have, in good conscience, been 

satisfied by another.” Allied Mut. Ins. v. Heiken, 675 N.W.2d 820, 824 (Iowa 

2004). The principle is employed to correct or prevent unjust enrichment. See 

State ex rel Palmer v. Unisys Corp., 637 N.W.2d 142, 156 (Iowa 2001). “Where 

one person is more fundamentally liable for a debt which another person is 

obligated to pay, such a person shall not be enriched by escaping the obligation.” 

Id. 

Kathy concedes there is no Iowa case addressing the specific claim she 

made in probate court but claims other jurisdictions have recognized a 

beneficiary’s right to subrogation under similar circumstances. See J. C. Vance, 

Right of Life Insurance Beneficiary Against Estate of Insured Who Used Policy as 

Collateral, 91 A.L.R.2d 496 (1963) [hereinafter Vance]; see also In re Estate of 

Winstead, 493 N.E.2d 1183 (Ill. App. Ct. 1986). Even if such a cause of action 

were available in Iowa, we agree with the district court that Kathy did not satisfy 

her burden of proof. 
6

As the person bringing the claim in probate, it was Kathy’s burden to prove

her right to recovery by a preponderance of the evidence.2 In re Estate of Hunt, 

129 N.W.2d 618, 623 (Iowa 1964) (“The general rule is that the burden of 

pleading and proof rest upon the same litigant. He who asserts an issue must 

prove it.”); Carlson v. Bankers Trust Co., 50 N.W.2d 1, 6 (Iowa 1951) (“In such a 

probate action as this, tried as an ordinary action at law, only a preponderance of 

evidence is required.”). 

The law Kathy cites in support of her claim provides, 

Generally, the decedent’s intent is the paramount factor in 

determining whether the beneficiary of an insurance policy on the 

decedent’s life should be subrogated to the rights which a debtorassignee who collected the proceeds of the policy would have had 

against the decedent’s estate but for the availability of the 

insurance proceeds.

Winstead, 493 N.E.2d at 1188; see also Vance, at § 2 (“It is apparent in almost 

all the decisions that the courts are concerned with ascertaining, from all the 

facts and circumstances of the particular case, what the insured wished to be 

done with respect to the payment of his debt, and, if possible, to give effect to his 

desires.”). 

In support of her assertion that Dennis did not intend for the debt to be 

paid from the life insurance proceeds, Kathy points to the testimony of Gary 

Becker, the Bank’s senior vice president relationship manager, who stated when 

Dennis executed the promissory notes at issue he intended the primary source of 

 

2 While the district court noted the allocation of the burden of proof was a contested 

issue at the hearing, Kathy concedes on appeal that she held the burden of proof for her 

claim. 
7

repayment would be the lease income on the commercial building and the sale of 

the residential real estate lots.3 

Dennis died of cancer approximately eight months after being diagnosed. 

Kathy testified Dennis made it clear to her as he was becoming ill from cancer 

that she was the beneficiary of his life insurance policies. However, testimony at 

the hearing established Dennis had a conversation with Gary Becker six to eight 

months prior to Dennis’s death regarding Dennis’s awareness of the life 

insurance policies. Gary testified it was his understanding Dennis viewed the 

insurance proceeds “as a way to smooth any estate issues when it came to—

when it came to the development ground.” This conversation indicated to Gary 

that Dennis knew the life insurance would be applied to the loans. Dennis “was 

trying to make sure that he didn’t leave any bigger mess than he could on the 

estate.” Gary inferred from Dennis’s comments that his priority was to use the 

life insurance proceeds to satisfy his debts as Dennis believed that was one way 

to get the loans repaid quicker and get the Estate “out from under those 

responsibilities.” 

Dennis’s son, James, also testified to a conversation he had with Dennis 

after the cancer diagnosis. Dennis was concerned about the amount of debt he 

had and the burden that would place on his children. Dennis had a meeting in 

his home where he discussed his finances with James, Ron Landergott—

 

3 Counsel for Kathy asserted at oral argument that Dennis’s death did not result in a 

default of the loan; thus, the Bank was not entitled to accelerate the payment on that 

loan by collecting the entirety of the life insurance proceeds. Upon our review of the 

record, we do note that one of the promissory notes at issue does define a “default 

event” to include the death of the borrower. We also note that the “cross collateral and 

cross default agreement,” executed by Dennis in September 2011, states that “any 

default by any of the Borrowers in the payment or performance under any of the 

Agreements shall constitute a default under each of the Agreements.” 
8

Dennis’s insurance agent, Randy Nazette—Dennis’s attorney, and Kathy. During 

the meeting, Ron specifically addressed the life insurance policies and indicated 

those would be paid to the Bank. Ron advised that if Dennis wanted any money 

to go to Kathy other arrangements would need to be made. It was James’s 

understanding Dennis wanted the life insurance proceeds to go toward the debt 

and Kathy was “well taken care of.” The debt that was not satisfied by the life 

insurance proceeds would need be paid from other assets such as the sale of the 

residential lots Dennis owned. Another of Dennis’s sons, Michael, also had a 

conversation with Dennis about the life insurance proceeds. It was Michael’s 

understanding Dennis wished for the life insurance proceeds to be used to pay 

off as much of the debt to the Bank as possible and the rest of the debt would be 

paid from lot sales. 

While Kathy asserts it was not Dennis’s intent that the life insurance 

proceeds be used to discharge the debt owed to the Bank, she has little evidence 

to support such a conclusion. We therefore find substantial evidence supports 

the trial court’s decision that Kathy failed to establish by a preponderance of the 

evidence that it was Dennis’s intent she be subrogated to the Bank’s rights 

against the property of the Estate.4 We affirm the district court’s judgment. 

AFFIRMED.

 

4 Because we agree with the district court Kathy did not satisfy her burden to prove her

entitlement to subrogation against the assets the Bank holds as collateral for Dennis’s 

loans, Kathy likewise has no claim to a lien on the property of the Estate.