Opinion ID: 2618245
Heading Depth: 1
Heading Rank: 17

Heading: Existence of a Conspiracy to Commit Insurance Fraud

Text: The trial court held that there was prima facie evidence of a conspiracy to commit insurance fraud, and that the conspiracy was ongoing at the time of trial. This ruling permitted the prosecution to admit into evidence hearsay statements made by coconspirators uttered after the killings but before the trial. (13a) Reilly first contends the trial court erred in concluding that the People established a prima facie showing that there existed at the time of trial a conspiracy fraudulently to obtain insurance proceeds. [9] It is undisputed that, five days after the slayings, Cliff Morgan filed a claim with the two insurance companies that insured the lives of the victims, seeking benefits allegedly owing under those insurance policies. Reilly claims, however, that there was nothing fraudulent in filing such a claim because Nancy and Mitchell Morgan were dead and the insurance companies were legally obligated to pay out the benefits to someone, either Cliff Morgan or the heirs of Nancy and Mitchell Morgan. We disagree and instead find the People presented substantial evidence from which the trial court could have found a prima facie showing of insurance fraud. Former Insurance Code section 556, subdivision (a), [10] as it read at the time the murders were committed, provided: It is unlawful to: [¶] (1) Knowingly present ... any false or fraudulent claim for the payment of a loss under a contract of insurance. (Stats. 1979, ch. 557, § 1, pp. 1764-1765.) (14) As a general rule, a beneficiary who unlawfully kills the insured cannot recover benefits under the policy. ( Beck v. West Coast Life Ins. Co. (1952) 38 Cal.2d 643 [241 P.2d 544, 26 A.L.R.2d 979] ( Beck ); Estate of Jeffers (1982) 134 Cal. App.3d 729, 732 [182 Cal. Rptr. 300]; Mize v. Reserve Life Ins. Co. (1975) 48 Cal. App.3d 487, 491, fn. 2 [121 Cal. Rptr. 848]; see generally, Annot., Killing of Insured by Beneficiary as Affecting Life Insurance or Its Proceeds, 27 A.L.R.3d 794, 802-807, § 3, and cases cited [hereafter Annot., Killing of Insured].) (13b), (15) By applying for benefits under the policies, Morgan knowingly and falsely represented himself as a person able to legally receive the benefits under the terms of the policy. Reilly counterargues that although Cliff Morgan could not lawfully receive the insurance benefits, the insurance companies were nonetheless liable to pay somebody, thereby negating the existence of fraud. Thus, the insurer is not relieved of liability because of the disqualification of the principal beneficiary ( Beck, supra, 38 Cal.2d at p. 645), and [u]nless the policy expressly provides otherwise, the insurer must still pay the proceeds in accordance with the contract of insurance as though the disqualified beneficiary had predeceased the insured or was otherwise incapable of taking or disqualified from taking the proceeds. (4 Couch on Insurance (2d ed. 1984) § 27:158, pp. 855-856 [hereafter Couch]; see Annot., Killing of Insured, supra, § 7[a], at p. 813.) This argument is nonsensical; merely because someone may be lawfully entitled to the proceeds of the insurance policy does not alter the fact that Morgan's application for benefits was fraudulent. We also find Reilly's legal support for his theory wanting. For reasons of public policy, courts have distinguished between cases involving fraud in obtaining a life insurance policy, and cases where the beneficiary decides to murder the insured after purchasing the insurance. As explained by one commentator, An exception to the rule that the liability of the insurer is not affected by the beneficiary's unlawfully killing the insured may arise when the beneficiary is also guilty of fraud with respect to the insurer. For example, if it is established that the beneficiary conceived the idea of murdering the insured prior to the time the insurance was procured and with that thought in mind the beneficiary himself procured the policy ... so that the insurance policy was, in actual effect, at its inception, a contract between the beneficiary and the insurance company, as distinguished from a contract between the innocent insured and the company, the insurance company may defeat liability on the ground of fraud. Under this principle recovery is barred even by the estate of the insured. (Couch, supra, § 27:160, at p. 858, fn. omitted, italics added; see generally, Rest., Restitution, § 189(1), com. (e)(2) at p. 778.) California has adopted the foregoing rule (see West Coast L. Ins. Co. v. Crawford (1943) 58 Cal. App.2d 771, 773 [138 P.2d 384]), as has virtually every jurisdiction that has considered the issue. (See, e.g., New England Mut. Life Ins. Co. v. Calvert (E.D.Mo. 1976) 410 F. Supp. 937, 940-941, and cases cited; Chute v. Old American Ins. Co. (1981) 6 Kan. App.2d 412 [629 P.2d 734, 738-739]; Flood v. Fidelity & Guar. Life Ins. Co. (La. App. 1981) 394 So.2d 1311, cert. den. 399 So.3d 608; Annot., Killing of Insured, supra, 27 A.L.R.3d, § 13[a], at pp. 825-826.) (13c) In this case, the evidence showed Cliff Morgan purchased a large amount of life insurance shortly after beginning work at Equitable Life Insurance Company. Experts opined it was an unwise investment due to the high premiums as compared to Morgan's annual salary. Evidence also showed that the victims were killed shortly before the second, and more substantial, premium installment was due. Also, Hardy told Colette Mitchell that he must kill the victims by June 1, 1981, or the insurance would expire. Thus, there was evidence that the timing of the killings was not coincidental. The premise of Reilly's argument is thus unsound: the facts establish that Cliff Morgan, at the time he purchased the insurance policies on their lives, intended to kill his wife and son. If so, the insurance companies may have been absolved of the obligation to pay benefits to anyone. In any case, even if we assume Reilly is correct and the insurance companies were obligated to pay benefits to someone, Morgan's involvement in the murders eliminated him as a potential beneficiary and his application for benefits was thus false and fraudulent. In addition to fraudulent conduct on Morgan's part, there was also evidence from which the trial court could conclude that Reilly and Hardy participated in a conspiracy to commit that crime. For example, the admissions of both defendants reveal that they expected to receive several thousand dollars as a result of Morgan's life insurance policies. Reilly's actions in hiring first Costello, then Boyd, and then Hardy, demonstrate his active involvement in the criminal enterprise. Hardy exhibited knowledge of the intended insurance fraud by admitting to Colette Mitchell that the victims had to be killed before June 1, 1981, when the second premium payment was due. Most, if not all, of these statements were admissible hearsay, being admissions of the defendants themselves. (Evid. Code, § 1220.) Accordingly, we reject Reilly's contention that there lacked sufficient facts to demonstrate a prima facie showing of a conspiracy to commit insurance fraud.