Court Opinion

ID: 1027942
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:32:44.472266+00
Date Added: 2024-06-11T15:14:53.595335
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 07-2020

FIRST PENN-PACIFIC LIFE INSURANCE COMPANY,

                Plaintiff - Appellant,

           v.

WILLIAM R. EVANS, Chartered; INVOTEX INCORPORATED,          f/k/a
Maryland First Financial Services Corporation,

                Defendants - Appellees.

-------------------------------------

LIFE INSURANCE SETTLEMENT ASSOCIATION,

                Amicus Supporting Appellees.

Appeal from the United States District Court for the District of
Maryland, at Baltimore.      Andre M. Davis, District Judge.
(1:05-cv-00444-AMD)

Argued:   January 29, 2009               Decided:   February 26, 2009

Before WILLIAMS, Chief Judge, and NIEMEYER and MOTZ, Circuit
Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Bryan David Bolton, FUNK & BOLTON, P.A., Baltimore,
Maryland, for Appellant. Nathaniel S. Shapo, KATTEN, MUCHIN &
ROSENMAN, L.L.P., Chicago, Illinois, for Amicus Supporting
Appellees. Paul S. Caiola, GALLAGHER, EVELIUS & JONES, L.L.P.,
Baltimore, Maryland, for Appellees.      ON BRIEF: Michael P.
Cunningham, FUNK & BOLTON, P.A., Baltimore, Maryland, for
Appellant. David G. Sommer, GALLAGHER, EVELIUS & JONES, L.L.P.,
Baltimore, Maryland, for Appellees.   Jenny R. Leifer, KATTEN,
MUCHIN & ROSENMAN, L.L.P., Chicago, Illinois; Eric A. Kuwana,
KATTEN, MUCHIN & ROSENMAN, L.L.P., Washington, D.C., for Amicus
Supporting Appellees.

Unpublished opinions are not binding precedent in this circuit.

                               2
PER CURIAM:

       First    Penn-Pacific      Life    Insurance      Company        (First    Penn)

appeals from the district court’s grant of summary judgment to

William   R.    Evans,    legal     title      owner    of    a   First    Penn     life

insurance policy, and Invotex, Inc., receiver for the bankrupt

owner of that policy.           First Penn originally issued the policy

to   Stanley    Moore.      Despite       Moore’s      intent     to    transfer       the

policy,   we    agree    with    the    district    court     that      Moore    had   an

insurable interest when he obtained it, preventing the policy

from being void ab initio.              Moreover, even if Evans endorsed a

premium refund check that First Penn offered for rescission,

such an endorsement did not manifest a meeting of the minds

sufficient      to   establish     a    mutual   rescission        of    the     policy.

Therefore, we affirm the district court.

                                          I.

       The majority of facts in this case are not in dispute.                          In

September      1997,     Moore,    an     Arizona      resident,        commenced        a

fraudulent scheme to exploit the “viatical settlement” industry.

A viatical settlement is a contract by which a terminally ill

person assigns the benefit of his life insurance policy to a

third party in exchange for cash to pay for medical or personal

expenses.      See, e.g., Life Partners, Inc. v. Morrison, 484 F.3d
284,   287–88    (4th    Cir.     2007)   (reviewing         history     of     viatical

                                          3
settlements).        Between November 13, 1997 and December 15, 1997,

Moore applied for (and eventually obtained) seven life insurance

policies,     totaling     $8.5       million       in    coverage.         Shortly

thereafter,    Moore     met   with    a       viatical   settlement    broker   to

discuss selling the policies he had obtained; at that time, he

falsely represented that he was terminally ill.                     By April 1998,

Moore had sold at least six of his policies.

     On January 5, 1998, First Penn issued to Moore a 10-year

policy, which a month later Moore converted to a 20-year policy;

this 20-year two million dollar policy is the one at issue in

this case.     By not disclosing his existing and pending policies

with other insurance companies when obtaining this policy, Moore

made material misrepresentations to First Penn.

     In October 1999, about a year and a half after issuance of

the Moore policy, First Penn learned of Moore’s fraud.                        First

Penn sought to rescind the policy, sending a letter to Evans 1

giving notice of rescission along with a refund check for the

premiums     paid.       Evans    promptly        responded    to     the   letter,

rejecting the attempted rescission and returning the check to

     1
       In March or April 1998, Moore sold his First Penn policy
to Kelco Inc., which then sold the policy to Answer Care, Inc.,
for which defendant Evans formerly served as escrow attorney.
Evans thus holds legal title in the policy at issue here for the
benefit of Answer Care.     The State of Maryland placed Answer
Care in receivership on October 16, 2000, and appointed
intervenor and appellee Invotex, Inc. as receiver.

                                           4
First Penn.         First Penn then sent a second letter to Evans

seeking rescission.           Evans again rejected the rescission and

demanded    reinstatement          of    the    policy       but    did     not     return    the

check, stating it would be “ludicrous to keep sending this check

back and forth.”            However, Evans did state his intent not to

cash the refund check.             Evans may have endorsed that check over

to   the    beneficial       owner,       Answer          Care;    the    parties         dispute

whether the endorsement to Answer Care was a forgery.                                     In any

event, it is undisputed that Answer Care never cashed the refund

check and instead continued to contest First Penn’s attempted

rescission.

     On    March     6,   2001,     First       Penn       filed   a     complaint        against

Evans, seeking a declaration that the policy was rescinded and

void.      The     district    court          dismissed      the     case    on     abstention

grounds     in      light     of        the     concurrent           state        receivership

proceedings, and this court affirmed the dismissal.                                  See First

Penn-Pac. Life Ins. Co. v. Evans, 304 F.3d 345 (4th Cir. 2002).

On   February      15,     2005,        after       the    conclusion        of     the    state

proceedings, First Penn again sought rescission, filing a new

complaint; the district court granted summary judgment to Evans

and Invotex.         First Penn then timely noted this appeal.                                On

appeal     First    Penn     asserts          two    arguments:        (1)     an    insurable

interest    did     not    exist    under       Arizona       law,     which      the     parties

agree governs here, when First Penn issued the policy to Moore,

                                                5
rendering the policy void ab initio 2 and (2) the parties mutually

consented to a rescission of the policy.

                               II.

     We review a grant of summary judgment de novo, applying the

same standards as the district court.      Holland v. Washington

Homes, Inc., 487 F.3d 208, 213 (4th Cir. 2007).      A court may

grant summary judgment only when there is no genuine issue of

material fact and the moving party is entitled to judgment as a

matter of law.   Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett,

477 U.S. 317, 322 (1986).

     We have reviewed the record, briefs, and applicable law,

and considered the oral arguments of the parties, and we are

persuaded that the district court reached the correct result in

granting summary judgment to Evans and Invotex.   See First Penn-

Pac. Life Ins. Co. v. Evans, No. 05-444-AMD, 2007 WL 1810707 (D.

Md. June 21, 2007).

     2
       The parties also dispute whether the incontestability
clause in the policy and Arizona’s incontestability statute,
which states that insurance policies become incontestable two
years after issuance, bar First Penn’s insurable interest claim.
See Ariz. Rev. Stat. Ann. § 20-1204 (2002). Because we conclude
that the insurable interest claim lacks merit, we need not reach
this issue.

                                6
                                            III.

                                             A.

        With    respect    to    First   Penn’s      first     claim    on    appeal,    we

agree    with     the     district    court       that   Moore    had    an    insurable

interest under Arizona law despite his plan “to sell all or most

of his life insurance policies at the time he applied for them.”

First Penn, 2007 WL 1810707, at *4 n.7.                     An “insurable interest”

in the context of a life insurance policy is an interest in

having the insured life persist, as opposed to an interest only

in the loss of that life.             See Grigsby v. Russell, 222 U.S. 149,

155 (1911).

        Clearly, an individual has an insurable interest in his own

life, and consequently, under Arizona law, “[a]ny individual of

competent       legal    capacity     may     procure    or    effect    an    insurance

contract upon his own life or body....”                     Ariz. Rev. Stat. Ann. §

20-1104        (2002).      In    contrast,        an    individual      without    ”any

reasonable expectation of pecuniary benefit or advantage from

the continued life” of an unrelated person may not insure that

life; this constitutes a pure “wager policy” and is void as a

contract against public policy.                    Conn. Mut. Life Ins. Co. v.

Schaefer, 94 U.S. 457, 460 (1876); Gristy v. Hudgens, 203 P.
569, 572 (Ariz. 1922); Ariz. Rev. Stat. Ann. § 20-1104 (2002).

Once    a   life    insurance        policy       validly     issues,    however,       the

insured may freely transfer the policy to a third party who has

                                              7
no insurable interest in the insured life.             Grigsby, 222 U.S. at

155–56.

     The district court correctly held that in this case -- in

which Moore intended to sell the policy when he applied for it

but where “[t]here is no evidence that anyone other than Moore

was a participant in the scheme at the time Moore obtained the

First Penn policy” -- Moore had an insurable interest when he

obtained the policy.        First Penn, 2007 WL 1810707, at *4 n.7.

No third party participated in the procurement of Moore’s policy

and therefore no one was “wagering” on Moore’s life in violation

of public policy.        Furthermore, as amicus curiae noted in its

brief and at oral argument, evaluating insurable interest on the

basis of the subjective intent of the insured at the time the

policy    issues,   as   First   Penn       would   have   us   do,   would   be

unworkable    and   would   inject   uncertainty        into    the   secondary

market for insurance. 3

     3
       We note that the majority of courts that have directly
considered the issue under various state laws have similarly
concluded that intent to transfer a policy does not alone
destroy an insurable interest; a third party must be involved in
the procurement of the policy to eliminate the insurable
interest. See e.g., Sun Life Assurance Co. of Can. v. Paulson,
No. 07-3877(DSD/JJG), 2008 WL 451054, *2 (D. Minn. Feb. 15,
2008); Life Prod. Clearing, LLC v. Angel, 530 F. Supp. 2d 646,
653-55 (S.D.N.Y. 2008); Fyffe v. Mason, 268 S.W.2d 29, 31-32
(Ky. 1954); Harrison’s Adm’r v. Nw. Mut. Life Ins. Co., 63 A.
321, 321 (Vt. 1906).

                                        8
                                                B.

       With respect to First Penn’s remaining contention -- that

the parties mutually consented to rescission -- Evans initially

argues that First Penn did not timely assert this issue in the

district      court.      Even    assuming           that    First      Penn   did   properly

raise    the    issue,     the    claim          fails      on    the     merits.        Mutual

rescission of an insurance contract can arise from “any act or

course of conduct of the parties which clearly indicates their

mutual understanding that the contract is abrogated.”                                      Great

United Realty Co. v. Lewis, 101 A.2d 881, 884 (Md. 1954).                                  Often

when    an    insured    cashes      a    premium        refund        check   offered     as   a

rescission, this action manifests agreement and effectuates the

rescission.         See Mut. of Omaha Ins. Co. v. Korengold, 241 N.W.2d
651, 652 (Minn. 1976).

       In this case, however, it is undisputed that neither Answer

Care nor Evans ever cashed First Penn’s proffered refund check.

As the district court explained, “the record shows that there

has    been    no    acceptance      of        the   refund       of    premiums     and   that

defendants have consistently rejected the attempted rescission.”

First Penn, 2007 WL 1810707, at *3.                              First Penn argues that

Evans’s alleged endorsement of the check was a “negotiation”

under    Maryland       law,   see       Md.    Code     Ann.,     Com.    Law   §   3-201(b)

(2002), and therefore constituted a rescission.                            However, all of

the cases relied on by First Penn involve situations in which

                                                 9
the refund check was cashed.      First Penn cites no authority for

the proposition that an endorsement from a title owner to the

beneficial owner constitutes agreement to a rescission.              Because

Answer Care consistently manifested its intent not to agree to a

rescission, Evans’s retention and any endorsement of the check

did not manifest “a mutual understanding.”            Cf. Warren v. N.Y.

Life Ins. Co., 58 P.2d 1175, 1181 (N.M. 1936) (holding that

retention   of   check   for   extended    period     without     notice    or

challenge   to   the     rescission     constituted     consent     to     the

rescission).

                                  IV.

     For the foregoing reasons, the judgment of the district

court is

                                                                   AFFIRMED.

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