Opinion
Civil Action No. 6:21-cv-03293-TMC
2023-01-27
William GANTT, Estate of William Gantt by its Executor Linda Gantt, Plaintiff, v. U.S. BANK, N.A. and Financial Credit Investment III Trust B, Defendants.
Adam Crittenden Bach, Eller Tonnsen Bach LLC, Greenville, SC, James S. Bainbridge, Pro Hac Vice, The Bainbridge Law Firm LLC, Plymouth Meeting, PA, for Plaintiff. Wade S. Kolb, III, Wallace K. Lightsey, Wyche PA, Greenville, SC, for Defendants.
Adam Crittenden Bach, Eller Tonnsen Bach LLC, Greenville, SC, James S. Bainbridge, Pro Hac Vice, The Bainbridge Law Firm LLC, Plymouth Meeting, PA, for Plaintiff. Wade S. Kolb, III, Wallace K. Lightsey, Wyche PA, Greenville, SC, for Defendants.
ORDER
Timothy M. Cain, United States District Judge
Plaintiff Linda Gantt, as Executor and acting on behalf of the Estate of William Gantt ("Plaintiff"), brought this action against Defendants U.S. Bank, N.A., ("U.S. Bank") and Financial Credit Investment III Trust B ("FCI") (collectively, "Defendants"), asserting a Delaware state-law claim for recovery of insurance proceeds due to lack of insurable interest. (ECF No. 17 at 8-9). On April 8, 2022, Defendants filed a joint motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). (ECF Nos. 23; 24). Plaintiff filed a response in opposition (ECF No. 27), and Defendants replied (ECF No. 32). Subsequently, Plaintiff has filed two motions for leave to file supplemental briefing concerning Delaware law, (ECF Nos. 40; 45), which Defendants oppose (ECF Nos. 42; 46). All motions are now ripe for review. After having carefully reviewed the record and the submissions of the parties, the court concludes a hearing is unnecessary to decide these matters.
BACKGROUND & PROCEDURAL HISTORY
These facts are taken from Plaintiff's Amended Complaint, as the court must accept Plaintiff's factual allegations as true for purposes of Defendants' motion. See Deutsche Bank Nat'l Tr. Co. Tr. v. Fegely, 767 Fed. App'x 582, 583 (4th Cir. 2019); Drager v. PLIVA USA, Inc., 741 F.3d 470, 474 (4th Cir. 2014); see also Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The court, however, is "not bound to accept as true a legal conclusion couched as a factual allegation," Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986), nor must the court "accept as true unwarranted inferences, unreasonable conclusions, or arguments," E. Shore Mkts. Inc. v. J.D. Assocs., LLP, 213 F.3d 175, 180 (4th Cir. 2000).
Briefly, the facts alleged in the Amended Complaint are as follows. In 2006, a Delaware entity known as Coventry procured a life insurance policy (the "Policy") on the life of the decedent, Mr. Gantt. (ECF No. 17 at 5). The Amended Complaint alleges that Coventry "may have" induced Mr. Gantt "to allow the Policy to be procured on his life . . . [by] represent[ing] that the Policy was being procured through a legitimate and legal transaction, or further induced Mr. Gantt with the promise of financial compensation if he permitted the Policy to be procured." Id. at 6. The Amended Complaint contends, however, that Coventry actually procured the Policy "through an illegal STOLI [Stranger-Originated Life Insurance] scheme" because "Coventry lacked a valid insurable interest in the life of Mr. Gantt." Id. In order to facilitate the transaction, Coventry established the William Gantt Family Insurance Trust dated May 25, 2006, (the "Trust"), a Delaware statutory trust, to be named as the beneficiary on the Policy "as a cover [for Coventry] to procure the Policy without a valid insurable interest." Id. Coventry then executed a "non-recourse 'loan' arrangement with the Trust, with the Policy serving as the sole collateral for the purported 'loan.' " Id. The purpose of the loan was "to conceal the fact that [the] premiums [for the Policy] were paid by Coventry" and "neither Mr. Gantt nor anyone with an insurable interest in his life ever paid any premiums on the Policy." Id. at 7.
According to the Amended Complaint, when the loan became due, "stranger investors unrelated to Mr. Gantt took formal control of the Policy[,]" specifically Defendant FCI, acting through its agent, Defendant U.S. Bank. Id. Mr. Gantt passed away on November 14, 2018, after which Defendants filed a claim for and were paid the Policy's death benefit. Id.
On October 11, 2021, Plaintiff Linda Gantt, Mr. Gantt's surviving spouse and executrix of his Estate, commenced this action against U.S. Bank. (ECF No. 1). In response to certain interrogatories served by Plaintiff, U.S. Bank identified FCI as its principal and the party on behalf of whom U.S. Bank had acted in connection with the Policy and who had received some or all of the death benefit under the Policy. (ECF No. 17 at 8). Consequently, on February 14, 2022, Plaintiff filed the Amended Complaint naming FCI as an additional defendant. See generally id. The only cause of action Plaintiff asserts against Defendants is for recovery of the death benefit proceeds paid under the Policy for lack of an insurable interest under Del. Code Ann. 18 § 2704. Id. at 8-9.
DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS
I. Standard of Review
The standard of review for Rule 12(c) motions for judgment on the pleadings is essentially the same as that for Rule 12(b)(6) motions for failure to state a claim. Drager v. PLIVA USA, Inc., 741 F.3d 470, 474 (4th Cir. 2014). The main difference is that factual allegations contained in the answer may be considered on a Rule 12(c) motion; that is, "[a] Rule 12(c) motion, unlike a Rule 12(b)(6) motion, implicates the pleadings as a whole." Aponte-Torres v. Univ. of Puerto Rico, 445 F.3d 50, 54-55 (1st Cir. 2006). Judgment on the pleadings is warranted when, "accepting all facts pled by the nonmoving party as true and drawing all reasonable inferences from the facts in favor of the nonmoving party, the movant has clearly established that no material issue of fact remains and that the movant is entitled to judgment as a matter of law." Deutsche Bank Nat'l Tr. Co. Tr. v. Fegely, 767 Fed. App'x 582, 583 (4th Cir. 2019) (citation omitted). The court may consider the complaint, answer, and any materials attached to those pleadings or motions for judgment on the pleadings "so long as they are integral to the complaint and authentic." Philips v. Pitt Cty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009).
II. Discussion
a. South Carolina Law Applies to the Policy
As an initial matter, the court must first determine whether South Carolina or Delaware law controls with respect to the Policy at issue. Throughout the Amended Complaint, Plaintiff refers to the Policy as a "Delaware trust owned policy" and asserts that it "is controlled by and subject to Delaware law . . . because . . . [it] was applied for by and delivered to a Delaware statutory trust in Delaware[.]" (ECF No. 17 at 4); see also id. generally. However, which State's laws control is a matter of law, not of fact. Therefore, these statements in the Amended Complaint amount to nothing more than "legal conclusion[s] couched as . . . factual allegation[s]" which the court need not accept as true for purposes of addressing Defendants' motion. Papasan, 478 U.S. at 286, 106 S.Ct. 2932.
In their motion, Defendants argue that South Carolina law applies to the policy pursuant to S.C. Code Ann. § 38-61-10, which provides as follows:
All contracts of insurance on property, lives, or interests in this State are considered to be made in the State and all contracts of insurance the applications for which are taken within the State are considered to have been made within this State and are subject to the laws of this State.S.C. Code Ann. § 38-61-10; see also (ECF No. 23-1 at 3, 7-10). In response, Plaintiff asserts that "courts have often held that § 38-61-10 in inapplicable, noting a lack of connection, interest or nexus to South Carolina, such that it could not be said that the property, lives, or interests insured were located in South Carolina." (ECF No. 27 at 5). Specifically, Plaintiff attempts to argue that "[b]ecause a STOLI insured is just an instrumentality and because the insured's location makes no practical difference to the scheme, making the choice-of-law analysis in a STOLI case depend[ent] on the insured's residence would be 'arbitrary' or 'fundamentally unfair,' and thus unconstitutional." Id. at 7 (citing Sangamo Weston, Inc. v. Nat'l Surety Corp., 307 S.C. 143, 149, 414 S.E.2d 127, 131 (1992)). However, the case on which Plaintiff relies for this proposition did not involve a STOLI policy or a policy made outside of South Carolina but covering the life of a South Carolina resident. See Sangamo Weston, 307 S.C. at 146-49, 414 S.E.2d at 129-31. Moreover, in that case the South Carolina Supreme Court upheld the application of § 38-61-10 and held that South Carolina law governed the construction of an insurance contract covering property located in South Carolina but executed outside of the state by parties who were not citizens of South Carolina. See id. at 148-49, 414 S.E.2d at 130-31 (holding that under § 38-61-10, "[w]hat is solely relevant is where the property, lives, or interests insured are located"). Plaintiff has identified no other authority, nor is the court aware of any, in which § 38-61-10 has been held inapplicable to a life insurance policy covering the life of a South Carolina resident, regardless of the policy's validity.
In this case, Plaintiff's complaint repeatedly alleges that Mr. Gantt was a resident and citizen of South Carolina who, at all times relevant to the Policy and this action, resided in South Carolina. See (ECF No. 17 at 1, 2, 3). Accordingly, based on the plain language of § 38-61-10 and the South Carolina Supreme Court's clear holding in Sangamo Weston that the location of the insured life is the sole consideration thereunder, the court agrees with Defendants and finds that South Carolina law controls as to the construction and interpretation of the Policy under § 38-61-10.
Accordingly, Plaintiff's pending motions to file supplemental briefing on Delaware law (ECF Nos. 40; 45) are DENIED as moot.
b. Plaintiff's Claim is Barred under South Carolina Law
Having concluded that South Carolina law governs the Policy in this case, the court now turns to the merits of Defendants' motion. Defendants first argue that because there is no equivalent cause of action under South Carolina statutory or common law to the claim Plaintiff asserts under Del. Code Ann. 18 § 2704, the Amended Complaint fails to state a claim for relief. See (ECF No. 23-1 at 11). Defendants make no argument as to South Carolina's treatment of STOLI policies. Instead, Defendants argue that under South Carolina common law, "only an insurance company may raise a challenge of lack of insurable interest in disputes over policy proceeds." Id. at 12. Specifically, Defendants rely on a 1948 order from this court, Bynum v. Prudential Insurance Company of America, 77 F. Supp. 56, 60 (E.D.S.C. 1948). See (ECF No. 23-1 at 12-13). In Bynum, the court was charged with determining which of a number of competing potential beneficiaries were entitled to the death benefit from a life insurance policy covering the life of the decedent. See Bynum, 77 F. Supp. at 58. As part of its discussion, the court noted as follows:
[I]t is generally held that the question of lack of insurable interest can be raised only by the insurer. Where an insurance company pays the proceeds of a policy issued by it into the court to abide the judgment of the court as between conflicting claimants, none of the claimants to the fund is allowed to raise the objections that the beneficiary named in the policies has no insurable interest.Id. at 60. However, the court cited to no South Carolina authority for this proposition, and instead relied on opinions from state courts in Ohio, Georgia, and Mississippi. See id. (citing Van Zandt v. Morris, 196 Miss. 374, 17 So. 2d 435, 436 (1944); Clements v. Terrell, 167 Ga. 237, 145 S.E. 78, 82 (1928); Keckley v. Coshocton Glass Co., 86 Ohio St. 213, 99 N.E. 299, 301 (1912)). While Bynum remains good law, the court is unaware of any South Carolina state court opinions articulating a similar rule or even citing Bynum for this proposition, let alone explicitly adopting it as the common law of South Carolina.
In its response, Plaintiff summarily argues that the South Carolina Supreme Court "has uniformly held that [STOLI] policies are merely 'pretended insurance' that serve no valid interest and are contrary to South Carolina's public policy[,]" but relies on distinguishable cases which did not involve STOLI policies and, moreover, fails to address how such treatment of STOLI policies gives rise to a cause of action which would allow the Estate to recover the proceeds of such a policy. (ECF No. 27 at 12); see also id. at 10-12. In particular, Plaintiff cites to Batchelor v. American Health Insurance Company, 234 S.C. 103, 107 S.E.2d 36 (1959) and Ramey v. Carolina Life Insurance Company, 244 S.C. 16, 135 S.E.2d 362 (1964). In Batchelor, the Supreme Court held that a hospital expense policy which the insured procured for himself did not constitute an invalid "wagering contract" or "wager policy"—a policy in which "the insured has no interest in the thing insured and can sustain no loss by the happening of the misfortunes insured against," similar to a STOLI policy—merely because the insured already had other insurance in place. 234 S.C. at 109, 109-12, 107 S.E.2d at 39, 39-41. While the Court did recognize that wager polices have "been defined as a pretended insurance," the Court made no indication as to the overall validity of such policies and whether any cause of action lies in South Carolina for recovery of benefits thereunder. Id. at 109, 107 S.E.2d at 39.
Similarly, the Ramey case on which Plaintiff relies is entirely inapposite to the issues in this case. In Ramey, the insured's wife took out a life insurance policy on him without his knowledge and then attempted to poison him in order to claim the death benefits. 244 S.C. at 19, 135 S.E.2d at 363. The Court in Ramey held that, while a wife generally has an insurable interest in the life of her husband, "[w]here, as here, it is alleged that the wife procured the insurance on the life of her husband without his knowledge or consent, the Court cannot hold as a matter of law that the wife has an insurable interest[.]" Id. at 20, 21, 135 S.E.2d at 364. Although the Court did not explicitly address whether such a policy constitutes a wagering contract, it did hold that a life insurance policy procured without the knowledge and consent of the insured is void as against public policy. Id. at 22, 135 S.E.2d at 365. However, taking the allegations in the Amended Complaint as true, the facts in this case are clearly distinguishable because Plaintiff expressly asserts that Coventry induced Mr. Gantt to allow the Policy such that Mr. Gantt must have known of and consented to the Policy's existence. See (ECF No. 17 at 6). Moreover, as in Batchelor, the Court in Ramey did not address whether a cause of action would lie to recover benefits under the policy at issue because the cause of action asserted by the plaintiff-insured was one for negligent issuance of the policy against the insurer. See Ramey, 244 S.C. at 19, 135 S.E.2d at 363. Thus, neither Batchelor nor Ramey support a cause of action by Plaintiff to recover the benefits paid to Defendants under the Policy.
Finally, Plaintiff argues that the South Carolina Supreme Court's ruling in Smith v. Todd, 155 S.C. 323, 152 S.E. 506 (1930), recognized a right of action for an insured's estate to recover proceeds of a life insurance policy, where the beneficiary of the policy "c[a]me[ ] into possession of [the] insurance proceeds as a result of his own wrongdoing[.]" (ECF No. 27 at 10). In Smith, a husband shot and killed his wife and then immediately committed suicide. 152 S.E. at 506. At the time of her death, the wife had a life insurance policy in which her husband was named as the beneficiary. Id. Accordingly, the insurance company paid the proceeds of the policy to the husband's estate. See id. Thereafter, the administrator of the wife's estate brought an action to recover the proceeds of the policy from the husband's estate asserting both a statutory and common law cause of action. See id. at 506-07. The Court concluded that the wife's estate could not recover under the statute, which prohibited only a person convicted of unlawfully killing another from recovering any benefit from the death, id. at 507-08, but held that "under the law of this state, considered apart from statute, the beneficiary of a life insurance policy whose interest in the policy is a mere expectancy, and who murder the insured, takes no title to the proceeds of the policy and is barred from a recovery thereupon," id. at 510. Thus, while the Court permitted the wife's estate to proceed on its common law claim for recovery of the proceeds, the Court's opinion and the right of action recognized therein is expressly limited to circumstances in which the beneficiary of a life insurance policy intentionally causes of the death of the insured. See id. generally. Although Plaintiff attempts to extrapolate the South Carolina Supreme Court's holding in Smith to extend to any circumstance in which a beneficiary "comes into possession of [the] insurance proceeds as a result of his own wrongdoing," regardless of the nature of the "wrongdoing," see (ECF No. 27 at 10), such interpretation is unsupported by the opinion in Smith and Plaintiff cites to no other authority granting the ruling in Smith such broad application.
Although neither party directly addressed the issue, the court finds it is well-settled under South Carolina law that wagering contracts such as STOLI policies are null and void as against public policy. Elmore v. Life Ins. Co. of Va., 187 S.C. 504, 198 S.E. 5, 6, 7 (1938) (noting that "when one takes out an insurance policy upon the life of another, making it payable to himself, as here, and himself paying the premium . . . the beneficiary must have an insurable interest in the life insured, else it falls under the ban of the law as a wagering contract" and holding that the policy at issue "constituted a wagering and speculative contract[ ] as a matter of law" such that the policy was void and no recovery could be sought thereunder); see also Rogers v. Atl. Life Ins. Co., 135 S.C. 89, 133 S.E. 215, 217 (1926) (" 'It is firmly established that insurance procured by one person on the life of another, in which the party effecting the insurance has no interest, is void as a wager contract against public policy[.]' " (quoting Crosswell v. Conn. Indemnity Ass'n, 51 S.C. 103, 28 S.E. 200, 201 (1897))). Accepting all allegations in the Amended Complaint as true, the court finds that the Policy on Mr. Gantt's life constitutes a wagering contract under South Carolina law and is, therefore, void as a matter of law. Elmore, 198 S.E. at 6-8. Furthermore, the only recovery of which this court is aware that South Carolina law permits with respect to such a policy is the return of any premiums paid on the policy. See id. at 7-8. However, the Amended Complaint expressly asserts that "neither Gantt nor anyone with an insurable interest in his life ever paid any premiums on the Policy." (ECF No. 17 at 7). Thus, Plaintiff does not have standing to pursue either the proceeds or the premiums paid in relation to the Policy. Accordingly, as Plaintiff has failed to identify any other right of action or basis for recovery under South Carolina statutory or common law, the court is constrained to find that Plaintiff has failed to assert a valid cause of action as a matter of law.
CONCLUSION
Based on the foregoing, Defendants' motion for judgment on the pleadings (ECF No. 23) is GRANTED and the Amended Complaint (ECF No. 17) is DISMISSED.
IT IS SO ORDERED.