A federal court in Oklahoma this week granted a motion to intervene by the purported assignee of the rights to the proceeds of a life settlements transaction, while also granting the insurer permission to amend its complaint to seek declaratory relief.
The court in Wells Fargo Bank v. Lincoln Nat. Life Ins. Co., No. CV-703-TCK-TLW, 2011 WL 2216689 (N.D. Okla. June 7, 2011), also rejected a request to deposit, into the court's registry, the funds representing the insurance policy premiums, and denied without prejudice Wells Fargo's motion for partial summary judgment, ruling that it may refile after the close of discovery.
As set forth in the court's opinion, the facts of the case involved two Lincoln life insurance policies, each for $10 million, on the life of Joe Dicesare. The policies were issued to two trusts that Dicesare formed, the Joe Dicesare 2008 Irrevocable Life Insurance Trust I (“Trust I”) and the Joe Dicesare 2008 Irrevocable Life Insurance Trust II (“Trust II”). Patricia Dicesare, Dicesare's spouse, was the sole beneficiary to Trust I, and Dicesare's surviving children were the beneficiaries of Trust II. Wells Fargo was the trustee of the trusts.
To fund the purchase of the policies, Wells Fargo entered into two loan agreements, collectively in the amount of about $2 million, with Churchill Finance LLC. The two insurance policies were collaterally assigned to Churchill as security for the loans. Churchill subsequently transferred its interest in the loans to Midas Life Settlements, LLC. Once it issued the policies, Lincoln received premiums for the first two years of coverage totaling $1,998,000.
Dicesare died on January 31, 2010, and afterwards Wells Fargo submitted claims on both policies, seeking payment of the death benefit for distribution to Dicesare's family. In September, 2010, Lincoln sent a letter denying the claims and purporting to rescind the policies. "Lincoln said that it was rescinding the Policies because the applications submitted by Dicesare contained material misrepresentations concerning his financial condition, stating that [h]ad Lincoln been aware of the Dicesares' true financial status, these policies would not have been issued" and "[b]ased on these material misrepresentations, we are rescinding both of the above-referenced policies and refunding all premiums.”
Lincoln also tendered two checks to the Trusts in the aggregate amount of $2,105,121.64, comprising the first two years of premiums paid on the policies, plus interest.
The checks were tendered on the condition that Wells Fargo forego the right to claim a death benefit under the policies.
Midas has sought to obtain the checks, as the lender that financed the policies. "However, this has not occurred because Lincoln maintains that the assignment of the checks to Midas would result in a waiver of Wells Fargo's claims under the policies."
Wells Fargo filed suit, asserting claims for breach of contract and breach of the duty of good faith and fair dealing, based on Lincoln's purported rescission of the policies.
Midas filed a motion to intervene, and the court, in its June 7 decision, granted the motion. Midas claimed its rights were affected by the proceeding in that it was a collateral assignee and third-party beneficiary of the policies, and also in that it seeks recovery of the checks in its capacities as creditor and as collateral assignee. The court said Midas met the federal standard for permissive intervention, because it has an interest in funds tendered to the trust – including funds tendered in connection with the attempted rescission. Additionally, there is no apparent prejudice to the existing parties or undue delay as a result of intervention, according to the court.
As for the request by Wells Fargo for leave to deposit the checks tendered by Lincoln with the court pending resolution of the lawsuit, the court found that such a deposit could adversely impact the interests of Lincoln and therefore did not approve the request. The deposit of the checks, Lincoln argued "would modify Lincoln's substantive rights" because tender of the checks was made on the condition that Wells Fargo forgo any right to claim a death benefit under the policies, and Wells Fargo sought to avoid this condition by making the deposit of the checks into the Court “contingent on the stipulation of the parties and/or an order of the Court that depositing the funds into the Court's registry . . . in no way and to no degree compromises any claims or causes of action made by [Wells Fargo] herein or the right to pursue such claims or causes." Said the court: "Wells Fargo's request would therefore alter the relationship and duties of the parties by circumventing the condition placed on the . . . [c]hecks." The court, accordingly, denied the request.
The court reviewed the request by Lincoln to amend its response to the complaint to allow for a counterclaim for declaratory judgment, seeking a declaration that the policies are void because Dicesare made materially false and/or fraudulent representations in his application. Although Wells Fargo opposed the request, it offered no argument in opposition. The court said the timely request would not result in prejudice or undue delay, and therefore granted Lincoln's motion.
Finally, the court rejected the motion for summary judgment by Wells Fargo on its breach of contract claim. Lincoln opposed the motion, saying that it was premature until the conclusion of the discovery period. Lincoln backed up its opposition with an affidavit from its counsel, providing in the affidavit "a thorough description of Lincoln's discovery efforts, including what discovery has been received, what discovery is outstanding, and a list of depositions that have yet to be conducted" as well as "facts currently unavailable to Lincoln, including information relating to Dicesare's financial condition and representations, Dicesare's tax returns, Dicesare's efforts to obtain the Policies, Dicesare's employment history, the identity of other persons with knowledge of Dicesare's financial condition, whether third persons other than agents shared in the commissions earned on the Policies, and efforts to review and verify the information provided in Dicesare's application for the Policies." The affidavit also set forth the steps Lincoln has taken to obtain this information, and how additional time will permit Lincoln to obtain this information. This demonstrated that there was good cause to deny the motion for partial summary judgment.