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Life v. Wilson

United States District Court, D. Nebraska

July 7, 2015

JAMES W. WILSON, Defendant.


RICHARD G. KOPF, Senior District Judge.

Plaintiff, Lincoln Benefit Life ("LBL"), is a life insurance company. Defendant, James W. Wilson, is an insurance broker. LBL sues Wilson to recover approximately $15 million in damages, claiming a right to indemnity or contribution at common law (count I), breach of contract (count II), and negligence (count III). LBL also seeks to obtain a declaratory judgment that no additional commissions are owed to Wilson (count IV). Wilson counterclaims to recover approximately $2.7 million in damages, alleging a single claim for breach of contract for nonpayment of commissions.

In 1999, Wilson was retained by shareholders of Lollytogs, Inc., to procure insurance on the life of one of the company's co-founders, Samuel Gindi, in order to fund a buyout of Gindi's interest in Lollytogs upon his death. The shareholders wanted to replace an existing policy that had been issued by a company other than LBL. Wilson entered into a special agent's agreement with LBL, which then issued two term policies with 10-year level premium periods. After 10 years the premiums would escalate, but the term policies allowed for conversion to permanent insurance "[p]rior to the earlier of the policy anniversary next following the insured's seventieth birthday or the end of this level premium period." Gindi was 75 years old when the term policies were issued.

In 2000, the shareholders questioned Wilson about the convertibility of the term policies, and he in turn questioned LBL. A faxed response from LBL indicated that "[t]his policy will have conversion privileges up to the term of the policy." In 2003, after Wilson again contacted LBL to inquire about the policies' conversion rights, LBL took the position that the policies were not convertible due to Gindi's advanced age. However, because of the "misinformation" that was provided in the 2000 fax, LBL offered to convert the policies within 30 days. LBL subsequently issued five universal life insurance policies for a "free look" period, but they were not accepted by the Lollytogs shareholders. LBL then reinstated the two term polices.

In 2007, the Lollytogs shareholders notified LBL that they intended to convert the two term policies before the end of their 10-year level premium periods in 2009. LBL responded that although an exception had been granted in 2003, "these policies no longer have a conversion privilege due to the age of the insured."

In 2009, the Lollytogs shareholders filed suit for breach of contract against LBL in the United States District Court for the Southern District of New York. Annual premiums were ordered paid into escrow while the case was pending. Gindi died in 2012. In 2013, after the jury returned a verdict in favor of the Lollytogs shareholders, the court entered a judgment that required LBL to pay a death benefit of $29 million (the total amount of two the term policies) and that directed the escrow agent to pay LBL approximately $7.3 million for premiums due during 2009-2012.

LBL now seeks to collect from Wilson the difference between the $7.3 million premium amount that was determined by the jury and the amount it otherwise would have received as premium payments under the two term policies. Wilson meanwhile seeks to collect from LBL the amount of additional commissions he would have earned if LBL had allowed conversion of the term policies in 2009.

LBL and Wilson have filed cross-motions for summary judgment on each other's claims. Wilson also seeks summary judgment on his claim, with the amount of damages to be determined later. LBL has not moved for summary judgment on its claims for money damages and declaratory relief. Because a complete record of the New York litigation is not in evidence, and because the potentially case-dispositive question of collateral estoppel (or issue preclusion) has not been adequately briefed, the court will defer ruling on the pending motions and will postpone trial in order to permit supplementation of the record and additional briefing.


"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A material fact is one that "might affect the outcome of the suit under the governing law, " and a genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether a genuine issue of material fact exists, the evidence is to be taken in the light most favorable to the nonmoving party, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970), and the court must not weigh evidence or make credibility determinations, Anderson, 477 U.S. at 249. However, the nonmoving party "may not rest upon mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Id. at 256.

"A mere scintilla of evidence is insufficient to defeat summary judgment and if a nonmoving party who has the burden of persuasion at trial does not present sufficient evidence as to any element of the cause of action, then summary judgment is appropriate." Brunsting v. Lutsen Mountains Corp., 601 F.3d 813, 820 (8th Cir. 2010) (internal quotation marks and citations omitted). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (quoting Ricci v. DeStefano, 557 U.S. 557, 586 (2009)).

A. LBL's Claims

In support of his motion for summary judgment, Wilson argues: (1) LBL's claims for breach of contract and negligence fail as a matter of law because (a) the duties he allegedly breached were owed to the Lollytogs shareholders, not LBL, and (b) the jury's verdict in the New York litigation conclusively establishes that LBL's injury resulted solely from its own actions, and not because of any prior breach of the special agent's agreement or negligence on his part; and (2) LBL's claim for contribution or indemnity fails as a matter of law because of "the doctrine of acquiescence." Responding to the first argument, LBL argues: (1) Wilson's reliance upon the doctrine of res judicata is misplaced; (2) proximate cause is a question of fact to be determined by the jury; and (3) LBL's conduct was not an intervening cause. In reply, Wilson argues that collateral estoppel applies even if res judicata does not. With respect to Wilson's second argument, LBL contends it only attempted to rectify a bad situation created by Wilson.

1. Breach of Contract or Negligence

In September 1999, LBL appointed Wilson to sell insurance products pursuant to a "Special Agent's Agreement - Appointment" (Filing No 102 (LBL's statement of material facts), ¶ 12; Filing No. 103-4). The appointment was made at Wilson's request, in connection with his shopping for life insurance for Samuel Gindi (Filing No. 102, ¶ 12; Filing No. 105 (Wilson's statement of material facts), ¶ 6). The special agent's agreement generally provided that Wilson was to "solicit applications for the policies of insurance and annuity contracts written by LBL" and to "submit such applications received to LBL" (Filing No. 102, ¶ 14; Filing No. 103-4, at CM/ECF p. 3). LBL contends Wilson breached the following provisions of the special agent's agreement:

In addition to the requirement that you comply with the rules and regulations of LBL pertaining to underwriting practices, acceptance of risks, delivery of policies, and all other areas of LBL's business, you are required to:
(1) Comply with LBL's policies and procedures concerning the replacement of life insurance policies and annuity policies. A replacement occurs whenever an existing life insurance policy or annuity is terminated, converted, or otherwise changed in value. For any transaction involving a replacement, LBL requires you to:
(a) recommend the replacement of an existing policy only when replacement is in the best interest of the customer;
* * *
(2) Adhere to LBL's rules and regulations concerning ethical market conduct, which require that you:
(a) carefully evaluate the insurance needs and financial objectives of your clients, and use sales tools ( e.g., policy illustrations and sales brochures) to determine that the insurance or annuity you are proposing meets these needs;
* * *
Limitation of Authority - You shall not exercise any authority on behalf of LBL other than expressly conferred by this Agreement. Specifically, but not in limitation of the foregoing, you shall have no authority on behalf of LBL to:
(1) Make, alter, or discharge any contract.
* * *
(4) Waive or modify any terms, conditions, or limitations of any policy.

(Filing No. 103-4, at CM/ECF pp. 3-4).

LBL alleges that "Wilson's conduct in procuring the policies constituted a breach of the contract with Lincoln Benefit because Wilson did not carefully evaluate the insurance needs and financial objectives of [Lollytogs], ' and improperly determine[d] that the [proposed] insurance... [met] these needs'" (Filing No. 1-3 (complaint), ¶ 60)[1] and "because Wilson recommended replacement of an existing policy with the Lincoln Benefit policies when it was not in the best interest of the customer'" (Filing No. 1-3, ¶ 62).[2] Similarly, it is alleged that "Wilson acted negligently in failing to evaluate the needs and financial objectives of Gindi" (Filing No. 1-3, ¶ 67). LBL also alleges that Wilson acted negligently "in failing to properly review the terms of the life insurance products he sold" (Filing No. 1-3). Finally, LBL alleges that "Wilson modif[ied] terms, conditions, or limitations of [the] polic[ies]'" by his "assurances and representations to Gindi and/or Sutton[3] regarding the conversion rights available" (Filing No. 1-3, ¶¶ 64, 65) and "acted negligently in misrepresenting and/or failing to clarify the rights and obligations of Lincoln Benefit, Gindi, and/or Lollytogs both prior to and after the issuance of the policies" (Filing No. 1-3, ¶ 69).

As an initial matter, Wilson argues that "each of the alleged violations, whether based upon a contractual agreement or common law, focus on what Wilson should have done vis a vis his client's, Lollytogs, insurance needs and objectives, " and that "[n]owhere is it articulated as to the harm or damage to [LBL]" (Filing No. 101, at CM/ECF p. 22). LBL has not responded to this argument except to state (in a footnote) that LBL's complaint "clearly avers that [a]s a result of Wilson's conduct, Lincoln Benefit has incurred damages in excess of $15 million because it has not received premium commensurate with the risk it covered'" (Filing No. 119, at CM/ECF p. 15). The risk LBL covered, as conclusively determined in the New York litigation, was insuring the life of a 75-year-old man for a 10-year level premium period and granting him the right to convert the term policies to permanent insurance before the expiration of such 10-year period, which was precisely the coverage the Lollytogs shareholders expected to receive.[4]

It is further alleged, however, that Wilson exceeded his authority and breached the special agent's agreement by modifying the terms, conditions, or limitations of the life insurance policies he sold to the Lollytogs shareholders. "It is the duty of an agent of limited authority to adhere faithfully to the instructions of his principal, and if he exceeds, violates, or neglects them, and loss results to his principal as a natural and ordinary consequence, he is liable therefor." League v. Vanice, 374 N.W.2d 849, 857 (Neb. 1985) (quoting Winchell v. National Bank of Commerce Trust & Sav. Assn., 152 N.W.2d 2, 5 (Neb. 1967).[5] Whether this claim sounds in contract or tort need not be decided at this time.[6] Nor is it necessary to decide now whether Wilson's alleged failure to review the policy language and ...

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