Opinion
Cause No. IP00-1844-C-B/S
May 7, 2001
Robert A. Durham, State Farm Litigation Counsel, 135 North Pennsylvania, Suite 850, Indianapolis, IN 46204.
Joni L Grayson, Vissing Grayson Leverett, 432 East Court Ave, P.O. Box 187, Jeffersonville, IN 47131-0187.
James H Young, Young Young, 128 N Delaware, 3rd Floor, Indianapolis, IN 46204.
ENTRY GRANTING PLAINTIFF'S MOTION TO DISMISS DEFENDANT EVA SMITH'S COUNTERCLAIM
Plaintiff, State Farm Life Insurance Company ("State Farm"), filed an interpleader complaint, pursuant to 28 U.S.C. § 1335, naming Mary Jane Deegan and Eva E. Smith as defendants, in order to resolve the ownership of the proceeds of Robert L. Smith's life insurance policy. Eva Smith has filed a counterclaim against State Farm, alleging that State Farm was negligent in issuing a conversion policy to Mary Jane Deegan. Thereafter, State Farm filed a motion to dismiss Eva Smith's counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons discussed below, State Farm's motion to dismiss the counterclaim must be GRANTED.
Procedural and Factual Background
Robert Smith was a State Farm agent until 1991 and was insured through State Farm with basic and optional group life insurance policies. Interpl. Compl. ¶ 6. The policies provided that upon reaching the age of seventy years old, the basic policy would terminate and the optional policy would be reduced to $50,000. Additionally, upon termination of the group policies, Mr. Smith had the option of converting the group coverage into an individual policy. Id.
Robert Smith and Eva Smith divorced in September, 1992, in Clark County, Indiana. Id. In September, 1996, in an order issued relating to their divorce, the Clark County court ordered Robert Smith to name Eva Smith as the primary irrevocable beneficiary on both State Farm group policies and two additional individual policies. Id. ¶ 7. This order also required Robert Smith to forward all conversion documents for the State Farm group policies to Eva Smith after his receipt of the same from State Farm. Thereafter, Eva Smith was to convert the policies by paying their premiums. Id. Robert Smith complied with the first part of the September, 1996, order by designating Eva Smith as the beneficiary of the policies in May, 1997; however, he thereafter failed to forward the conversion documents to Eva Smith after he received them from State Farm. Id.
On September 24, 1999, Robert Smith converted the group coverage to an individual policy and designated Mary Jane Deegan as the primary beneficiary; when he exercised this option of converting the group policies to an individual policy, both he and Deegan signed the conversion application, with Deegan signing as the applicant and listing herself as the primary beneficiary. Id. After Robert Smith died in October, 2000, State Farm received Eva Smith's and Deegan's competing claims for the proceeds of the conversion policy, which prompted this interpleader action in November, 2000. Id. at ¶ 9.
On December 18, 2000, Eva Smith filed a counterclaim contending that State Farm was negligent in converting the group policies into an individual policy for the benefit of Mary Jane Deegan. Def. Smith's Answer, Cross-Claim and Counterclaim ¶¶ 16-17. Eva Smith alleges that State Farm had a duty to investigate the conversion application signed by Robert Smith and Mary Jane Deegan (and designating Deegan as the beneficiary) because it was aware of the September, 1996, court order that required Mr. Smith to forward the conversion documents to Eva Smith. Id. ¶¶ 13-15. Eva Smith further asserts that State Farm breached its duty to investigate by issuing the conversion policy to Deegan and that, as a direct and proximate cause of State Farm's negligence, her right to the policy and proceeds has been impaired and she has suffered money damages. Id. ¶¶ 16-17.
On February 9, 2001, State Farm sought dismissal of Eva Smith's counterclaim, arguing that Indiana law does not recognize the duty alleged by Smith to have been breached. Pl. Mot. to Dismiss ¶ 3. Specifically, State Farm contends that there has never been any relationship between State Farm and Eva Smith that would impose a duty on State Farm and that it would be contrary to public policy to require insurance companies to investigate, for every possible policy, whether a potential insured has been subject to a divorce decree adjudicated in any state that might require the insured to maintain a life insurance policy designating a certain beneficiary. Pl. Mot. to Dismiss Br. II, B.
Eva Smith responds that State Farm's duty to investigate arises out of its employment relationship with Robert Smith; she concedes that Indiana law imposes no such duty on State Farm as an insurer. She contends that as Robert Smith's employer, State Farm had a duty to protect Eva Smith's contractual rights under the group insurance policies. Def. Smith's Resp. Br. at 2, 3.
State Farm counters that Robert Smith was never its employee, but rather an independent contractor working as a State Farm agent. In any event, any employment relationship that existed ended in 1991, prior to the dissolution decree and the court's dissolution order regarding conversion of the life insurance policies in 1992 and 1996, respectively. Pl. Reply Br. at 2. State Farm asserts that its only duty was to inform Robert Smith of his conversion rights under his insurance policies and that no duty was owed to Eva Smith. Id. at 3-4.
Discussion A. Jurisdiction
District courts have original jurisdiction over "any civil action of interpleader . . . filed by any person, firm, or corporation, association, or society having . . . issued a note, bond, certificate, policy of insurance, or other instrument of value or amount of $500 or more," if there are at least two adverse claimants of diverse citizenship claiming entitlement to the policy and the plaintiff deposits an amount equal to the policy with the court. 28 U.S.C. § 1335(a). In this case, Eva Smith is a citizen of Indiana and Mary Jane Deegan is a citizen of California, satisfying the requirements of 28 U.S.C. § 1335(a) and 28 U.S.C. § 1332(a). Additionally, on November 29, 2000, State Farm deposited into the registry of this court $102,207.62, the amount due under Robert Smith's life insurance policy.
B. Motion to Dismiss Standard
Federal Rule of Civil Procedure 12(b)(6) permits the dismissal of a claim for "failure to state a claim upon which relief may be granted." FED.R.CIV.P. ("RULE") 12(b)(6). When considering a motion under this rule, the Court must examine the sufficiency of the plaintiff's complaint, or defendant's counterclaim, not the merits of the lawsuit. Gibson v. City of Chicago, 910 F.2d 1510, 1520-21 (7th Cir. 1990); Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583, 585 (7th Cir. 1989), abrogated on other grounds by Bd. of County Comm'rs, v. Umbehr, 518 U.S. 668 (1996). Dismissal is appropriate only if it appears to a certainty that the claimant cannot establish any set of facts which would entitle her to the relief sought. Hishon v. King Spalding, 467 U.S. 69, 73 (1984); Mosley v. Klincar, 947 F.2d 1338, 1339 (7th Cir. 1991). To survive a motion to dismiss, a complaint must contain either "direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. . . . But such allegations need only state a possible claim, not a winning claim." Herdrich v. Pegram, 154 F.3d 362, 369 (7th Cir. 1998), rev'd on other grounds, 530 U.S. 211 (2000). We accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of Eva Smith, including her allegation that Robert Smith was an employee of State Farm until 1991. Dawson v. Gen. Motors Corp., 977 F.2d 369, 372 (7th Cir. 1992); Rule 8(a).
C. Employer's Duties
Inasmuch as the parties have relied on Indiana law in their briefs for this motion, we also assume that it applies. Eva Smith concedes that Indiana law does not support a claim against State Farm in its capacity as an insurer. See Def. Smith's Resp. Br. at 2.
It is well established under Indiana law that "when an employer negotiates a group insurance contract with an insurance company, the employer acts as the agent of its employees." Distler v. Horace Mann Life Ins. Co., 644 N.E.2d 918, 920 (Ind.Ct.App. 1994) (citing Steward v. City of Mt. Vernon, 497 N.E.2d 939, 943 (Ind.Ct.App. 1986)). See Sur v. Glidden-Durkee, 681 F.2d 490, 493 (7th Cir. 1982) (citing Metropolitan Life Ins. Co. v. Henry, 24 N.E.2d 918, 920 (Ind. 1940); Prudential Ins. Co. of Am. v. Lancaster, 219 N.E.2d 607, 610 (Ind.Ct.App. 1966); Morales v. Equitable Life Assurance Soc'y, 60 N.E.2d 747, 748 (Ind.Ct.App. 1945); 16 J. APPLEMAN, INSURANCE LAW AND PRACTICE § 8734 at 390-93 (1981)). As the employee's agent in this context, an employer owes the insured employee "a duty of good faith and due diligence in obtaining adequate insurance for him." Sur, 681 F.2d at 493 (citing Bulla v. Donahue, 366 N.E.2d 233, 236 (Ind.Ct.App. 1977)). In addition, an employer owes its employee a duty "to inform him of his conversion rights under the group policy." Id. at 494 (citing Sheller-Globe Corp. v. Sheller, 413 N.E.2d 318 (Ind.Ct.App. 1980)).
In Sur, the Seventh Circuit, applying Indiana law, considered whether or not the employer breached its duty to the employee to explain the conversion rights under the insurance policy. Id. at 494. The Court held that the employer owed the employee a duty to inform him of his conversion rights under his group health insurance policy, negotiated by the employer for the employee, and that such a duty includes the duty not to mislead the employee about the extent of his conversion rights. Id.
Applying those principles, the Seventh Circuit determined that the trial court had erred when it granted summary judgment in favor of the employer, finding that if a jury could conclude that the employee was misled by the employer's actions, the jury would be justified in finding the employer negligent. Id. at 495.
While we assume on this motion, as we must, that State Farm was Robert Smith's employer, and that State Farm therefore owed him the duty enunciated in Sur, there is no similar allegation that Eva Smith enjoyed such an employment relationship with State Farm. The duty imposed upon the Sur defendant cannot extend to Eva Smith in the absence of some independent basis for extending it to her based upon her status as the listed beneficiary of the group life insurance policies.
Ms. Smith asserts that Indiana law supports such an action, referring us to Miller v. Partridge, 734 N.E.2d 1061 (Ind.Ct.App. 2000), trans. denied, No. 49A02-9909-CV-631, 2001 Ind. LEXIS 135, at *1 (Feb. 9, 2001). In Miller, a settlement agreement incorporated into a dissolution decree required the father "at all times" to maintain the then-existing level of life insurance in the amount of $50,000 and to change the name of the policies' beneficiary from his ex-wife to his daughter. Miller, 734 N.E.2d at 1063. In violation of the settlement agreement's provisions, the father never changed the beneficiary on any of the policies to name his daughter; instead, he later designated his girlfriend as the policies' beneficiary. See id. at 1063-64. The court concluded that the daughter had an enforceable right to the insurance proceeds as a third-party beneficiary of the settlement agreement reached between the father and mother. Id. at 1064; see also Kiltz v. Kiltz, 708 N.E.2d 600, 604 (Ind.Ct.App.), trans. denied, 726 N.E.2d 302 (Ind. 1999) (holding that children were third-party beneficiaries of a separation and property agreement between mother and father, with valid and enforceable claims against the father's estate when the father breached the agreement by failing to maintain a life insurance policy naming the children as the beneficiaries as required by the agreement).
Contrary to Eva Smith's contention, the holding in Miller is inapposite to the facts of our case.
The contract at issue in Miller was the settlement agreement reached as part of a dissolution decree not the insurance policy itself. There, the court of appeals held that the daughter, as third-party beneficiary of the dissolution decree, could enforce its provisions as against the named beneficiary of the insurance policies. Miller makes no mention of the daughter's rights as the beneficiary of the original insurance policy or of any duty owed to her by her father's employer. The holding in Miller simply provides no basis for the assertions made by Ms. Smith.
Moreover, our own independent review of Indiana case law likewise fails to uncover any holding that provides any legal basis to support Eva Smith's claim that State Farm (as Robert Smith's employer) owed her (as the listed beneficiary of the group insurance policy) any duty upon his conversion of the group policy. If anything, the cases referred to by Ms. Smith, Miller and Kiltz, indicate that any cause of action Eva Smith may have, arises under the terms of the state court's September, 1996, dissolution order and lies against Robert Smith's estate or Mary Jane Deegan herself. Thus, we conclude that Eva Smith's counterclaim must fail as a matter of law.
Conclusion
For the reasons discussed above, we conclude that Eva Smith's counterclaim against State Farm fails to state of cause of action upon which relief may be granted. Accordingly, we GRANT State Farm's motion to dismiss this counterclaim.