In the Estate of: Jerry N. Bean, Deceased, Petitioner/Appellant, v. Ernest Hazel, III, Defendant/Respondent.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Eastern District Case Style: In the Estate of: Jerry N. Bean, Deceased, Petitioner/Appellant, v. Ernest Hazel, III, Defendant/Respondent. Case Number: 71312 Handdown Date: 10/07/1997 Appeal From: Circuit Court of Franklin County, Hon. Walter A. Murray, Jr. Counsel for Appellant: David L. Hoven Counsel for Respondent: Robert A. Zick Opinion Summary: Appellant's estate claims error in the trial court's judgment, asserting the creditor/beneficiary of Appellant's life insurance policy was entitled only to the balance of Appellant's debt and not the excess proceeds. REVERSED AND REMANDED. Division One holds: (1) A creditor has an insurable interest in the continued life of its debtor limited to the amount of the creditor's expenditure; (2) proceeds the creditor receives in excess of expenditures are held in trust for the debtor's estate; (3) the creditor may retain excess proceeds if expressly provided within the policy; and (4) as a matter of public policy, an insurance policy that bestows a creditor a disproportionate excess of proceeds may be deemed void as a wagering policy. Citation: Opinion Author: James A. Pudlowski, Judge Opinion Vote: REVERSED AND REMANDED. Grimm, P.J., and Gaertner, J. concur. Opinion: The Estate of Jerry N. Bean (Estate) brought suit against Ernest Hazel, III (Hazel) seeking reclamation of proceeds from Jerry N. Bean's (Bean) life insurance policy into his estate. The trial court found Hazel, as a named

beneficiary, was entitled to proceeds of $120,000 from Bean's life insurance policy without regard to the balance of the Bean/Hazel debt. The trial court further found that Hazel did not hold proceeds in excess of the debt balance in trust for Estate. We reverse and remand to the trial court with instructions. On 5 July 1990, Bean and Hazel, both businessmen in Washington, Missouri, entered into an agreement in which Bean borrowed $120,000 from Hazel. Their agreement was set forth in a signed promissory note. Pursuant to this note, Hazel required Bean to maintain a life insurance policy on himself throughout the term of the loan for an amount not less than the unpaid amount of the loan and accrued interest. The policy needed to be acceptable to Hazel. Consequently, Bean executed a "Change in Beneficiary" form of an existing $200,000 life insurance policy naming Hazel as a beneficiary to the extent of $120,000, the principle amount of the debt. Hazel accepted this arrangement, and Bean continued to pay all premiums on the policy. Bean borrowed an additional $12,000 from Hazel on 17 February 1992. This loan also was evidenced by a promissory note. Bean made monthly payments on the debt, however, he never altered Hazel's percentage share as beneficiary on the life insurance policy. Bean died on 6 September 1992. At that time, only $79,795.71 of both loans remained outstanding. Hazel, as a named beneficiary, applied for and received $120,000 of Bean's life insurance proceeds from the policy Bean was required to purchase as a condition of the loan. Once Bean's estate was opened, its Administrator Ad Litem filed a Petition for Discovery of Assets in the Probate Court in order to bring the excess proceeds into the estate. Subsequent to that petition, Estate and Hazel submitted a stipulation of facts to the court. The trial court entered its judgment allowing Hazel to retain the full $120,000 received from Bean's insurance policy. Estate appeals this judgment. In review of the trial court, we will sustain its judgment unless the decision was not supported by substantial evidence, it was against the weight of the evidence, or it erroneously declared or applied the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). For nearly a century, Missouri's case law has developed to form well established principles of law in this area and reliance on case law from other jurisdictions is informative but not controlling. Hence, we reverse and remand this case to the trial court with instructions to enter judgment in conformance with this opinion. Missouri consistently has held that where a creditor has an insurable interest in its debtor, the creditor may take out a life insurance policy to secure its pecuniary interest in the continued life of the debtor. Minnesota Mut. Life Ins. Co. v. Manthei, 189 S.W.2d 144, 151 (Mo. App. StL. 1945). Upon debtor's death, creditor's recovery on the policy is limited to the amount necessary to fully reimburse creditor's expenditures, including any future advances. Strode v. Meyer Bros. Drug Co., 74 S.W. 379, 381 (Mo. App. StL. 1903). Creditor, however, may not reach the surplus of the insurance

proceeds without an express provision within the policy. Morrow v. National Life Ass'n of Des Moines, Iowa, 168 S.W. 881, 885 (Mo. App. Springfield 1914). Any proceeds received by creditor in excess of the outstanding debt must be accounted to the beneficiary or the estate; creditor holds the excess as trustee. Sachs v. United States, 412 F.2d 357, 364 (8th Cir. 1969)(applying Missouri law); Manthei, 189 S.W.2d at 151. The limitation of creditor's recovery is further supported by Missouri's public policy. Public policy limits creditor's interest in proceeds of debtor's life insurance policy to the principle amount of the debt, interest, future advances, and paid policy premiums. "It is well settled that to allow the creditor to procure insurance greatly exceeding the amount of the debt might be to tempt him to bring the debtor's life to an unnatural end, and thus contravene the principle of public policy which has been seen to lie at the very basis of the doctrine of insurable interest...." Lakin v. Postal Life and Casualty Insurance Co., 316 S.W.2d 542, 551 (Mo. 1958). In essence, if creditor were bestowed disproportionate proceeds over the amount of the debt, the insurance policy may be deemed void as a wagering policy. Lowe v. Rennert, 869 S.W.2d 199, 208-09 (Mo. App. S.D. 1993). Hazel, however, did not procure the life insurance policy nor did he pay premiums on it. "Where, as here, the debtor furnishes the consideration the interest of the creditor is limited to the amount of the debt at the time of the debtor's demise, and any excess recovered by the creditor is held as trustee for the estate of the insured." Johnson v. Great Heritage Life Insurance Co., 490 S.W.2d 686, 691 (Mo. App. StL. 1973). Bean's only motivation to add Hazel as a beneficiary to his policy for the term of the loan was that it was a condition precedent to Bean receiving the distribution of the loan. In their stipulated facts, the parties agreed Bean was required to maintain an insurance policy on his life during the term of the loan and for an amount not less than the unpaid balance and interest with Hazel as the named beneficiary. The intent of the parties was to use this limited beneficiary designation as security for the loan. "[I]f the insured....procured the policy with an understanding that the defendant's interest in it should be only as security for what he owed, then defendant could retain no more than the amount of his debt." Morrow, 168 S.W. at 884. It, therefore, follows that Hazel cannot retain the entire $120,000 of proceeds from Bean's life insurance policy. Hazel may retain the proceeds to the extent of his loans to Bean less any repayment. "Whenever equity finds that one has title to property, real or personal, originally acquired by any kind of wrong doing, although innocently obtained, now held under such circumstances that retention of the title will result in unjust enrichment, equity may declare such title holder to be the trustee of a trust constructed by it for the purpose of working out justice...." Stratton v. Stratton, 694 S.W.2d 510, 512 (Mo. App. E.D. 1985), citing Bogert, Law of Trusts, 5th ed. 1973, Section 77, p. 287-88. Hazel holds the

excess of the proceeds in trust for Bean's estate. Sachs, 412 F.2d at 364. Accordingly, the judgment of the trial court is reversed and the cause is remanded for further proceedings consistent with this opinion. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.