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Maryland Intermediate Appellate Court finds that Plaintiff lacked Standing to Pursue Claims in Connection with Lief Insurance Policies Owned Wholly by an Irrevocable Life Insurance Trust

Address v. Millstone
No. 2486 (Md. App. Nov. 21, 2012)
by Wayne Heavener, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Address v. Millstone, Maryland’s intermediate appellate court reversed a jury verdict entered in favor of Robert Millstone and his employee, David Caffee (“Plaintiffs”), against Marvin A. Address and Marvin A. Address & Associates, Inc. (“Defendants”). Writing for the Court of Special Appeals, Chief Judge Peter B. Krauser found that the primary plaintiff, Mr. Millstone, lacked standing to sue Defendants for losses resulting from Mr. Millstone’s decision to surrender several whole life policies because those policies were owned by an irrevocable life insurance trust (“ILIT”). Furthermore, Plaintiffs failed to adduce sufficient evidence to sustain the jury’s award for breach of implied or express contract. Therefore, the court reversed the judgment, and remanded the case to the circuit court with instructions to enter judgment in favor of Defendants.

Mr. Address, an insurance broker, helped Mr. Millstone purchase a series of term life insurance policies. Eventually, Mr. Millstone sought to replace his term life insurance policies with whole life insurance policies. Accordingly, Mr. Address purchased eight whole life policies from the Phoenix Life Insurance Company. Mr. Millstone was the CEO of Atlantic Recycling Group and a principal in Montgomery Scrap Corporation; he often borrowed against his whole life insurance policies to help with his business endeavors. In 2001, Mr. Address urged Mr. Millstone to put his insurance in an ILIT for estate planning purposes. As part of the ILIT, Mr. Millstone would be unable to borrow against the life insurance policies as they would be owned by the ILIT, and not Mr. Millstone. In setting up the ILIT, Mr. Millstone surrendered seven (7) of his eight (8) whole life insurance policies in order to purchase a universal life insurance policy, issued by Security Connecticut Life Insurance Company. The Security Connecticut plan was then put into the ILIT.

From 1999 to 2002, Mr. Millstone’s business began experiencing cash flow problems. In order to help Mr. Millstone’s business, Mr. Address proposed that the Security Connecticut universal life insurance policy be surrendered and replaced by a new Phoenix universal life policy. The new Phoenix universal life policy, like the Security Connecticut universal life policy, was owned by the ILIT. In order for Mr. Millstone to borrow against the Phoenix universal life policy, his attorney dissolved the ILIT.

In 2005, Mr. Millstone and Mr. Address agreed that a universal life insurance policy should be purchased from the Hartford Life Insurance Company. At the same time, Mr. Millstone surrendered the remaining Phoenix whole life and universal insurance policies. In 2007, Mr. Millstone sought to buy a piece of real estate in New York, and sought to purchase the land with the loan proceeds from the Hartford universal life policy. Mr. Address informed Mr. Millstone that only about $50,000.00 in policies was available.

On August 26, 2008, Mr. Millstone and his employee David Caffee, whom Mr. Millstone provided life insurance obtained through Mr. Address’s brokerage, sued Mr. Address and Marvin A. Address & Associates, Inc. Plaintiffs’ claimed that Defendants’ actions led to a loss in cash value of the policies from the premature surrender of the Phoenix whole life policies; the loss of principal resulting from the cancellation of the 2005 Hartford universal life policy; and premiums paid from 2001 through 2009. Plaintiffs’ complaint sounded in negligence, breach of contract, negligent misrepresentation intentional misrepresentation, and constructive fraud relating to the purchase and surrender of the life insurance policies. At the conclusion of Plaintiffs’ case, the trial court granted Defendants’ motion to dismiss the intentional misrepresentation and constructive fraud claims. With respect to negligence and negligent misrepresentation, the jury found Mr. Millstone contributorily negligent. In total, the jury awarded Mr. Millstone damages of $958,807.50 for breach of express or implied contract. Defendants appealed.

The Court of Special Appeals found that Mr. Millstone lacked standing to pursue his claims. The court found that the ILIT executed in 2001 divested Mr. Millstone of any interest in the trust. Therefore, the policies at issue either belonged to the ILIT, or Mr. Millstone’s daughters, to whom the trust corpus was conveyed upon the ILIT’s dissolution. Because the jury’s verdict was based in significant part upon the purported losses caused by the premature surrender of policies not actually owned by Mr. Millstone, the court found that this issue alone would be sufficient to vacate the damages award and remand the case for a new trial on damages. However, because Mr. Millstone introduced evidence predominantly aimed at the Phoenix whole life insurance policies, there was insufficient evidence adduced at trial that Mr. Address breached either an express of implied contract with Mr. Millstone. Rather, Mr. Millstone’s actions in ordering his attorney to establish the ILIT and executing the required documentation demonstrated, as a matter of law, that he assented to the trust’s terms. Therefore, the Court of Special Appeals reversed the judgment entered by the jury, and remanded the case with instructions to enter judgment in favor of Defendants.