Estate of John C. Breslin v. U.S. Bank National Association

Background

The Estate of John C. Breslin, through Personal Representative Elaine Breslin, sought the death benefits from a life-insurance policy that insured John C. Breslin’s life. The Estate alleged that the policy was a stranger-originated life insurance policy, meaning that investors without a relationship to the insured ultimately acquired the policy and expected to receive the death benefits.

In 2006, the insured created two Wisconsin trusts. The application for the policy requested $3.65 million in coverage, identified the Sub-Trust as the owner and beneficiary, and was submitted to AXA Equitable Life Insurance Company. The policy was issued in 2007. The insured resided in Colorado, while the trusts, trustee, and transactions involved in creating and transferring the policy were connected to Wisconsin. The trust documents and loan agreements contained Wisconsin choice-of-law provisions.

After several transfers, the Trust Defendants purchased the interest in the policy in 2014. The insured died on March 17, 2023. The Estate alleged that U.S. Bank, acting as a securities intermediary, received the death benefits and paid them to the Trust Defendants.

Claims and Motions

The amended complaint asserted two claims: recovery of stranger-originated life-insurance proceeds under Wisconsin’s insurable-interest statute and Wisconsin common law, and recovery of excess insurance proceeds under Albrent v. Spencer. U.S. Bank and the Trust Defendants each moved to dismiss all claims against them under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim.

Choice of Law

The court found a material conflict between Colorado and Wisconsin law. Under Wisconsin law, a policy is not automatically invalid merely because the policyholder lacks an insurable interest. Instead, Wisconsin Statute section 631.07(4) allows a court to order payment to someone else who is equitably entitled to the proceeds. Under the Colorado common-law rule discussed by the court, a party challenging the insurable interest generally could not raise the issue if that party was not the insurer; the court also concluded that Colorado’s later statute did not apply retroactively to this 2007 policy.

Applying Minnesota’s choice-of-law rules, the court concluded that Wisconsin had the stronger connection to the dispute. The policy involved Wisconsin trusts and entities, was issued and delivered to a Wisconsin trust, and arose from transactions governed by Wisconsin choice-of-law provisions. The court therefore applied Wisconsin law.

Trust Defendants’ Motion

The Trust Defendants argued that the Estate’s claims were untimely and that the Estate had not alleged facts showing an equitable entitlement to the proceeds. The court declined to decide the statute-of-limitations issue at the motion-to-dismiss stage because the issue had not been fully addressed and discovery could provide relevant information.

The court held that the Estate sufficiently pleaded a claim under Wisconsin Statute section 631.07(4). The Estate alleged that a stranger-originated policy was taken out on the insured’s life and that the Trust Defendants received the proceeds. The court left for summary judgment the question whether those allegations alone were enough or whether the Estate would need to prove additional equitable considerations. The court also stated that the viability of the Estate’s claim under Albrent v. Spencer would be considered at summary judgment.

The Trust Defendants’ motion to dismiss was denied.

U.S. Bank’s Motion

U.S. Bank argued that it was not a proper party as a securities intermediary, that the Estate had not stated a claim under section 631.07(4), and that the Estate’s alternative relief could not be awarded against U.S. Bank because common-law theories had been superseded and U.S. Bank no longer held the proceeds.

The court applied Wisconsin Statute section 408.115, which generally protects a securities intermediary that transfers a financial asset under an effective entitlement order unless one of three exceptions applies: the intermediary acted after receiving an injunction, acted in collusion with the wrongdoer, or had notice of an adverse claim involving a stolen security certificate.

The court concluded that U.S. Bank was a securities intermediary, that the proceeds were a financial asset, and that the Estate asserted an adverse claim. But the Estate had not alleged facts supporting any of the three statutory exceptions. The Estate also had not alleged that U.S. Bank performed anything beyond a limited, ministerial role. Because U.S. Bank had paid the proceeds to the Trust Defendants and did not possess them, the court further concluded that U.S. Bank could not be ordered to pay the proceeds to someone else under section 631.07(4).

Disposition

The court granted U.S. Bank’s motion to dismiss. It denied the Trust Defendants’ motion to dismiss. The Estate’s claims were dismissed with prejudice only insofar as they were asserted against U.S. Bank. The claims against the Trust Defendants remained pending, subject to later proceedings including summary judgment.