Estate of Susan Jacobs v. U.S. Bank National Association

Background

The Estate of Susan Jacobs sued to recover death benefits from two life-insurance policies that insured Susan Jacobs’s life. The Estate alleged that the policies were stranger-originated life-insurance policies, meaning policies obtained for investors who had no relationship with the insured and expected to receive the death benefits. The Trust Defendants disputed that characterization and argued that the policies initially had an insurable interest.

The policies were issued to Wisconsin trusts, and the relevant trust documents and loan agreements selected Wisconsin law. The insured resided in California, and the insurer that issued the policies was a New York company. After the insured died, the proceeds were paid to U.S. Bank as the securities intermediary and then to the Trust Defendants, which were the beneficial owners.

The amended complaint asserted two claims: recovery of the proceeds under Wisconsin’s insurable-interest statute and Wisconsin common law, and recovery of excess insurance proceeds under Wisconsin law. Both U.S. Bank and the Trust Defendants moved to dismiss all claims against them.

Choice of Law

The court found a meaningful conflict between California and Wisconsin law. Under Wisconsin law, a policy is not automatically invalid merely because the policyholder lacks an insurable interest; instead, a court may order the proceeds paid to someone who is equitably entitled to them. California law, as described by the court, permits only the insurer to raise an insurable-interest claim and does not provide for the same equitable analysis after the policy takes effect.

Applying Minnesota’s choice-of-law rules, the court concluded that Wisconsin had the stronger connection to the dispute. The trusts, trustee, investors, policy ownership, policy delivery, and relevant transactions were connected to Wisconsin, and the governing documents selected Wisconsin law. 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 adequately pleaded an equitable entitlement to the proceeds. The court declined to decide the statute-of-limitations issue at the motion-to-dismiss stage because the parties had not fully addressed it and discovery could provide additional facts.

The court held that the Estate sufficiently pleaded a claim under Wisconsin Statute Section 631.07(4) by alleging that stranger-originated policies had been taken out on the insured’s life and that the Trust Defendants received the proceeds. The court left for the summary-judgment stage 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 second claim would be considered at summary judgment.

The court therefore denied the Trust Defendants’ motion to dismiss.

U.S. Bank’s Motion

U.S. Bank argued that it was not a proper party because it acted only as a securities intermediary, that the Estate failed to state a claim under Wisconsin’s insurable-interest statute, and that the requested relief could not be granted because U.S. Bank no longer held the proceeds.

The court determined that U.S. Bank was a securities intermediary, that the proceeds were a financial asset, and that the Estate asserted an adverse claim to that asset. Under Wisconsin Statute Section 408.115, a securities intermediary that transfers a financial asset under an effective entitlement order generally is not liable to a person asserting an adverse claim unless one of three exceptions applies: the intermediary acted after receiving an injunction, colluded with the wrongdoer, or had notice that a security certificate was stolen.

The Estate did not allege facts supporting any of those exceptions. It also did not allege that U.S. Bank performed anything beyond a limited, ministerial role. In addition, U.S. Bank had transferred the proceeds to the Trust Defendants and therefore did not possess them.

The court concluded that all claims against U.S. Bank should be dismissed.

Disposition

The court granted U.S. Bank’s motion to dismiss. It dismissed the Estate’s claims against U.S. Bank with prejudice. The court denied the Trust Defendants’ motion to dismiss, leaving the Estate’s claims against them in the case. The court cautioned that surviving the motion-to-dismiss stage did not necessarily mean the Trust Defendants would lose or prevail at summary judgment.