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Stilwell v. American General Life Insurance Co.

June 14, 2007

MARGARET J. STILWELL, HALEY STILWELL, HEIDI STILWELL, JAMIE STILWELL, AND MEGAN STILWELL, PLAINTIFFS,
v.
AMERICAN GENERAL LIFE INSURANCE COMPANY, DEFENDANT/ THIRD PARTY PLAINTIFF,
v.
FIRST MID-ILLINOIS BANK & TRUST, TUSCOLA FURNITURE GROUP, L.L.C., AND JANKO FINANCIAL GROUP, L.L.C., THIRD PARTY DEFENDANTS.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

OPINION

On February 15, 2006, Plaintiffs Margaret J. Stilwell, Haley Stilwell, Heidi Stilwell, Jamie Stilwell, and Megan Stilwell filed their Amended Complaint (#16) against Defendant American General Life Insurance Company. American General had removed this case from the Circuit Court of Coles County to this court on July 20, 2005. Plaintiffs allege American General breached the terms of a life insurance policy it issued to James E. Stilwell by making payments from the proceeds of the policy to Tuscola Furniture Group (TFG) and First Mid-Illinois Bank & Trust (FMIB) in excess of the amounts which had been assigned to them under the policy. American General filed a Third Party Complaint (#14) against TFG, FMIB, and Janko Financial Group (Janko) seeking indemnification from these Third Party Defendants if American General is found liable under Plaintiffs' Amended Complaint. FMIB also filed a Cross Caim for contribution against TFG and Janko (#47) in the event it is found liable under American General's Third Party Complaint.

On March 28, 2007, Plaintiffs filed a Motion for Summary Judgment (#80), and American General filed its own Motion for Summary Judgment on Plaintiffs' Claim (#81) on April 2, 2007.

American General also filed a Motion for Summary Judgment on its Third-Party Claims (#82) on April 2, 2007. FMIB also filed a Motion for Summary Judgment on American General's Third Party Complaint and its Cross Claim against Janko and TFG (#84) on April 2, 2007. Finally, TFG and Janko filed a Motion for Summary Judgment on American General's Third Party Complaint (#85) on April 2, 2007. For the reasons that follow, Plaintiffs' Motion for Summary Judgment is DENIED, American General's Motion for Summary Judgment on Plaintiffs' Claim is GRANTED, American General's Motion for Summary Judgment on its Third-Party Claims is denied as MOOT, FMIB's Motion for Summary Judgment is denied as MOOT, and TFG and Janko's Motion for Summary Judgment is denied as MOOT.

FACTS

On October 27, 1998, Old Line Life Insurance Company of America, a subsidiary of American General, issued a life insurance policy insuring James Stilwell in the amount of $4,000,000. It also issued a separate life insurance policy insuring James in the amount of $1,000,000. Margaret was a 60% beneficiary under both policies. The remaining Plaintiffs were also beneficiaries under the policies. The $4 million policy allowed the policyholder to make third party assignments. On this issue, the policy contained the following provision:

Assignment

No assignment of this policy will be binding on us until filed with us in writing and recorded by us. No assignment will affect any payment we made before we recorded the assignment. We will not be responsible for the validity of an assignment.

All rights of the owner and any revocable beneficiary are subject to the rights of any assignee on record with us.

James was the president and owner of Amishland Country Village (ACV). On April 16, 1999, Janko and ACV entered into a Consignment Agreement to assist ACV in financing its retail furniture business. Pursuant to the Consignment Agreement, James and Margaret were required to personally guarantee ACV's debt and were required to maintain life insurance protection for the benefit of Janko and its lender. With regard to the life insurance protection, the Consignment Agreement stated:

Life Insurance: ACV will maintain life insurance and pay the premiums thereon on JIM STILWELL in the amount of at least $2,000,000.00 or an amount equal to the Inventory Cap, if higher, with JANKO and Bank named as beneficiary. . . . The life insurance proceeds shall be used first to pay Bank for the amount JANKO owes Bank in order to release its lien on the Amish furniture, then to JANKO for all Amish furniture owned by JANKO at average wholesale cost, less a credit for the amount paid Bank, and any other amounts owed to JANKO under this agreement and any excess life insurance proceeds shall be paid to the Estate of James Stilwell or ACV. Upon payment, JANKO will convey title to as much of the Amish furniture free and clear of all liens, as was paid for by the insurance proceeds, to ACV.

Thereafter, Janko received two separate assignments under the $4 million policy totaling $2 million from ACV. The two assignments ACV provided stated:

F. The Insurer is hereby authorized to recognize the Assignee's claims to rights hereunder without investigating the reason for any action taken by the Assignee, or the validity of the amount of the Liabilities or the existence of any default therein, or the filing of any notice under Paragraph E(2) above or otherwise, or the application to be made by the Assignee of any amounts to be paid to the Assignee. The sole signature of the Assignee shall be sufficient for the exercise of any rights under the Policy assigned hereby and the sole receipt of the Assignee for any sums received shall be a full discharge and release therefore to the Insurer. Checks for all or any part of the sums payable under the Policy and assigned therein shall be drawn to the exclusive order of the Assignee if, when, and in such amounts as may be requested by the Assignee.

American General verified receipt of both of these assignments.

The principals of Janko later created an entity called Tuscola Furniture Group (TFG). Janko was the majority shareholder of TFG. On November 16, 2000, Janko and TFG entered into an Assignment and Assumption agreement which transferred and assigned all of Janko's rights and obligations under the Consignment Agreement to TFG. The Assignment and Assumption Agreement included Janko's assignment to TFG of "[a]ny and all Contracts and other documents including insurance policies, relating to and incurred in connection with the acquisition and consignment of Amish Furniture pursuant to the Consignment Agreement . . . ."

On November 17, 2000, ACV and TFG entered into a new Consignment Agreement. The terms of the new 2000 Consignment Agreement were very similar to the terms of the 1999 Consignment Agreement entered into between Janko and ACV. Under the new Consignment Agreement, James and Margaret were still required to guarantee ACV's debt to TFG and ACV was required to maintain life insurance in the amount of $1,250,000 or an amount equal to the inventory cap with TFG and FMIB named as beneficiaries. At the closing of the 2000 financing transaction, James and Margaret did not present evidence of a new joint life insurance policy or an assignment of interest under the existing $4 million policy. TFG nevertheless agreed to close the transaction.

TFG requested that James and Margaret provide it with documentation so it could notify American General that Janko had assigned its rights under the $4 million policy to TFG as a result of the Assignment and Assumption Agreement. On November 21, 2000, Larry Bianchi of Janko and TFG received from the Stilwells' insurance agent a partially completed American General assignment form. The portion which had been completed was titled ...


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