INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
No joy for surviving spouse
Alan Stroud bought a 20-year term life policy with a $60,000 death benefit from Ozark National Life Insurance Company agent Gene Spoon in 2002. Cathy L. Stroud, Alan’s wife, was the sole beneficiary named in the policy.
The policy allowed Alan to convert the term policy to a whole life policy before the end of the 20-year term. If he did not convert the policy, his premium would increase sharply to as much as a specified “guaranteed maximum” amount.
At the time of purchase, Ozark National provided Alan with a statement of policy cost and benefit information and a life insurance policy illustration, which he signed and received for his records.
About three years before the end of the 20-year term, Alan suffered a hemorrhagic stroke. The stroke affected his coordination, reading and, in Cathy’s words, his ability “to deal with numbers.” Doctors discovered that Alan needed heart surgery that would require travel to Houston, Texas. The trip and surgery were to occur as soon as Alan recovered sufficiently from his stroke.
While Alan was awaiting the opportunity to go to Houston, Stephen Guinn called the Strouds’ home. Cathy answered the phone. Guinn introduced himself as an agent for Ozark National. Guinn explained he was calling because the agent who sold the policy had not called for a while to visit with Alan about his term life policy.
Cathy asked whether the selling agent had retired. Guinn did not answer. Cathy told Guinn about Alan’s imminent surgery. She said they would need to meet as soon as possible if they needed to discuss the policy.
The next day Guinn went to the Stroud home and talked with Alan and Cathy. By the end of the meeting, Alan signed paperwork converting his term life policy with a death benefit of $60,000 to a whole life policy with a $30,000 death benefit. Alan again named Cathy as the sole beneficiary.
He made his first payment on the new policy, and Ozark National later confirmed the conversion and informed Alan that “[t]he benefits associated with the term coverage are now null and void.” It refunded the unearned premium on the term policy.
Alan went to Houston and had surgery but died a few months after the new whole life policy went into effect. After Ozark National paid the $30,000 benefit on the policy, Cathy wrote to the Ozark National legal department requesting payment of the $60,000 benefit she would have received if Alan had not converted the policy. Cathy claimed that Alan would not have changed the policy but for Guinn’s advice that was contrary to the Strouds’ best interests. Ozark National declined Cathy’s request.
Cathy sued Ozark National and Guinn for negligent misrepresentation and breach of fiduciary duty. Throughout the litigation, Ozark National asserted that Cathy was not the real party in interest to bring this lawsuit, meaning she was not the right person to bring this case.
It contended that, if a claim was to be made, it would need to be prosecuted by a representative of Alan’s estate or someone else on his behalf, because Alan was the person who contracted with Ozark National and owned the policy.
Ozark National asserted that Cathy lacked real party in interest status even though she was the sole beneficiary, because Ozark National contracted with Alan and thus she was not the policy owner, had no duty to pay the premiums, and lacked control over Alan’s choice of a beneficiary.
Despite knowing that Ozark National questioned her ability to assert claims on Alan’s behalf, Cathy failed to preserve her ability to do so. In fact, in her response to a summary judgement motion that Ozark National made, she denied that she was asserting any claims on Alan’s behalf.
So, neither Alan nor his estate were a party, and Cathy waived arguments that claims on Alan’s behalf were at issue. She thus did not preserve any claims on Alan’s behalf and no claims on his behalf were before the court.
Cathy instead argued that she was harmed by Guinn’s actions and that duties were owed to her (or to her and Alan jointly) and she thus had a right to proceed as a beneficiary under the contract between Alan and Ozark National.
Her lawsuit ended in the district court when the district court judge granted the insurer and its agent summary judgment. Cathy appealed to the court of appeals.
The appellate court concluded that the district judge appropriately entered summary judgment because Cathy failed to present evidence, even when considered in the light most favorable to her, that suggested that Guinn knew she entrusted him with protecting her interest.
Nothing shows that he assumed a special or peculiar “duty to act primarily for [her] benefit” rather than for his or Ozark National’s benefit.
Stroud v. Ozark National Life Insurance Company and Stephen I. Guinn—Supreme Court of the State of Kansas—No. 124,348—February 28, 2025.
