Anne Mangano v. Jackson National Life Insurance Company

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-11685
Non-Argument Calendar
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D.C. Docket No. 8:14-cv-02916-SCB-JSS
ANNE MANGANO,
an individual,
Plaintiff - Counter Defendant -Appellant,
versus
JACKSON NATIONAL LIFE INSURANCE COMPANY,
a Michigan corporation,
Defendant - Counter Claimant-Appellee,
BARBARA MANGANO, et al.,
Counter Defendant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(February 5, 2018)
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Before TJOFLAT and ROSENBAUM, Circuit Judges, and REEVES,* District
Judge.
ROSENBAUM, Circuit Judge:
Appellee Jackson National Life Insurance Company had a dilemma: After
her husband Norman Mangano died, Appellant Anne Mangano sought payment on
Norman’s life-insurance policies. But Anne1 was not listed as a beneficiary on
those policies in Jackson’s records. Instead, Norman’s former wife Barbara
Mangano was the identified beneficiary.
At this point, Jackson had a decision to make. What, if anything, would it
do to resolve this inconsistency? As things turned out, rather than taking
meaningful steps to sort out the correct beneficiary, Jackson used the
circumstances to stall payout for nine months. Only after Anne filed suit did
Jackson eventually concede that Anne was entitled to payment.
After Jackson finally paid, mooting Anne’s initial lawsuit, Anne sought
payment of attorney’s fees and interest accrued during the nine-month delay. The
district court denied both items. We now vacate that decision and remand for
further proceedings.
* The Honorable Danny C. Reeves, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
1 This case involves three people whose last name is Mangano. To avoid confusion, we
refer to each of the Manganos by her or his first name.
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I.
Between 1985 and 1988, Jackson issued three life-insurance policies to
Norman Mangano (“the Policies”). These Policies stated that Jackson would pay
the face amount of the policy “to the designated Beneficiary upon due proof of the
death of the Insured and not later than two months after receipt of such proof.”
Collectively, the Policies provided for the payment of $150,000 to a designated
beneficiary.
At the time the Policies were issued, Norman designated his then-wife
Barbara as his beneficiary, a fact reflected in Jackson’s internal records. Each
policy contained the same provision permitting the policyholder to change the
beneficiary “by filing at the Home Office of the Company an acceptable written
request,” and any change was to “take effect only when recorded by the Company
at its Home Office.”
Norman and Barbara’s marriage did not last long. They divorced on May
21, 1990, and their Judgment for Dissolution of Marriage, entered in DuPage
County, Illinois, incorporated a Property Settlement Agreement. In part, it
provided for Norman to have “as his sole and exclusive property,” among other
things, the Policies. Additionally, the Property Settlement Agreement included the
following general release between Norman and Barbara:
That the parties hereby mutually release and relinquish to
each other . . . absolutely, entirely and irrevocably from
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all interest, rights, claims, title, demands and torts of any
kind, which may now exist or which may hereafter
attach, arising in any manner whatsoever in, because or
on account of any property, real, personal or mixed,
which each may now own or at anytime hereafter hold or
acquire wheresoever situated, whether vested or
contingent, in possession or expectancy, in remainder,
revision, or otherwise, except as provided in this
Agreement.
The Property Settlement Agreement also provided for Norman to obtain a new,
separate life-insurance policy benefitting Barbara—by that time his ex-spouse—
with a death benefit of $50,000.
Three years after Norman and Barbara’s marriage ended, on May 9, 1993,
Norman married Anne, the Plaintiff-Appellant in this case. Through his financial
advisors, Norman sent Jackson a signed Designation of Beneficiary form dated
July 6, 1993, designating Anne as his new beneficiary under the Policies. The
parties dispute whether Jackson received the forms when they were originally sent,
but it is undisputed that Jackson never recorded a change of beneficiary for
Norman’s life-insurance policies.2 Barbara remained the designated beneficiary on
Jackson’s records.
2 Although Jackson claimed not to have received the Designation of Beneficiary form
changing the beneficiary to Anne, Anne’s counsel stated in later correspondence with Jackson
that Norman’s financial advisor sent the form together in the same mailing along with an
application for life insurance for Anne. Like Norman’s Designation of Beneficiary form, that
life-insurance application was dated July 6, 1993, and it resulted in the issuance of a policy for
Anne. Jackson disputes that the documents were sent in the same mailing.
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Norman passed away on May 24, 2014. Anne called to notify Jackson on
June 10. As we have noted, though, at the time Anne called, Barbara remained the
designated beneficiary in Jackson’s system. One week after Anne called, on June
17, Jackson nonetheless mailed Anne a letter acknowledging Norman’s death,
explaining the process for filing a claim, and enclosing a claim form. The letter
advised Anne that Barbara was the designated beneficiary on record but still
instructed Anne that “[i]n order to process the claim promptly,” she should return
the claim form along with a “Final Certified Death Certificate.” The letter also
asked Anne to provide contact information for Barbara. Jackson noted in its
internal system that a claim by Anne had been initiated.
On June 26, 2014, Anne’s financial advisor (the same outfit that submitted
Norman’s Designation of Beneficiary form in 1993) sent Jackson a letter on
Anne’s behalf demanding payment to her under the Policies. Enclosed with the
letter was a copy of the Dissolution of Marriage, Norman’s signed July 6, 1993,
Designation of Beneficiary, and a copy of the transmittal letter that Norman and
Anne’s financial advisors had sent with the original Designation of Beneficiary
form. The letter advised as follows: “Please check all your files on this matter. It
was the intent of the deceased to have the proceeds of these three life insurance
policies go to his current spouse, not to his ex-wife.”
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Jackson sent Anne a response letter on June 30, 2014. That letter stated that
Anne’s claim had been “referred to [Jackson’s] legal department, as the beneficiary
information in [sic] file needs to be reviewed.” Jackson cautioned in the letter that
the review could “take anywhere up to 4 weeks.”
Jackson then mailed Anne another letter on July 19, 2014, stating that it had
not yet received the “documents necessary for consideration of the claim,” and it
again requested the claim form and a final certified death certificate. Anne called
Jackson’s claims department on July 28, 2014, to inquire about these letters. A
Jackson representative advised her that the letters reminding her to submit the
claim form and death certificate were simply standard correspondence that Jackson
was legally required to send out every 30 days; her claim, the representative told
her, was already being processed, and Anne should “ignore” the letters and their
requests for the time being.
Two days later, on July 30, lawyers representing Anne wrote to Jackson
demanding payment under the Policies. They pointed to the fact that Norman and
Anne’s financial advisors had independently confirmed that Norman had changed
the beneficiary, and they identified a provision of Florida law under which an ex-
spouse’s designation as a beneficiary becomes void when the marriage ends.
Anne heard nothing further until August 27, 2014. That day, Jackson mailed
Anne another letter that, like the July 19, 2014, letter that Jackson’s representative
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told Anne to “ignore,” stated that Jackson had not yet received her claim form or
certified death certificate.
On September 4, 2014, almost three months after Jackson first advised Anne
that Barbara was listed as the beneficiary in Jackson’s records, and more than two
months after Anne sent Jackson a copy of the 1993 Designation of Beneficiary
form, Jackson called Barbara for the first time. Jackson later reported that during
their phone conversation, Barbara expressly refused to waive her legal rights to the
Policies’ proceeds, though Jackson did not reveal what specifically she said.
Following this conversation, Jackson mailed Barbara three separate letters
on September 16, September 17, and October 25, 2014, each explaining the
process for filing a claim. Before sending Barbara anything, however, Jackson
sent Anne a letter dated September 15, 2014, advising that there were “adverse
claims and/or a dispute regarding the Policies,” and that as a result, Jackson would
“be unable to make payment without the consent of all parties.” The letter
instructed Anne to “advise [Jackson] when the parties have resolved their dispute,”
but that if they could not do so “within a reasonable time, Jackson may choose to
file an interpleader action, and may seek to recover [its] fees and costs for doing so
from the Policy proceeds.”
In response, on October 17, 2014, Anne made one final written demand on
Jackson for payment of the Policies’ full proceeds. Attached to the demand was a
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copy—though not a certified copy—of Norman’s death certificate. Jackson never
responded to this demand.
Barbara, in the meantime, still had not filed a claim or submitted to Jackson
any written request for the proceeds. Hearing nothing from Jackson, on October
27, 2014, Anne filed a complaint against Jackson in Florida state court to recover
the Policies’ proceeds.
Jackson again spoke with Barbara on the phone the very next day, October
28, though the record does not specify who called whom.3 According to Jackson,
Barbara repeated her contention that she believed she was entitled to something
from Norman’s life-insurance policies. But Jackson took no further steps to
investigate.
Instead, Jackson waited nearly a month after Anne filed her complaint, and
then on November 21, 2014, removed Anne’s lawsuit to federal court. At that
time, along with an answer, Jackson filed a Counterclaim for Interpleader. The
Counterclaim named Barbara and Anne as defendants and claimed that Jackson
risked exposure to double litigation and double liability as a result of adverse
claims.
3 The district court found that Jackson initiated the September 4 phone call but made no
finding as to which party called on October 28. The record leaves it unclear. These two calls are
the only correspondence between Jackson and Barbara reflected in the record.
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Although the Clerk of the Court issued a summons for Barbara on
November 24, Jackson did not actually serve her for another six weeks—on
January 7, 2015. Under the Federal Rules of Civil Procedure, then, Barbara had
until January 28 to file a response. She never did so.
Yet Jackson never sought entry of a default judgment against Barbara.
Rather, on January 27—three months after Anne filed her lawsuit and seven
months after Anne notified Jackson of her original claim—Jackson filed a motion
seeking to deposit the Policies’ proceeds with the court and to receive an order of
interpleader dismissing it from the case.
On February 4, Anne responded in opposition to Jackson’s motion and took
the initiative herself to seek a default judgment against Barbara. Initially, the Clerk
of Court issued an entry of default against Barbara on February 5, 2015. But on
February 9, 2015, Jackson notified the court that Barbara had formally waived her
rights to any benefits from the Policies via a written waiver dated almost two
weeks earlier, on January 29, 2015, rendering the interpleader action moot.
Jackson stated that it had received the waiver on February 3, 2015.
Despite these facts, it took Jackson until February 20, 2015, to even make an
offer to tender payment to Anne,4 and it took the company until March 4, 2015—
4 By February 24, 2015 (Tuesday), counsel for Anne had provided Jackson with all
information it requested in the February 20, 2015 (Friday), letter to make payment. On February
26, 2015, Jackson informed counsel for Anne that it needed Anne to execute the Directive to Pay
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more than a month from Barbara’s waiver—to pay Anne the full proceeds of the
Policies and seek voluntary dismissal of its interpleader counterclaim. By that
time, nine months had passed since Anne initially sought the proceeds.
And although Anne provided a copy of the 1993 Designation of Beneficiary
form, Anne’s financial advisor independently verified the legitimacy of the form,
no evidence existed undermining its validity, and Barbara waived any claim to the
proceeds, Jackson maintained that Anne “was not the named beneficiary on the
policies.” Instead, Jackson stated that Anne “was paid the policy proceeds because
the Estate of Norman Mangano was the default beneficiary and she was sole heir to
the Estate.”5
Upon Jackson’s motion, the district court dismissed Jackson’s claim with
prejudice and reserved jurisdiction to determine Anne’s entitlement to attorney’s
fees and costs. Anne then filed an Amended Complaint on April 30, 2015, and
both she and Jackson filed motions for summary judgment on the issues of
attorney’s fees and interest.
Trust Account form if she wanted Jackson to pay the proceeds to her counsel and not directly to
her. That same day, Anne executed the required form.
5 Jackson points to a specific provision in the Policies stating that “[i]f the interest of all
designated Beneficiaries has ended, any proceeds will be payable to the estate or legal successors
of the Insured.” When Barbara withdrew her claim, Jackson argues, “Jackson asked Anne
Mangano to provide a copy of Mr. Mangano’s will, which she did. The will demonstrated that
Anne Mangano was substantially the sole beneficiary of Mr. Mangano’s estate. Thus, Jackson
provided payment to Anne Mangano—as the sole beneficiary of Mr. Mangano’s estate—not as
the beneficiary under the Policies.”
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The district court entered summary judgment in Jackson’s favor as to
attorney’s fees and interest but entered final judgment for Anne as to her claim for
benefits under the life-insurance policies. Anne now appeals the denial of
attorney’s fees and interest.
II.
In a diversity case like this one, we apply federal law to procedure and state
law to substantive matters. See Horowitch v. Diamond Aircraft Indus., Inc., 645
F.3d 1254, 1257 (11th Cir. 2011) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64
(1938)). The district court below applied the substantive law of Illinois, where
Norman originally entered into his life-insurance agreement with Jackson. On
appeal, the parties do not dispute that Illinois law governs the substantive issues in
this case. Anne seeks attorney’s fees under Section 155 of the Illinois Insurance
Code, and she seeks interest under Chapter 215, Section 5/224 (1)(l) of the Illinois
Compiled Statutes.
III.
We review a grant of summary judgment de novo, considering the facts in
the light most favorable to the non-moving party. United States ex rel. Phalp v.
Lincare Holdings, Inc., 857 F.3d 1148, 1153 (11th Cir. 2017).
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IV.
A.
Anne first challenges the district court’s determination that she is not entitled
to attorney’s fees.
Section 155 of the Illinois Insurance Code provides that a court “may
award” an insured attorney’s fees against an insurer when, among other
circumstances, the insurer engages in “unreasonable delay in settling a claim, and
it appears to the court that such action or delay is vexatious and unreasonable.”
215 ILCS 5/155(1). While the “may award” language renders the court’s ultimate
decision one of discretion, the Illinois Supreme Court has held that where, as here,
facts are undisputed, whether an insurer’s conduct is “vexatious and unreasonable”
presents a question of law. See Employers Ins. Of Wausau v. Ehlco Liquidating
Tr., 708 N.E.2d 1122, 1139 (Ill. 1999) (holding that the “undisputed facts compel
the legal conclusion that Wausau’s refusal to defend the Wyoming suit was
vexatious and unreasonable as a matter of law”). For this reason, before we may
evaluate whether the district court abused its discretion in declining to award fees,
we must consider whether, as a matter of law, the district court correctly applied
the “vexatious and unreasonable” standard to Jackson’s conduct.
We conclude that it did not. For that reason, we must vacate the award of
summary judgment denying fees and remand to allow the district court to consider
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whether to exercise its discretion to award fees, accounting for the fact that
Jackson’s delay was “vexatious and unreasonable” as a matter of law.
The Illinois legislature enacted Section 155 “to provide a remedy to an
insured who encounters unnecessary difficulties when an insurer withholds policy
benefits.” McGee v. State Farm Fire & Cas. Co., 734 N.E.2d 144, 151 (Ill. App.
Ct. 2000) (citation and internal quotation marks omitted). In passing Section 155,
the Illinois legislature “intended to make suits by policyholders economically
feasible and to punish insurers.” Cramer v. Ins. Exch. Agency, 675 N.E.2d 897,
901 (Ill. 1996).
Under Section 155, “vexatious” means “without reasonable or probable
cause or excuse.” Norman v. Am. Nat’l Fire Ins. Co., 555 N.E.2d 1087, 1110 (Ill.
App. Ct. 1990) (citing Black’s Law Dictionary 1403 (5th ed. 1979)). An insurer’s
actions are neither vexatious nor unreasonable where “(1) there is a bona fide
dispute concerning the scope and application of insurance coverage; (2) the insurer
asserts a legitimate policy defense; (3) the claim presents a genuine legal or factual
issue regarding coverage; or (4) the insurer takes a reasonable legal position on an
unsettled issue of law.” TKK USA, Inc. v. Safety Nat’l Cas. Corp., 727 F.3d 782,
793 (7th Cir. 2013) (quoting Citizens First Nat’l Bank of Princeton v. Cincinnati
Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000)) (internal quotation marks omitted).
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Ultimately, though, whether conduct rises to the level of “vexatious and
unreasonable” under Section 155 depends on the totality of the circumstances. Id.
(citing Statewide Ins. Co. v. Houston Gen. Ins. Co., 920 N.E.2d 611, 624 (Ill. App.
Ct. 2009)). Factors to consider include the insurer’s attitude, whether the insured
was forced to sue to recover, and whether the insured was deprived of the use of
her property. Valdovinos v. Gallant Ins. Co., 733 N.E.2d 886, 889 (Ill. App. Ct.
2000). “Neither the length of time, the amount of money involved, nor any other
single factor taken by itself is dispositive.” Rosalind Franklin Univ. of Med. & Sci.
v. Lexington Ins. Co., 8 N.E.3d 20, 47 (Ill. App. Ct. 2014). Rather, “it is the
attitude of the defendant which must be examined.” Id.
The district court here concluded that while Jackson “negligently failed to
record the change of beneficiary form,” there was “no evidence to suggest the
failure was done in bad faith,” and Jackson’s delay was not vexatious and
unreasonable because the company was investigating “the conflict between
[Anne’s] claim that she was the beneficiary and Barbara Mangano as being the
beneficiary designated by the Policies in [Jackson’s] file.” As we explain below,
that conclusion was incorrect as a matter of law. See Ehlco 708 N.E.2d at 1139.
Rather, the record here unambiguously reflects that Jackson’s was an
attitude of delay, deter, and defer. True, at some points, Jackson had grounds for
conducting a reasonable investigation of Barbara’s alleged claim. But those
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grounds do not justify the nine-month delay from Anne’s claim to Jackson’s
payment since Jackson in fact performed virtually no investigation of Anne’s claim
despite maintaining that it harbored bona fide doubts about the claim’s legitimacy.
What’s more, Jackson did nearly nothing to investigate Barbara’s alleged
competing claim—and conducted the modest investigation it did undertake only
after much delay. When we view the entirety of Jackson’s actions, we see only
one way to reasonably interpret Jackson’s repeated and unexplained delays of the
process: as a way to draw out payment as long as possible. Indeed, the record
reflects that Jackson used Barbara’s oral claim of entitlement—without any
investigation—as an excuse to delay payout of the insurance proceeds.
For starters, the Policies promised payment “not later than two months after
receipt” of “due proof of the death of the Insured.” Yet even though Jackson knew
that its records reflected Barbara as the beneficiary as early as June 10, 2014, it
wasn’t until nearly three months later that Jackson even contacted Barbara for the
first time. We find this even more troubling since Jackson advised Anne in its
June 30, 2014, letter that her claim was being reviewed by its legal department in a
review that “can take anywhere up to 4 weeks.” But four weeks later, as we have
noted, Jackson still had not so much as contacted Barbara.6 Once Jackson finally
6 While Anne never submitted an official claim form, Jackson very clearly treated her
written and oral requests for payment as a claim, even noting in its internal records that on June
10, 2014, she called “to start the [claims] process.” Anne was also told by a Jackson
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did contact Barbara on September 4, 2014, it declared “adverse claims and/or a
dispute” even though Barbara had not yet been invited to file a claim, let alone
actually done so.
Next, though Anne filed her lawsuit against Jackson on October 27, 2014,
and Jackson had suggested as early as September 15 that it might file an
interpleader action itself, Jackson waited another twenty-five days before it
actually filed its interpleader counterclaim. And it did not serve that on Barbara
for still another six weeks.
Then when Barbara failed to respond, Jackson did not seek a default
judgment against her. Instead, it waited for Anne to do that.
Jackson finally did receive a claim waiver from Barbara on February 3,
2015. But conspicuously absent from the record is any information explaining
why it took so long for Jackson to obtain that waiver from Barbara—or even any
information about the process that resulted in the waiver more than seven months
after Jackson was made aware that Barbara’s claim was suspect at best.
And though Jackson had the waiver in hand, it still did not seek a default
judgment. Instead, it waited until February 9 to let the district court know about
the waiver, which rendered the interpleader action moot. Less explicable yet,
representative over the phone that the company had “set up a claim” as of July 28, 2014, and was
discouraged during that call from doing anything further at that time to establish a claim.
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Jackson delayed for more than a month after receipt of the February 3 waiver
before paying Barbara the insurance proceeds, even though no competing claim
even arguably existed at that point.
Jackson’s deferential treatment of Barbara’s conclusory oral claim contrasts
sharply with its cavalier treatment of Anne’s multiple written demands, which
Anne buttressed with evidence. Unlike Barbara, who made nothing more than oral
assertions despite Jackson’s repeated invitations to submit a written claim, Anne
provided Jackson with (1) a copy of the fully executed 1993 Designation of
Beneficiary form, which was signed on July 6, 1993, by Norman and his financial
advisor as a witness; (2) a copy of the 1993 transmittal letter to Jackson sent by the
same financial advising firm that enclosed the 1993 Designation of Beneficiary
form; (3) a letter noting that an application for life insurance for Anne, dated July
6, 1993 (the same date as the Designation of Beneficiary form), was also sent in
with the 1993 Designation of Beneficiary form, and that Jackson had issued a
resulting policy on Anne; and (4) a copy of the 1990 Judgment for Dissolution of
Marriage between Norman and Barbara, which expressly addressed the Policies
and stated that Norman was to have them “as his sole and exclusive property” to
the exclusion of Barbara and which identified only a separate life-insurance policy
for Barbara that was to be purchased as part of the marital settlement.
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And while Jackson effectively recognized the existence of Barbara’s
conclusory oral claim without any investigation, Jackson appears not to have even
considered any of the evidence that Anne submitted that showed that she was the
rightful beneficiary. Even when Jackson finally settled the proceeds demand, as
we have noted, Jackson continued to insist it paid Anne the proceeds only as the
sole beneficiary of Norman’s estate, not as Norman’s beneficiary. Yet none of
Jackson’s reasons for refusing to make payment to Anne stand up to scrutiny.
First, Jackson takes issue with Norman’s Designation of Beneficiary form.
Specifically, Jackson asserts that Norman’s 1993 request was sent to Jackson’s
“satellite office” rather than its “Home Office,” it was never signed by a Jackson
recording officer upon receipt, and it was never entered into Jackson’s records.
Jackson also complains that Norman and Anne failed to follow up on Norman’s
1993 request.
But on this record, Norman’s actions reflect his substantial compliance with
the Policies’ terms for changing a beneficiary. And that is all that was necessary.
See Travelers Ins. Co. v. Smith, 435 N.E.2d 1188, 1190 (Ill. App. Ct. 1982)
(collecting cases standing for the proposition that an insured need only
“substantially comply” with the policy’s terms to change a beneficiary). Whether
or not Jackson signed the form or entered the document into its records does not
bear in any way on whether Norman substantially complied, and so these facts are
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irrelevant. As for what the Policies required Norman to do, they stated only that an
“acceptable written request” be submitted to Jackson’s “Home Office.” For this
reason, Norman and Anne’s failure to follow up is likewise beside the point, since
nothing in the Policies required that.
So that leaves only Jackson’s complaint that Norman sent the request to its
“satellite office” instead of its “Home Office.” But while Norman sent the form to
the wrong Jackson office, he nonetheless sent the form to Jackson. And
significantly, Jackson takes no issue with how the form was actually prepared, any
aspect of the form itself, or even the legitimacy of the form. Jackson also “does
not dispute that the . . . form was sent, and that changing the beneficiary may have
been [Norman’s intent].” These circumstances constitute sufficient compliance on
Norman’s part. Again, that is enough under Illinois law for Norman to have
effectuated a change of beneficiary from Barbara to Anne in 1993. See Travelers
Ins. Co., 435 N.E.2d at 1190. Yet to this day—and without any evidence
undermining the legitimacy of the 1993 form—Jackson refuses to acknowledge
Anne as the designated beneficiary.
Jackson also justifies its failure to pay Anne by asserting that the district
court correctly concluded a bona fide dispute existed from the beginning, which
would preclude a finding of vexatiousness under Illinois law. But we have
explained why the record does not support this conclusion: while Jackson had a
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basis for believing a dispute to exist at some point, Barbara’s unsubstantiated oral
claims alone simply do not justify the nine months Jackson took to pay Anne the
proceeds, since Jackson did nothing effective to actually investigate Barbara’s
claim. Indeed, Jackson told Anne a dispute existed before it had even launched an
investigation.
If Jackson truly believed there was a dispute, it could have filed an
interpleader action immediately rather than waiting five months for Anne to sue
first. See Korte Constr., 750 N.E.2d at 772 (rejecting insurer’s contention that
bona fide insurance coverage dispute existed, noting that insurer “should have
raised these disputes in a declaratory judgment action . . . instead of simply
denying its duty to defend, abandoning its insured, and forcing the insured to file a
declaratory judgment action”). Jackson’s own actions belie its contention that a
bona fide dispute really existed.
Jackson likewise points to the district court’s conclusion that, “[h]ad
Defendant immediately paid Plaintiff the proceeds of the Policies, it reasonably
believed it would expose itself to potential double liability,” to justify its failure to
pay Anne. But again, while a fear of double liability might have been reasonable
immediately after Anne first contacted Jackson, that does not justify Jackson’s
three-month delay in contacting Barbara for the first time. Nor does it make all
fear of double liability reasonable ever thereafter.
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Once Jackson had ample evidence Norman had substantially complied in
changing his beneficiary, and once it was clear Barbara was neither coming
forward with any evidence to the contrary nor even filing a written claim in
response to Jackson’s repeated invitations for her to do so, any fear of double
liability was no longer supported by the facts. If Barbara had relied on being listed
as the designated beneficiary initially, perhaps Jackson might have faced liability
on other grounds, such as negligence. But a court could not have found Barbara to
be the rightful beneficiary under the Policies on that basis once Norman’s 1993
form and Barbara’s 1993 release came to light unrebutted. A fear of double
liability under the Policies themselves was unreasonable from that point on. See
Indianapolis Colts v. Mayor and City Council of Baltimore, 741 F.2d 954, 958 (7th
Cir. 1984) (no reasonable fear of double liability where agreement provision
released interpleader plaintiff from liability if another valid claimant emerged).
And once again, had Jackson truly feared double liability, nothing prevented it
from filing an interpleader action itself instead of waiting until Anne sued Jackson.
Jackson also contends that it never threatened not to pay, but merely
“declined to do so until it was determined who the rightful beneficiary was under
the Policies.” As we have already discussed, however, that did not justify any and
all delays. Nor did it justify claiming that a dispute existed before even beginning
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to investigate. Had Anne been unable to file suit, she may well never have been
paid.
Of course, we cannot know precisely what motivated Jackson to delay
payout so persistently. But there is no doubt that the net result of the delay allowed
Jackson the opportunity to gain interest on the proceeds for nine months while it
dragged out resolution of Anne’s claim. And if Anne had found the process too
frustrating or expensive to complete, Jackson would have avoided payout
altogether.
In the end Jackson has offered no explanation as to why it waited so long to
investigate the questions raised by Anne’s claim, let alone to pay out the Policies’
proceeds once it had ample evidence at its disposal. Looking as we must at the
totality of the circumstances, and based on the record as a whole, the record
compels the conclusion that Jackson followed a pattern from the beginning to
delay payment. As a matter of law, its conduct was vexatious and unreasonable.
See Estate of Price v. Universal Cas. Co., 750 N.E.2d 739, 744 (Ill. App. Ct. 2001)
(finding defendant insurer’s conduct was vexatious and unreasonable where record
“[did] not reflect evidence in support of defendant’s argument that it reasonably
attempted to investigate the claim”).
In short, Jackson vexatiously and unreasonably caused Anne to “encounter
unnecessary difficulties,” see McGee, 734 N.E.2d at 151, when it dragged out
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payment on the Policies for nine months. The Illinois legislature has
unambiguously expressed its intent to make insureds whole and not to allow
insurers to unfairly benefit from their wrongdoing in such circumstances. See
Cramer, 675 N.E.2d at 901. For these reasons, the district court incorrectly
concluded that Jackson’s conduct was not “vexatious and unreasonable” under
Section 155. We therefore vacate the district court’s judgment denying attorney’s
fees and remand for a determination of whether to award fees in light of this
conclusion.
B.
Anne also argued before the district court that she was entitled to
prejudgment interest on the Policies’ proceeds. The district court rejected her
argument on the grounds that “the proper beneficiary of the proceeds of the
Policies was unclear, until Defendant received the signed General Release from
Barbara Mangano on February 3, 2015 . . . .” Because we have explained why that
is incorrect, we must decide if the district court erred in denying Anne prejudgment
interest. We conclude it did.
As noted above, interest on the Policies’ proceeds is governed by Chapter
215, Section 5/224 (1)(l) of the Illinois Compiled Statutes. On summary judgment,
the parties disagreed which version of that statute applied: the one in force when
the Policies were issued in 1983, or the one in force when Norman passed away in
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2014. The district court determined it to be the latter based on the Illinois Court of
Appeals’s application of Section 5/224(1)(l) in Nabor v. Occidental Life Ins. Co. of
Cal., 396 N.E.2d 1267 (Ill. App. Ct. 1979). While Nabor noted in a footnote that
“[n]ormally insurance policies are governed by the law in force at the time of the
issuance,” the district court here observed that Nabor actually applied the version
of Section 5/224 in force at the time the policyholder died, never even mentioning
the version on the books when the policy was issued.
We agree with the district court’s reading of Nabor. Nabor approvingly
cited an Illinois Supreme Court case holding that “the parties’ rights with respect to
interest were governed by statute which might be changed at any time at the
pleasure of the legislature without impairing the contract or affecting any vested
rights.” Nabor, 396 N.E.2d at 1272 (citing Fireman’s Fund Ins. Co. v. W.
Refrigerating Co., 44 N.E. 746 (Ill. 1896)). In other words, updated laws
governing interest can apply to existing insurance policies.
Anne points to more recent Illinois Supreme Court case law standing for the
proposition that “statutes in force at the time an insurance policy was issued are
controlling.” Gen. Cas. Ins. Co. v. Lacey, 769 N.E.2d 18, 20 (Ill. 2002) (quoting
State Farm Mut. Auto. Ins. Co. v. Smith, 757 N.E.2d 881 (Ill. 2001)) (alteration and
internal quotation marks omitted). But the cases Anne points to all address statutes
governing substantive policy provisions, not how to calculate interest upon payout.
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For example, Lacey dealt with a statute governing whether an uninsured-
motorist-insurance policy may contain a clause denying payment until all other
bodily-injury-liability-insurance policies have paid out to their limits. Lacey, 769
N.E.2d at 21. And Smith addressed whether an auto-insurance policy excluding
certain kinds of coverage conflicted with an Illinois law requiring policies to cover
the named insured and anyone else using the insured’s automobile “with the
express or implied permission of the insured.” Smith, 757 N.E.2d at 883-84. But
Nabor makes clear that Illinois courts have treated interest statutes differently, and
the Illinois Supreme Court has not rejected this approach. We believe it is correct.
The district court here was correct to apply the statute in force when Norman died.
The applicable version of Section 5/224 provides that interest on a life-
insurance policy’s proceeds “shall accrue . . . from [the insured’s] date of
death, . . . unless payment is made within 31 days” of the latest of three events:
(1) the date that due proof of death is received by the
company;
(2) the date that the company receives sufficient
information to determine its liability, the extent of the
liability, and the appropriate payee legally entitled to
the proceeds; or
(3) the date that legal impediments to payment of
proceeds that depend on the action of parties other
than the company are resolved and sufficient evidence
of the same is provided to the company . . . .
215 ILCS 5/224(1)(l) (2011). Since the statute provides that interest “shall accrue”
under those conditions, it gives courts no discretion to deny interest unless
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payment is made within the requisite time. See People v. Ramirez, 824 N.E.2d
232, 236-37 (Ill. 2005) (“It is well established that, by employing the word ‘shall,’
the legislature evinces a clear intent to impose a mandatory obligation.”).
Because Jackson paid Anne on March 4, 2015, Anne would be entitled to
interest only if any of the three events recited by the statute occurred more than
thirty-one days earlier. The operative date, then, is January 30, 2015.7
We have no trouble concluding that Jackson received sufficient information
as to its liability before January 30, 2015. By then, it long had the documents
Anne sent on June 26, 2014, and Barbara’s deadline to respond to the interpleader
action had passed unheeded. Because no other legal impediments were dependent
on third parties, the only question is whether Jackson had received “due proof” of
Norman’s death before January 30. We conclude it had, because Anne sent a copy
of his death certificate on October 17, 2014.8
7 Thirty-one days before March 4 was actually February 1, 2015. But since February 1
was a Sunday, we count instead to the first business day before that, which was Friday, January
30. 8 We further note that Jackson bears a significant part of the blame for the fact that Anne
did not send the death certificate until October, as Jackson expressly deterred Anne from sending
it on an earlier occasion when she specifically inquired about it. On July 28, 2014, when Anne
called Jackson about the July 19, 2014, letter advising her to send a death certificate, a Jackson
representative plainly told her to “ignore” the letter for the time being since her claim was
already being processed. As the representative explained Jackson’s system, the letters went out
regularly, irrespective of what was actually happening with a particular claim. And though
Jackson sent later letters making the same requests, those letters were very similar to the July 19
one. Nothing in the record reveals that Jackson ever alerted Anne that she was to treat the
requests in those form-type letters any differently than its representative told her to treat the ones
in the July 19 letter.
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As Anne correctly notes, neither the Policies nor Section 5/224 defines “due
proof of death.” Subsection (1)(j) of the statute does provide that a policy “may
require that due proof of the death of the insured shall consist of a certified copy of
the death certificate of the insured.” 215 ILCS 5/224(1)(j) (emphasis added). But
no provision of the Policies here actually does impose such a requirement.
Jackson points to the fact that in the letters it sent Anne on June 17, June 19,
and August 27, 2014, it specifically told her she must submit a “Final Certified
Death Certificate,” putting her “on notice that Jackson required such information.”
But the question under Illinois law is whether “[t]he policy” requires a certified
copy. See 215 ILCS 5/224(1)(j). Jackson’s letters to Anne did not change the
terms of the Policies themselves. Otherwise, Jackson could have used those letters
to impose any new terms it wanted, regardless of what Norman had agreed to when
he initially purchased his life insurance. The term Norman actually agreed to
provided that Jackson “WILL PAY” the policy amount “upon due proof of the
death of the Insured.” “Due proof” is not defined in the Policies’ provisions. To
the extent the term is ambiguous, Illinois law requires that it be interpreted against
Jackson. See Bourke v. Dun & Bradstreet Corp., 159 F.3d 1032, 1036 (7th Cir.
1998) (citing Dowd & Dowd, Ltd. v. Gleason, 693 N.E.2d 358, 368 (Ill. 1998))
(“[A]ny ambiguity in the terms of a contract must be resolved against the drafter of
the disputed provision.”).
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Jackson has never contested the authenticity of the death-certificate copy
Anne provided. In fact, it paid Anne the Policies’ proceeds without ever having
received a certified copy; when Jackson finally paid in March of 2015, all it had
even then was the copy Anne had furnished back in October. Jackson cannot now
claim that that was insufficient proof of Norman’s death when its own actions
demonstrated otherwise.
Finally, Jackson’s last reason for not paying Anne—that she failed to file a
claim using the prescribed form—can fare no better. First, Anne’s payment
demands substantially complied with the Policies’ requirements, providing the
information that the prescribed form required. But more significantly, Jackson
paid Anne as the sole beneficiary of Norman’s estate, even though the estate itself
never filed a claim of any type. As with Jackson’s payment of proceeds based on
the copy of the death certificate, Jackson cannot now rely on the formality that
Anne submitted the required information in a form other than the one Jackson
preferred.
Since it is clear Jackson paid Anne more than thirty-one days after all three
of the events listed in Section 5/224, Anne is entitled under the statute to
prejudgment interest.
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V.
We conclude that Jackson’s response to Anne’s claim—one of delay, deter,
and defer—was vexatious and unreasonable as a matter of law. On remand, the
district court must consider whether or not she is entitled to attorney’s fees in light
of this circumstance. We also conclude that Jackson had due proof of Norman’s
death more than thirty-one days before it paid Anne. Anne is entitled to
prejudgment interest under Section 5/224. We therefore vacate the district court’s
judgment denying fees and interest and remand for further proceedings consistent
with this opinion.
VACATED and REMANDED.
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