Insurance Fraud NEWS
Insurer can freeze account after Georgia wife accused of murder
October 05, 2017, Atlanta, GA
A federal district court in Georgia has refused to dismiss claims brought against a life insurer by a wife accused of killing her husband after the insurer froze the account into which it had previously deposited the proceeds of his life insurance policy.
After Russell Bailey died, his wife Sherry Bailey made a claim as beneficiary of a life insurance policy on his life issued by Prudential Insurance Company of America.
Prudential placed $343,420.50 into a Prudential Alliance Account (the “account”) in Ms. Bailey’s name. The “Alliance payment notification” sent to Ms. Bailey described the Account as follows:
We have approved your group life insurance claim and have settled your benefit through Prudential’s Alliance Account settlement option. An interest bearing account has been established in your name. . . . With the Alliance Account, you can access your money immediately by writing a draft for the amount you’d like to withdraw. You can withdraw the entire amount immediately, which will close the account, or you can write drafts as needed. Any balance you maintain will earn continuous interest.
Five days later, a grand jury indicted Ms. Bailey for the murder of her husband. She subsequently wrote three checks withdrawing a total of $83,855.50 from the Account.
Prudential then notified Ms. Bailey that it had frozen the Account. According to Ms. Bailey, the account contained at least $259,616.51 at the time Prudential imposed the freeze.
Prudential filed an interpleader complaint in the U.S. District Court for the Southern District of Georgia and deposited the funds in the account with the court.
Ms. Bailey answered and filed a counterclaim, contending that Prudential had stolen $259,616.51 from her account and had deposited it with the court without her permission.
Prudential moved for judgment on the pleadings.
The District Court’s Decision
The district court denied Prudential’s interpleader with respect to the funds Prudential allegedly removed from the account, explaining that if it later determined that Prudential rightfully possessed those funds, Prudential then could request interpleader with respect to them.
The district court also denied Prudential’s request that it be discharged from the case – and it rejected Prudential’s challenge to every claim made by Ms. Bailey – for conversion, punitive damages, fraud, and bad faith.
Regarding Ms. Bailey’s conversion claim: The district court rejected Prudential’s argument that it had not committed the tort of conversion because it had gained nothing when it froze the account and deposited the account’s funds with the court. The district court noted that if Ms. Bailey had spent the funds in the account and then been convicted of murdering Mr. Bailey, Prudential might have faced liability from other beneficiaries for negligently distributing the term life benefits. “By clawing back the funds” it ostensibly had distributed to Ms. Bailey and placing them with the court, “Prudential limited any double liability it might face from other beneficiaries and thereby converted the funds to its own use.”
Regarding Ms. Bailey’s fraud claim: The district court ruled that Ms. Bailey had established the elements of fraud, with the required particularity, when she alleged that Prudential had told her it was distributing benefits to her and assured her that her money would be secure in the account.
Regarding Ms. Bailey’s punitive damages claim: The district court noted that Ms. Bailey alleged that Prudential had willfully removed money from her account in violation of state law and, alternatively, that Prudential had committed fraud when it removed money from the account after assuring her that the money in the account would be “secure”; “[her] money”; and “[her] funds.” Accepting Ms. Bailey’s allegations as true, the district court decided that she had pleaded facts alleging “willful misconduct” and “fraud” sufficient to survive Prudential’s motion for judgment on the pleadings.
Finally, regarding Ms. Bailey’s claim for legal fees under Georgia’s bad faith law: The district court noted that Ms. Bailey alleged that Prudential had distributed money to her and then illegally took it out of the account; that Prudential had lied to her about the terms of the account; and that by withdrawing the money from the account, Prudential had breached the contract it formed upon releasing policy benefits to her. It then denied Prudential’s motion for judgment on the pleadings with respect to Ms. Bailey’s claims for legal fees under the Georgia bad faith statute.
The case is Prudential Ins. Co. of America v. Bailey, No. CV 616-060 (S.D. Ga. Sep. 29, 2017).
Source: Think Advisor