Middle Georgia Management Services (“MGM”) sought to impose a constructive trust on the assets of McCrary and others, including the proceeds of a life insurance policy that had been obtained with funds allegedly embezzled by Barbara Morris, a former employee of MGM. Morris committed suicide after an MGM manager began investigating nearly $2 million of missing company funds. Morris’s daughter, McCrary, was the sole beneficiary of the life insurance policy.
Under a theory of unjust enrichment, MGM argued that because Morris used money stolen from MGM to pay the life insurance premiums with the intent to defraud MGM, and because the life insurance proceeds were paid to McCrary and shared with her brother, a constructive trust in favor of MGM should be imposed on the death benefits. MGM also defined itself as a creditor of Morris.
McCrary filed a motion for summary judgment, challenging MGM’s claim to a constructive trust on the life insurance proceeds, relying on O.C.G.A. § 33–25–11, which provides in relevant part:
(a) Whenever any person residing in the state shall die leaving insurance on his or her life, such insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured unless the insurance policy or a valid assignment thereof provides otherwise ....
(c) The cash surrender values of life insurance ... shall not in any case be liable to attachment, garnishment, or legal process in favor of any creditor of the person whose life is so insured unless the insurance policy was assigned to or was effected for the benefit of such creditor or unless the purchase, sale, or transfer of the policy is made with the intent to defraud creditors.
McCrary argued that MGM had failed to establish that the life insurance premiums were paid with the allegedly embezzled funds or that she was otherwise unjustly enriched. MGM responded that “as a matter of equity, co-mingling stolen funds into a bank account from which the premiums on the policy are paid is enough to create an issue of fact on the constructive trust issue.”
The trial court determined, based on Ambase Intl. Corp. v. Bank South, 196 Ga. App. 336, 340, 395 S.E.2d 904 (1990), that a constructive trust could be imposed on the life insurance proceeds for the benefit of MGM under the statutory fraud exception. The court then agreed with MGM’s position that an issue of fact existed concerning whether Morris in fact embezzled funds from MGM, and whether those funds were commingled with money she used to pay the premiums for the life insurance policy.
The Georgia Court of Appeals reversed. It agreed with McCrary that, under O.C.G.A. § 33–25–11, a creditor’s claim to life insurance benefits cannot defeat the claim of a designated beneficiary, absent fraud, and that in the event of fraud, only the cash surrender value of the policy is subject to attachment, garnishment, or legal process in favor of the creditor.
The court of appeals relied on Bennett v. Rosborough, 155 Ga. 265, 116 S.E.2d 788 (1923), in which the Supreme Court of Georgia held that because a statute forbade defeating the insured’s direction as to his beneficiary, a husband who obtained a policy payable to his wife was protected, even though he paid the premiums with money stolen from his creditors.
The court of appeals in McCrary determined that the trial court erred to the extent it relied on Ambase for the proposition that the fraud exception could be applied to the case at hand, because when Ambase was decided in 1990, the fraud exception provided in OCGA § 33–25–11 did not apply only to the cash value of a life insurance policy, as it does currently.
Moreover, the insurance policy at issue was a term life policy, with no cash value. Consequently, the fraud exception under the current law was not triggered. In short, under the plain terms of the statute, the court of appeals held that MGM was precluded from defeating McCrary’s interest, as the designated beneficiary.
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