Assignor's Failure To Provide Proper Notice of Insurance Policy Assignment Does Not Affect Validity of Assignment Vis-à-vis Policy Holder
STILWELL v. AMERICAN GENERAL LIFE INSURANCE COMPANY (February 5, 2009)
James Stilwell took out a $4 million life insurance policy with American General Life Insurance Company (“American General”). His wife and daughters were the beneficiaries. The policy allowed assignments but provided that no assignment would bind American General unless filed and recorded by American General. In 1999, in order to guarantee financing for his business, Stilwell made two assignments of the policy, each in the amount of $2 million, to Janko Financial Group. The next year, Janko assigned its rights to Tuscola, a related company created by Janko to handle the financing. Tuscola entered into a new agreement with Stilwell and reduced one $2 million guarantee to $1.25 million. Janko notified American General of the assignment on a form created in part by Stilwell’s agent and modified by Janko. American General received the form but recorded it as a release instead of an assignment. Mrs. Stilwell executed additional assignments to Tuscola in the amount of $250,000 and First Mid-Illinois Bank in the amount of $1 million. James died in 2003, owing Tuscola and the Bank (mostly Tuscola) $512,000. Tuscola and the Bank applied to American General for payment, referencing the $3.25 million in assignments. American General originally indicated that it had a record of the release of the two assignments in 1999. After Janko explained the reason for the form, American General reversed its position and paid the claim. American General paid other claims and remitted the balance to Mrs. Stilwell and her children. Mrs. Stilwell brought this action against American General, alleging that it overpaid Tuscola. She alleged that the 1999 assignments were released and the 2000 assignment to Tuscola was only $250,000. The district court granted summary judgment to American General. Mrs. Stilwell appeals.
In their opinion, Chief Judge Easterbrook and Judges Wood and Sykes affirmed. The Court first summarily rejected Mrs. Stilwell’s argument that Tuscola’s joint claim with the Bank somehow amounted to a concession that its individual protection was insufficient to cover its claim. Given the language of the assignment, the Court found that the joint application made perfect sense. The Court then addressed Mrs. Stilwell’s principal argument that the assignment from Janko to Tuscola was invalid. The Court rejected both grounds for the argument. First, Mrs. Stilwell argues that the assignment was invalid because the debt was transferred before the notice to American General. The Court held that the assignment was complete upon the finalization of the agreement to transfer Janko’s interest in the policy. Second, Mrs. Stilwell argues that the assignment was invalid because the notice to American General was invalid. The Court held that the validity of the assignment did not depend on the sufficiency of the notice. The provision in the policy that notice must be given in order for an assignment to be binding on American General is for the benefit of American General. Only American General can object to the insufficiency of the notice.
