Court: District Court, D. Maryland; June 19, 2001; Federal District Court
Plaintiff First Penn-Pacific Life Insurance Company seeks rescission of a life insurance policy initially issued to Stanley R. Moore on January 5, 1998, and subsequently assigned to defendant William R. Evans. The complaint includes two counts: Count I alleges that Moore made fraudulent misrepresentations during the application process, rendering Evans liable as the policy's assignee; Count II claims the policy is invalid because neither Moore nor Evans had a legally insurable interest at the time of purchase. First Penn-Pacific requests the court to declare the policy void ab initio. Concurrently, Maryland First Financial Services Corp., appointed as Receiver for Answer Care, Inc., seeks to intervene. Answer Care was involved in viatical settlements, facilitating the sale of life insurance policies from individuals diagnosed with terminal illnesses to investors. The court has reviewed the submissions from both the plaintiff and intervenor and has decided that no hearing is necessary for resolving the motion. The court grants the motion to intervene by Maryland First Financial.
Defendant Evans served as the escrow agent for Answer Care and managed bank accounts containing funds from Answer Care investors. He also owned life insurance policies purchased by these investors and received notifications and reimbursement checks upon policy cancellations. In November 1997, Moore applied for a $2 million life insurance policy with First Penn-Pacific, designating his sister as the beneficiary. Following an interview, the policy was issued under standard premium rates due to Moore's elevated cholesterol and moving violations, despite his request for preferred rates. Moore later signed an amendment accepting these terms and acknowledged the validity of his application.
Subsequently, Moore submitted a "Client Service Request" to change the policy's beneficiary to Evans and assigned his rights in the policy to him. First Penn-Pacific initiated an investigation after receiving the request, uncovering alleged fraudulent misrepresentations by Moore regarding his health, family situation, and existing life insurance coverage. It was claimed that Moore falsely stated he was not infected with HIV or AIDS and misrepresented the extent of his life insurance, having acquired $4 million from other insurers despite declaring only a $500,000 policy.
First Penn-Pacific contended that it would not have issued the policy if it had known the truth, asserting that Evans, as Moore's assignee, was aware or should have been aware of Moore's terminal illness. The plaintiff argued that Moore intended for the policy to benefit Evans rather than his estate or sister. Premium payments for the policy were said to ultimately come from Answer Care investors. On October 12, 1999, First Penn-Pacific notified Evans of the policy's rescission, providing a refund check for premiums paid. When Evans did not cash the check, First Penn-Pacific filed a civil action seeking a declaration that the policy was void ab initio and had been rescinded.
An action is pending in the Circuit Court for Baltimore City involving the Securities Commissioner of Maryland against Answer Care and its owner, Mark Massoni. The complaint alleges that they violated the Maryland Securities Act by offering and selling securities and committing fraud related to life insurance policies acquired through fraudulent applications, which were later canceled by insurers. The Commissioner seeks a permanent injunction, the appointment of a receiver, restitution, civil penalties, and other relief.
On September 25, 2000, the Circuit Court issued a Consent Order freezing Answer Care's assets and prohibiting further sales of life insurance interests. Subsequently, on October 16, 2000, Maryland First Financial was appointed as Receiver to manage and liquidate Answer Care’s assets to protect investors. The Receiver was authorized to recover assets from those who received preferential treatment or illegitimate funds.
On May 17, 2001, the Court addressed the beneficial ownership of the life insurance policies and appointed amicus counsel to advocate for the distribution of benefits among investors promised shares of the death benefits. The Receiver argues that death benefits and refunded premiums should be available for all creditors and to cover administrative expenses of Answer Care's estate.
Additionally, legal principles under Rule 24 of the Federal Rules of Civil Procedure allow anyone to intervene in an action if they claim an interest related to the subject matter and risk impairment in protecting that interest, provided their interest is not adequately represented by existing parties.
An intervenor under Rule 24(a)(2) must meet four criteria: (1) submit a timely motion; (2) show a "direct and substantial interest" in the property or transaction; (3) demonstrate that this interest would be impaired without intervention; and (4) establish that existing parties inadequately represent the interest. The burden lies with the intervenor to prove their right to intervene, and courts evaluate these applications based on pleadings without regard to the likelihood of success on the merits. The Fourth Circuit has stated that the burden to show inadequate representation is minimal, but if the intervenor shares the same ultimate goal as a party, there is a presumption of adequate representation, which can be rebutted by showing adversity of interest, collusion, or nonfeasance.
Permissive intervention under Rule 24(b)(2) allows courts discretion to permit intervention based on a "timely application" and shared legal or factual questions, while considering whether it would delay or prejudice the original parties. Maryland First Financial seeks intervention as of right and permissively, arguing that upon Moore’s death, it has an interest in the death benefit payment obligation, which relates to the action. It claims that, as Receiver for Answer Care, it has a beneficial interest in the Policy and that Evans will not adequately represent Answer Care's interests. Additionally, Maryland First Financial asserts that its defenses align with Evans', and its intervention will not cause undue delay or prejudice.
Plaintiff First Penn-Pacific did not include Intervenor Maryland First Financial as a defendant despite being aware of its interest in the case. In opposing the motion to intervene, First Penn-Pacific asserts that Maryland First Financial has not sufficiently demonstrated an interest in the action as required by Rule 24(a)(2), pointing out that the defendant Evans is the legal owner of the Policy and that the bank accounts holding investors' funds were in his name. Plaintiff contends that Answer Care merely facilitated transactions and never owned any life insurance policies. Citing In re Richman, plaintiff argues that Intervenor cannot prove its interests will not be adequately represented by Evans.
Regarding permissive intervention under Rule 24(b)(2), plaintiff claims that Intervenor lacks a common claim or defense with the main action. However, if the court permits intervention, it should be limited to allowing discovery regarding Intervenor's alleged interest in the Policy. The court finds that while Maryland First Financial has not met the threshold for intervention as of right under Rule 24(a)(2), it qualifies for permissive intervention under Rule 24(b)(2). Specifically, the motion to intervene is timely, Maryland First Financial has asserted an interest in the Policy, and its ability to protect that interest may be compromised by the plaintiff's request to rescind the Policy.
Nonetheless, the court concludes that Intervenor has not adequately shown that its interests will not be represented by Evans, who shares the same ultimate objective and has a legal duty to protect those interests. The court identifies a presumption of adequate representation, which Maryland First Financial has failed to overcome with sufficient evidence. Although an affidavit suggests that Evans may have failed to protect the interests of Answer Care's investor creditors, the court is not ready to make determinations on these matters without further discovery.
Maryland First Financial's motion for permissive intervention under Rule 24(b)(2) has been granted by the Court. The Court found that Maryland First Financial's claims and defenses share common questions of law or fact with the existing action, and that its involvement will not cause undue delay or prejudice. As the Receiver for Answer Care, Maryland First Financial holds the same interests in the policy as defendant Evans, the policy's assignee. If the plaintiff's relief is granted, Maryland First Financial would lose a significant asset belonging to the estate it represents. The defenses raised by Maryland First Financial regarding the policy's validity and assignment are based on the same facts as those in the plaintiff's complaint and Evans' answer. The plaintiff did not claim any prejudice from the intervention, and the motion was filed early in the litigation process. The Court has decided against limiting Maryland First Financial's intervention to only discovery purposes; it will be allowed to intervene as a second defendant. The Court will not make determinations on the merits at this stage, focusing solely on the pleadings for the intervention decision. The motion is officially granted, allowing Maryland First Financial to act as a defendant and accept its answer as a valid pleading in the case. The Court also acknowledges the lack of opposition from defendant Evans and notes the alleged diversity jurisdiction under 28 U.S.C. § 1332.
