CITE: Selzer v. Dunn, 2014 WL 356992, No. 12–12–00150–CV (Ct. App. Tex. Jan. 31, 2014).
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In 2008, Lincoln Financial Life Insurance Company issued a two million dollar life insurance policy on Varner, naming Dunn as the sole beneficiary. It also issued a two million dollar life insurance policy on Dunn, naming Varner as the sole beneficiary.
Cleanline paid the premiums on both policies. Varner died in 2010.
Tracey Selzer, as administrator of Varner’s estate, asserted a claim to the insurance policy proceeds.
Dunn filed a petition for declaratory judgment requesting the court declare him the sole beneficiary of the policy. Selzer filed counterclaims for breach of contract and breach of fiduciary duty, requesting the court render judgment declaring either that Varner’s estate was the exclusive beneficiary of the policy or, if Dunn was the exclusive beneficiary, that he held the insurance proceeds in constructive trust for the estate.
The trial court granted Dunn’s motion for summary judgment. It declared that Dunn was the sole and exclusive beneficiary of the policy and entitled to all proceeds of the policy. Further, the court ordered that Selzer take nothing on her counterclaims.
Selzer appealed the decision.
FACTS: Dunn and Varner purchased insurance on each other’s lives with the intent of protecting each other from the financial and related impacts of the death of a co-owner. Their advisors brought up the idea of a cross-purchase buy-sell agreement. While the co-shareholders discussed the fact that they needed a buy-sell agreement, and the attorney for the business originally created three versions of a proposed cross-purchase agreement, none of these were ever executed by the parties.
Selzer argued that the decedent-insured’s estate rather than Dunn was entitled to all of the insurance policy proceeds, in exchange for Varner’s stock in the company. Dunn asserted that there was no breach of contract – because there never was a (buy-sell) contract.. Specifically, he contended that the requisite elements of a binding contract were absent, i.e. there was no evidence of (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) execution, or (5) delivery. He argued that, although a buy-sell agreement was discussed, the specific terms of the buyout were never agreed upon, especially the price to be paid for the shares.
The court stated that the four essential elements of any breach of contract claim are (1) the existence of a valid contract, (2) performance or tendered performance by the plaintiff, (3) breach of the contract by the defendant, and (4) damages sustained by the plaintiff as a result of the breach.
The evidence upon which the trial court rendered summary judgment showed that Dunn and Varner never agreed to the number of shares the surviving partner would purchase nor to the price he would pay for those shares. Further, there was no agreement that any portion of the proceeds would be given to the family of the deceased beyond what was required to purchase the deceased’s shares.
Selzer, on behalf of Varner’s estate, asserted that an oral contract existed and that a buy-sell agreement of some sort was a part of that agreement. Further, she argued, Dunn breached the contract when he refused to pay the life insurance proceeds to the estate in return for the stock the estate owned.
RESULT: The appeals court decided that the evidence did not show that Dunn and Varner had a meeting of the minds regarding the price to be paid for the deceased shareholder’s shares or how many shares the survivor would purchase. Accordingly, it affirmed the decision of the trial court, and left the insurance proceeds in the hands of Dunn, the surviving shareholder.
RELEVANCE: The use of life insurance to help fund a business buyout is often an essential part of overall estate planning for the owners of a closely-held business.
Selzer v. Dunn is a reminder that the purchase of life insurance is only one part of the whole buy-sell picture. Agents need to follow through and be sure that their business owner clients actually enter into a valid and binding buy-sell agreement (and update them as needed) so that any life insurance death benefits are used for the intended purpose—i.e. to protect the family of the decedent, and to allow for as seamless as possible transition to successor ownership.
WRNewswire #14.02.12 was written by Linas Sudzius of Advanced Underwriting Consultants.
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