IN THE COURT OF APPEALS OF IOWA
No. 14-2138 Filed October 28, 2015
KATHY A. SCHINDLER, Claimant-Appellant,
vs.
MICHAEL DEAN DRAHOS and JAMES MATTHEW DRAHOS, FIDUCIARIES OF THE ESTATE OF DENNIS ALBIN DRAHOS, DECEASED, Defendants-Appellees. ________________________________________________________________
Appeal from the Iowa District Court for Linn County, Ian K. Thornhill,
Judge.
A plaintiff appeals the probate court’s rejection of her subrogation claim.
AFFIRMED.
Gregory J. Epping of Terpstra & Epping, Cedar Rapids, for appellant.
Erin R. Nathan, Philip D. Brooks, and Larry G. Gutz of Simmons Perrine
Moyer Bergman, P.L.C., Cedar Rapids, for appellees.
Heard by Vogel, P.J., and Vaitheswaran and Bower, JJ. 2
VOGEL, Presiding Judge.
Kathy Schindler appeals the district court’s denial of her subrogation claim
against the Estate of Dennis Drahos.1 She claims the court did not correctly
apply the law of subrogation when it denied her claim against some of the assets
of the Estate. We agree with the court’s analysis and conclusion that Kathy did
not prove she had the right of subrogation, and we therefore affirm the district
court’s decision.
I. Background Facts and Proceedings.
Kathy first met Dennis at work in the late 1970s—at a business that
Dennis would later own. Their relationship progressed, and they would take trips
together. Kathy described Dennis as her life, both business and personal. Kathy
assisted Dennis in securing credit for his business ventures by giving her
personal guarantees. Dennis Drahos died on January 28, 2013, and his will was
admitted to probate March 1, 2013. Dennis appointed two of his sons, James
Drahos and Michael Drahos, to serve as co-executors. The will devised Dennis’s
property to his five children in equal shares. Kathy filed a claim in probate on
April 5, 2013, asserting she was the beneficiary of five life insurance policies on
Dennis’s life that had been assigned to Cedar Rapids Bank & Trust (the Bank) as
security for Dennis’s debts and those of his company, Timberlake Enterprises,
Ltd. Kathy did not dispute the validity of Dennis’s assignment of those policies to
1 The Estate filed a counterclaim against Kathy for slander of title and interference with a prospective economic advantage because Kathy filed a lien against the Estate’s real property to secure the claim she made in probate. The court rejected the counterclaims, finding Kathy did not act with malice when she placed a lien on the property owned by the Estate. While her subrogation claim was ultimately not successful, the court concluded Kathy was acting reasonably and in good faith. The Estate does not appeal this ruling of the district court. 3
the Bank, as she gave her written consent at the time of the assignments and
consented to the Bank’s request for payment of those policies upon Dennis’s
death. However, Kathy asserted in her claim in probate that she was
“subrogated to all rights of [the Bank] as concerns the estate and/or Timberlake
Enterprises, Ltd., including security in and to property of the estate and/or
Timberlake Enterprises, Ltd. pledged to [the Bank]” to the extent of the death
benefits paid under the life insurance policies. The total amount paid to the Bank
from the life insurance policies for Dennis’s death was $606,709.53. The Estate
disallowed the claim, and Kathy requested a hearing, which took place on May
27, 2014.
District court ruled that Iowa law applied with respect to the allocation of
the burden of proof on Kathy’s claim. The court determined Kathy needed to
prove by “a fair preponderance of the evidence” that she was subrogated to the
rights of the Bank. The court concluded that there was nothing in the law or the
facts presented to support the conclusion that Kathy had subrogation rights to the
Bank’s property lien by virtue of being a named beneficiary on the life insurance
policies properly assigned to the Bank. The court concluded that to find to the
contrary would undermine long-standing Iowa law recognizing the assignability of
life insurance policies as consideration for loan contracts. Kathy filed a 1.904(2)
motion, asking the district court to enlarge its factual and legal findings. The
motion was denied, and Kathy now appeals.
II. Scope and Standard of Review.
This is an action involving a contested probate claim, and as such, it was
tried in probate court as a law action. See Iowa Code § 633.33 (2013). Our 4
review is therefore for correction of errors at law. In re Estate of Crabtree, 550
N.W.2d 168, 170 (Iowa 1996). “We are bound by the trial court’s findings of fact
provided they are supported by substantial evidence.” Id.
III. Subrogation of Bank’s Rights as a Creditor of Estate.
Our courts have long ago recognized the right to assign a life insurance
policy to secure a debt. See Anderson v. Aetna Life Ins. Co., 188 N.W. 883, 884
(Iowa 1922) (“The general rule is that, where one has a valid policy on his own
life, made payable to assigns, he may make such disposition of the proceeds of
said policy as he sees fit, and can assign the same to one who has no insurable
interest in his life, where the assignment is made in good faith and is not a mere
subterfuge for the purpose of securing insurance by one without an insurable
interest.”). Kathy does not seek to alter, set aside, or subordinate any aspect of
the assignment of the life insurance proceeds to the Bank. She agreed to the
assignment when it was made and consented to the payment of the policy
proceeds to the Bank when Dennis died. However, she asserts she is entitled to
recover the value of the life insurance proceeds from other assets of the Estate
by way of being subrogated to the Bank.
The Bank had a pool of assets that collateralized the loans the Bank made
to Dennis, which included the life insurance assignment. Because the Bank
chose to collect a portion of the debt from the life insurance proceeds upon
Dennis’s death, instead of seeking to satisfy Dennis’s debt obligation from other
estate assets, Kathy asserts she is entitled to seek the amount of money she
would have collected from the life insurance policies, but for the Bank’s
assignment, from the other assets in the collateral pool from which the Bank 5
could have satisfied the debt. She claims the Estate gained the benefit of the life
insurance proceeds that should have gone to her. She seeks a subrogation
interest on $606,709.53 of the Estate’s assets—the money she lost out on when
the Bank used the life insurance proceeds to satisfy some of Dennis’s debt
obligation upon his death.
Subrogation is a doctrine, grounded in equity, that gives “relief to a person
or entity that pays a legal obligation that should have, in good conscience, been
satisfied by another.” Allied Mut. Ins. v. Heiken, 675 N.W.2d 820, 824 (Iowa
2004). The principle is employed to correct or prevent unjust enrichment. See
State ex rel Palmer v. Unisys Corp., 637 N.W.2d 142, 156 (Iowa 2001). “Where
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE COURT OF APPEALS OF IOWA
No. 14-2138 Filed October 28, 2015
KATHY A. SCHINDLER, Claimant-Appellant,
vs.
MICHAEL DEAN DRAHOS and JAMES MATTHEW DRAHOS, FIDUCIARIES OF THE ESTATE OF DENNIS ALBIN DRAHOS, DECEASED, Defendants-Appellees. ________________________________________________________________
Appeal from the Iowa District Court for Linn County, Ian K. Thornhill,
Judge.
A plaintiff appeals the probate court’s rejection of her subrogation claim.
AFFIRMED.
Gregory J. Epping of Terpstra & Epping, Cedar Rapids, for appellant.
Erin R. Nathan, Philip D. Brooks, and Larry G. Gutz of Simmons Perrine
Moyer Bergman, P.L.C., Cedar Rapids, for appellees.
Heard by Vogel, P.J., and Vaitheswaran and Bower, JJ. 2
VOGEL, Presiding Judge.
Kathy Schindler appeals the district court’s denial of her subrogation claim
against the Estate of Dennis Drahos.1 She claims the court did not correctly
apply the law of subrogation when it denied her claim against some of the assets
of the Estate. We agree with the court’s analysis and conclusion that Kathy did
not prove she had the right of subrogation, and we therefore affirm the district
court’s decision.
I. Background Facts and Proceedings.
Kathy first met Dennis at work in the late 1970s—at a business that
Dennis would later own. Their relationship progressed, and they would take trips
together. Kathy described Dennis as her life, both business and personal. Kathy
assisted Dennis in securing credit for his business ventures by giving her
personal guarantees. Dennis Drahos died on January 28, 2013, and his will was
admitted to probate March 1, 2013. Dennis appointed two of his sons, James
Drahos and Michael Drahos, to serve as co-executors. The will devised Dennis’s
property to his five children in equal shares. Kathy filed a claim in probate on
April 5, 2013, asserting she was the beneficiary of five life insurance policies on
Dennis’s life that had been assigned to Cedar Rapids Bank & Trust (the Bank) as
security for Dennis’s debts and those of his company, Timberlake Enterprises,
Ltd. Kathy did not dispute the validity of Dennis’s assignment of those policies to
1 The Estate filed a counterclaim against Kathy for slander of title and interference with a prospective economic advantage because Kathy filed a lien against the Estate’s real property to secure the claim she made in probate. The court rejected the counterclaims, finding Kathy did not act with malice when she placed a lien on the property owned by the Estate. While her subrogation claim was ultimately not successful, the court concluded Kathy was acting reasonably and in good faith. The Estate does not appeal this ruling of the district court. 3
the Bank, as she gave her written consent at the time of the assignments and
consented to the Bank’s request for payment of those policies upon Dennis’s
death. However, Kathy asserted in her claim in probate that she was
“subrogated to all rights of [the Bank] as concerns the estate and/or Timberlake
Enterprises, Ltd., including security in and to property of the estate and/or
Timberlake Enterprises, Ltd. pledged to [the Bank]” to the extent of the death
benefits paid under the life insurance policies. The total amount paid to the Bank
from the life insurance policies for Dennis’s death was $606,709.53. The Estate
disallowed the claim, and Kathy requested a hearing, which took place on May
27, 2014.
District court ruled that Iowa law applied with respect to the allocation of
the burden of proof on Kathy’s claim. The court determined Kathy needed to
prove by “a fair preponderance of the evidence” that she was subrogated to the
rights of the Bank. The court concluded that there was nothing in the law or the
facts presented to support the conclusion that Kathy had subrogation rights to the
Bank’s property lien by virtue of being a named beneficiary on the life insurance
policies properly assigned to the Bank. The court concluded that to find to the
contrary would undermine long-standing Iowa law recognizing the assignability of
life insurance policies as consideration for loan contracts. Kathy filed a 1.904(2)
motion, asking the district court to enlarge its factual and legal findings. The
motion was denied, and Kathy now appeals.
II. Scope and Standard of Review.
This is an action involving a contested probate claim, and as such, it was
tried in probate court as a law action. See Iowa Code § 633.33 (2013). Our 4
review is therefore for correction of errors at law. In re Estate of Crabtree, 550
N.W.2d 168, 170 (Iowa 1996). “We are bound by the trial court’s findings of fact
provided they are supported by substantial evidence.” Id.
III. Subrogation of Bank’s Rights as a Creditor of Estate.
Our courts have long ago recognized the right to assign a life insurance
policy to secure a debt. See Anderson v. Aetna Life Ins. Co., 188 N.W. 883, 884
(Iowa 1922) (“The general rule is that, where one has a valid policy on his own
life, made payable to assigns, he may make such disposition of the proceeds of
said policy as he sees fit, and can assign the same to one who has no insurable
interest in his life, where the assignment is made in good faith and is not a mere
subterfuge for the purpose of securing insurance by one without an insurable
interest.”). Kathy does not seek to alter, set aside, or subordinate any aspect of
the assignment of the life insurance proceeds to the Bank. She agreed to the
assignment when it was made and consented to the payment of the policy
proceeds to the Bank when Dennis died. However, she asserts she is entitled to
recover the value of the life insurance proceeds from other assets of the Estate
by way of being subrogated to the Bank.
The Bank had a pool of assets that collateralized the loans the Bank made
to Dennis, which included the life insurance assignment. Because the Bank
chose to collect a portion of the debt from the life insurance proceeds upon
Dennis’s death, instead of seeking to satisfy Dennis’s debt obligation from other
estate assets, Kathy asserts she is entitled to seek the amount of money she
would have collected from the life insurance policies, but for the Bank’s
assignment, from the other assets in the collateral pool from which the Bank 5
could have satisfied the debt. She claims the Estate gained the benefit of the life
insurance proceeds that should have gone to her. She seeks a subrogation
interest on $606,709.53 of the Estate’s assets—the money she lost out on when
the Bank used the life insurance proceeds to satisfy some of Dennis’s debt
obligation upon his death.
Subrogation is a doctrine, grounded in equity, that gives “relief to a person
or entity that pays a legal obligation that should have, in good conscience, been
satisfied by another.” Allied Mut. Ins. v. Heiken, 675 N.W.2d 820, 824 (Iowa
2004). The principle is employed to correct or prevent unjust enrichment. See
State ex rel Palmer v. Unisys Corp., 637 N.W.2d 142, 156 (Iowa 2001). “Where
one person is more fundamentally liable for a debt which another person is
obligated to pay, such a person shall not be enriched by escaping the obligation.”
Id.
Kathy concedes there is no Iowa case addressing the specific claim she
made in probate court but claims other jurisdictions have recognized a
beneficiary’s right to subrogation under similar circumstances. See J. C. Vance,
Right of Life Insurance Beneficiary Against Estate of Insured Who Used Policy as
Collateral, 91 A.L.R.2d 496 (1963) [hereinafter Vance]; see also In re Estate of
Winstead, 493 N.E.2d 1183 (Ill. App. Ct. 1986). Even if such a cause of action
were available in Iowa, we agree with the district court that Kathy did not satisfy
her burden of proof. 6
As the person bringing the claim in probate, it was Kathy’s burden to prove
her right to recovery by a preponderance of the evidence.2 In re Estate of Hunt,
129 N.W.2d 618, 623 (Iowa 1964) (“The general rule is that the burden of
pleading and proof rest upon the same litigant. He who asserts an issue must
prove it.”); Carlson v. Bankers Trust Co., 50 N.W.2d 1, 6 (Iowa 1951) (“In such a
probate action as this, tried as an ordinary action at law, only a preponderance of
evidence is required.”).
The law Kathy cites in support of her claim provides,
Generally, the decedent’s intent is the paramount factor in determining whether the beneficiary of an insurance policy on the decedent’s life should be subrogated to the rights which a debtor- assignee who collected the proceeds of the policy would have had against the decedent’s estate but for the availability of the insurance proceeds.
Winstead, 493 N.E.2d at 1188; see also Vance, at § 2 (“It is apparent in almost
all the decisions that the courts are concerned with ascertaining, from all the
facts and circumstances of the particular case, what the insured wished to be
done with respect to the payment of his debt, and, if possible, to give effect to his
desires.”).
In support of her assertion that Dennis did not intend for the debt to be
paid from the life insurance proceeds, Kathy points to the testimony of Gary
Becker, the Bank’s senior vice president relationship manager, who stated when
Dennis executed the promissory notes at issue he intended the primary source of
2 While the district court noted the allocation of the burden of proof was a contested issue at the hearing, Kathy concedes on appeal that she held the burden of proof for her claim. 7
repayment would be the lease income on the commercial building and the sale of
the residential real estate lots.3
Dennis died of cancer approximately eight months after being diagnosed.
Kathy testified Dennis made it clear to her as he was becoming ill from cancer
that she was the beneficiary of his life insurance policies. However, testimony at
the hearing established Dennis had a conversation with Gary Becker six to eight
months prior to Dennis’s death regarding Dennis’s awareness of the life
insurance policies. Gary testified it was his understanding Dennis viewed the
insurance proceeds “as a way to smooth any estate issues when it came to—
when it came to the development ground.” This conversation indicated to Gary
that Dennis knew the life insurance would be applied to the loans. Dennis “was
trying to make sure that he didn’t leave any bigger mess than he could on the
estate.” Gary inferred from Dennis’s comments that his priority was to use the
life insurance proceeds to satisfy his debts as Dennis believed that was one way
to get the loans repaid quicker and get the Estate “out from under those
responsibilities.”
Dennis’s son, James, also testified to a conversation he had with Dennis
after the cancer diagnosis. Dennis was concerned about the amount of debt he
had and the burden that would place on his children. Dennis had a meeting in
his home where he discussed his finances with James, Ron Landergott— 3 Counsel for Kathy asserted at oral argument that Dennis’s death did not result in a default of the loan; thus, the Bank was not entitled to accelerate the payment on that loan by collecting the entirety of the life insurance proceeds. Upon our review of the record, we do note that one of the promissory notes at issue does define a “default event” to include the death of the borrower. We also note that the “cross collateral and cross default agreement,” executed by Dennis in September 2011, states that “any default by any of the Borrowers in the payment or performance under any of the Agreements shall constitute a default under each of the Agreements.” 8
Dennis’s insurance agent, Randy Nazette—Dennis’s attorney, and Kathy. During
the meeting, Ron specifically addressed the life insurance policies and indicated
those would be paid to the Bank. Ron advised that if Dennis wanted any money
to go to Kathy other arrangements would need to be made. It was James’s
understanding Dennis wanted the life insurance proceeds to go toward the debt
and Kathy was “well taken care of.” The debt that was not satisfied by the life
insurance proceeds would need be paid from other assets such as the sale of the
residential lots Dennis owned. Another of Dennis’s sons, Michael, also had a
conversation with Dennis about the life insurance proceeds. It was Michael’s
understanding Dennis wished for the life insurance proceeds to be used to pay
off as much of the debt to the Bank as possible and the rest of the debt would be
paid from lot sales.
While Kathy asserts it was not Dennis’s intent that the life insurance
proceeds be used to discharge the debt owed to the Bank, she has little evidence
to support such a conclusion. We therefore find substantial evidence supports
the trial court’s decision that Kathy failed to establish by a preponderance of the
evidence that it was Dennis’s intent she be subrogated to the Bank’s rights
against the property of the Estate.4 We affirm the district court’s judgment.
4 Because we agree with the district court Kathy did not satisfy her burden to prove her entitlement to subrogation against the assets the Bank holds as collateral for Dennis’s loans, Kathy likewise has no claim to a lien on the property of the Estate.