Note: American General Life Insurance Co. (Insurer), through Rasche (Agent), sold financed premium life insurance plans to Warren C. Helton, Brian D. Milligan, John L. Worth, Harold Dane Milligan, and James H. Henry Jr. (Insured). Insured utilized the "Tax Track" finance program option under which "the bank that loans the premium also loans the accumulating interest to the insured and takes a security interest in the cash value of the policy up to the amount of the loan plus accumulated interest."

The topic of controversy in this case arose from a "managed account deposit" illustration in the Tax Track information sent to Insured. Pursuant to the illustration, each Insured obtained a standby letter of credit from either Old National Bank or First Financial Bank (Issuers) as supplemental collateral for the premium loans in the amounts specified in the illustration. The loan documents with Issuers were limited to annual terms and were subject to renewals. Eventually, Issuers declined financing for additional premium payments and surrendered the policies to Insurer for the cash value. Consequently, the policies lapsed, and Insured became indebted to Issuers for the remainder.

Insured sued Insurer, Agent, and Issuers, alleging (1) violation of the Kentucky Consumer Protection Act, (2) unfair practice of competition in the business of insurance, (3) inducement of entry into the insurance contracts by giving valuable consideration not expressed in the contract, e.g., deferred interest on loans made or to be made by the issuer, (4) negligent misrepresentation of the premium financing scheme, (5) negligence, (6) negligent supervision, (7) vicarious liability, and (8) civil conspiracy. Both Insured and Insurer both filed motions for summary judgment.

In Count Two, Insured argued that Agent used deceptive acts to sell the life insurance policies. Insured testified that Agent "repeatedly referenced that he had the ability to get financing from other banks." Although it was not disputed that the loan documents with Issuers were limited to annual terms and subject to renewals, Insured testified that Agent stated that "there would be no out of pocket expenses and several banks were interested in financing the insurance policies." The U.S. District Court for the Western District of Kentucky, Owensboro Division, McKinley, Jr., J., held that summary judgment as to Count Two was inappropriate because there were outstanding questions of fact.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.