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BOARD OF EDUC., PLAINEDGE UNION v. CONNECTICUT GENERAL LIFE

March 22, 2004.

BOARD OF EDUCATION OF THE PLAINEDGE UNION FREE SCHOOL DISTRICT, Plaintiff, -against- CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendant; CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Plaintiff, -against- GENE GRASSO, Defendant; GENE GRASSO, Plaintiff, -against- BOARD OF EDUCATION OF THE PLAINEDGE UNION FREE SCHOOL DISTRICT, Defendant


The opinion of the court was delivered by: DENIS HURLEY, District Judge Page 2

MEMORANDUM AND ORDER

Plaintiff Board of Education of the Plainedge Union Free School District commenced this action seeking to void 31 insurance policy loan agreements on the theory that the loan agreements were signed by an individual who was not authorized to enter into that transaction. Defendant Connecticut General Life Insurance Company has since, with leave of the Court, impleaded a third-party defendant: the purportedly unauthorized individual. The Board of Education of the Plainedge Union Free School District and the Connecticut General Life Insurance Company have filed cross-motions for summary judgment. For the reasons discussed infra, the Court grants the Connecticut General Life Insurance Company's motion and denies the Board of Education of the Plainedge Union Free School District's motion.

 I. BACKGROUND

  In evaluating a summary judgment motion, the Court "is required to draw all factual inferences in favor of, and take all factual assertions in the light most favorable to, the party opposing summary judgment." Rule v. Brine. Inc.. 85 F.3d 1002, 1011 (2d Cir. 1996). The Court has considered these requirements while evaluating the undisputed facts in the Page 3 context of the each of the cross-motions for summary judgment. All of the facts set out below were derived from the exhibits identified in the parties' Local Civil Rule 56.1 statements of undisputed facts.

  Between 1991 and 1993, pursuant to a retirement incentive plan, the Plainedge Union Free School District ("District") purchased 31 individual life insurance policies from Connecticut General Life Insurance Company ("Defendant"). These policies, known as either "Individual Flexible Premium Adjustable Life Insurance" policies or as "Universal Life Insurance" policies, insured the lives of "eligible school employees." By paying the premiums for these policies, the District hoped that certain teachers would be encouraged to retire early. The policies paid out a set amount of money to the retiring teachers and their beneficiaries. Any benefits that surpassed those set amounts would be paid to the District, thereby providing a collateral monetary benefit to the District.

  The policies also have a "cash value" that is derived from the amount of premiums paid and the interest earned (less insurance charges and expenses). Due to this feature, the policy owner may take out a portion of the accumulated cash value in the form of a "policy loan." The interest on a policy loan may be paid annually or not at all. All unpaid interest is added to the policy loan amount and likewise will accumulate interest. When the policy matures and must be paid out, either through death or some other operation, the outstanding policy loan and interest are deducted from the proceeds of that policy. According to the evidence, former Assistant Superintendent for Business Gene Grasso ("Grasso") negotiated Page 4 the set up of this incentive.*fn1 On April 18, 1991, the District approved the Grasso-negotiated retirement incentive plan by issuing a resolution. The memorandum of agreement that was accepted by the resolution expressly states that "the District shall own the policy, including any accumulated cash value." Plaintiff's Ex. A2 at 2.

  In June 1991 agents of Defendant — including Frank Capodacqua ("Capodacqua") — went to visit each of the twenty-four retiring teachers that were availing themselves of these policies. After interviewing those teachers and after preparing the appropriate forms, Capodacqua sought to complete the application process for these individual teachers. This required a signature from the District. When Capodacqua sought out a District representative, he was told by District employees that Grasso would sign the forms. When Grasso signed those twenty-four individual forms, he also provided Capodacqua with checks that were intended to make advance payment on any premiums owed on temporary life insurance agreements. When the policies issued for those retiring teachers, Capodacqua met again with Grasso. At that time, Grasso provided Capodacqua with checks covering the balance of the premiums owed for that year: $163,200.00. Grasso provided Capodacqua with policy receipts, which were signed by Grasso, indicating that the District had received the policies.

  In 1992 Capodacqua again met with Grasso to discuss the policies. At that time, Grasso informed Capodacqua that five teachers were retiring that year and would need these Page 5 policies. Capodacqua met with each of the retiring teachers and helped them to complete their applications. Once the applications were completed he would meet with Grasso. Grasso would sign the applications on the District's behalf, pay the $34,000.00 in premiums for that year and sign the policy receipts after receipt of the actual policies. These same procedures were followed in 1993 and 1994.

  During this period, Capodacqua dealt almost exclusively with Grasso. The only other contact that Capodacqua had with the District was through Ida Brtalik ("Brtalik"), who was the District treasurer. Brtalik's duties include management of the District's accounting and assisting Grasso.

  In March 1995 Grasso contacted Capodacqua, Defendant's agent. In response to a request by Grasso, Capodacqua prepared a list explaining the cash value on all of the policies. See discussion supra. Capodacqua further advised Grasso that the District could obtain policy loans totaling $321,007 against the 31 then-existing policies. Grasso told Capodacqua that the District desired to take out policy loans for this full amount. Capodacqua did not inquire as to whether further approval was necessary. After approval of the policy loans by Defedant, the loan checks were sent directly to the District.

  It is undisputed that Grasso personally believed that he had authority to consummate these policy loans on behalf of the District. See Defendant's Ex. G at 78, 153. Specifically, Grasso considered the cash value of the policies to be the liquid assets of the District. As such, when he consummated these policy loans, Grasso believed that he was merely "transferring [the assets] . . . from one account to another account." Id. at 145. Page 6 Grasso further believed that the decision on how to free up these assets for immediate use by the District was made by him without any input from the District, see id. at 111-112, which he felt was appropriate because of his position as Assistant Superintendent for Business and because the handling of the insurance policies "came under [his] jurisdiction," see id. at 49.

  At the time, Brtalik was informed that Grasso had signed for these policy loans. As treasurer of the District, she noted the receipt of the resultant checks and deposited those checks in the District's general fund account. These funds were recorded in the District's "cash book." These funds were also reflected in the April 1995 Treasurer's Report. On this Report, the funds were listed as "insurance recoveries." The term "insurance recoveries" would also embrace surplus funds collected from a policy that was paid due to death or some other triggering event. See Defendant's Ex. 6 at 2. However, in the entire eleven years that Brtalik served as District Treasurer, the funds listed as "insurance recoveries" in the monthly Treasurer's Report had never exceeded $300. Brtalik Dep. at 52. In April 1995 the amount of "insurance recoveries" funds listed in the Treasurer's Report exceeded $320,000. The District approved this April 1995 Treasurer's Report by resolution. However, Brtalik had never been questioned by District with regard to the amounts contained in previous Treasurer's Reports. Nor had Brtalik ever been denied approval for any previous Treasurer's Report.

  In May 1995, after Grasso signed the policy loan applications and those policy loans were approved by Defendant, Defendant sent 31 letters to the District — one for each Page 7 individual policy loan — indicating that interest was due on each of the policy loans. Each May from 1995 until 2001, these letters were received in the District offices. Similarly, in June 1995, and annually thereafter, 31 individual letters were sent to the District offices indicating that the interest had been added to the policy loan amount. In addition, annual statements were issued for each of the individual policies. These statements listed the date and amount of the policy loans, as well as the amount of interest charged.

  In December 1997, Richard Jacullo, one of the relevant policy holders, died. On January 6, 1998, Defendant provided the District with a document titled "Reconciliation of Policy Proceeds." That document listed the amount of the proceeds that would be paid to the District. That document further showed how the amount of the proceeds were reduced by the policy loan ...


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