Appeal from the Ninth Circuit Bankruptcy Appellate Panel. BAP No. AZ-89-1350-RMep. Russell, Meyers, Perris, Judges, Presiding.
Harry Pregerson, Warren J. Ferguson and Diarmuid F. O'Scannlain, Circuit Judges. Opinion by Judge O'Scannlain.
O'SCANNLAIN, Circuit Judge
McKee appeals an order of the Bankruptcy Appellate Panel ("BAP") affirming the grant of summary judgment against him by the bankruptcy court. We affirm.
On April 25, 1985, the debtor, Al Zuni Trading, Inc. ("Al Zuni") purchased a one million dollar life insurance policy on the life of Thomas McKee, then an officer of Al Zuni and the holder of twenty percent of its stock. On July 1, 1985, Thomas McKee sold his interest in Al Zuni to the corporation, and resigned his position as an officer. Thomas McKee died two years later. The insurance company paid the proceeds of the policy to Penick, the trustee in bankruptcy of Al Zuni.
John McKee ("McKee"), as personal representative of the estate of Thomas McKee, brought an adversary proceeding in the bankruptcy court, contending that the life insurance proceeds properly belong to the estate of Thomas McKee. The bankruptcy court granted summary judgment against McKee, and the BAP affirmed. McKee timely appealed.
As a preliminary matter, we reject Penick's contention that McKee lacks standing to raise his claim that Al Zuni had no insurable interest in the life of Thomas McKee. Although the general rule is that "only the insurer can raise the objection of want of an insurable interest," 3 George Couch et al., Couch on Insurance 2d § 24:6, at 22 (rev. ed. 1984), Arizona has modified this rule by statute. Under Arizona law, if the beneficiary receives payment under a policy issued in the absence of an insurable interest, "the individual insured or his executor or administrator, as the case may be, may maintain an action to recover such benefits from the person so receiving them." Ariz. Rev. Stat. Ann. § 20-1104(B) (1990).
However, McKee's claim fails on the merits. McKee admits that, when the policy in question was issued, Thomas McKee was an officer and major stockholder of Al Zuni. Complaint at Paras. V, VI. "A corporation has an insurable interest in the lives of its officers, its key employees, and [its] principal stockholders . . . ." 3 Couch, supra, § 24:148, at 245-46. McKee does not challenge this rule.
The fact that Thomas McKee left Al Zuni prior to his death does not affect the trustee's claim to the insurance proceeds.
The almost universal rule of law in this country is that if the insurable interest requirement is satisfied at the time the policy is issued, the proceeds of the policy must be paid upon the death of the life insured without regard to whether the beneficiary has an insurable interest at the time of death.
Secor v. Pioneer Foundry Co., 20 Mich. App. 30, 34-35, 173 N.W.2d 780, 782 (1970) (footnote omitted). See also 3 Couch, supra §§ 24:123, 24:149, and cases cited therein. Arizona apparently follows this rule, providing by statute that:
No person shall procure or cause to be procured any insurance contract upon the life or body of another individual unless the benefits under such contract are payable . . . to a person having, at the time when the contract ...