Starleper v. Hamilton

In Starleper v. Hamilton, 106 Md. App. 632, 666 A.2d 867 (1995), Gary Hamilton ("Gary") and Sharon Starleper ("Sharon") entered into a voluntary separation agreement prior to the circuit court's judgment of absolute divorce in 1984. Id. at 634. At that time, Gary owned a life insurance policy issued by one of the State Farm insurance companies. Id. As a consequence, Paragraph 10 of the separation agreement provided that Gary would "keep his current State Farm life insurance policy in effect to be used for the support, maintenance and education of the parties' son, Justin, in the event of Gary's death; and, that said fund would be administered by Sharon, and, if Gary so desired, another party as trustee." Id. When the parties executed the voluntary separation agreement and the divorce was granted, Gary's insurance policy designated Sharon as the primary beneficiary and Justin as a successor or contingency beneficiary. Id. at 635. Nevertheless, when Gary remarried in 1991, he listed his second wife ("Sandra") as the primary beneficiary of the State Farm policy, keeping, however, Justin as the successor or contingent beneficiary. Id. Gary, Sandra, and her son from an earlier marriage lived together until shortly before Gary's death in April of 1994. Starleper, 106 Md. App. at 635. Sandra used $20,000 of the $29,887 in Gary's life insurance benefits to purchase a home. Id. Notably, however, "Sandra received a letter from Sharon's attorney, informing her, for the first time, of a claim by Justin to the insurance proceeds," on the day before settlement on the home. Id. Gary's ex-wife, Sharon, filed a complaint against Sandra, seeking the imposition of a constructive trust on the remaining insurance proceeds and on Sandra's new home, up to the amount of the insurance proceeds used to purchase the home, on behalf of Justin and herself. Id. The circuit court rejected Sharon's argument, concluding: "By accepting the insurance money from State Farm after her husband's suicide, Sandra breached no duty to anyone, therefore, the retention of that sum and the use of that money to secure the purchase of real estate was not wrongful. Accordingly, imposing a constructive trust upon Sandra's home, the remaining money or other acquisition derived from the insurance payment would be contrary to the existing law of our State." Starleper, 106 Md. App. at 636. In assessing whether the equity court could impose a constructive trust upon the proceeds of Gary's life insurance policy "in the hands of a substituted beneficiary," Chief Judge Alan M. Wilner (later, Judge Wilner of the Court of Appeals), observed that "nearly all of our sister jurisdictions have concluded that imposition of a constructive trust is a proper means of enforcing agreements to maintain insurance for designated beneficiaries." Id. at 638. Judge Wilner additionally noted the rationale for imposing a constructive trust on insurance proceeds in this kind of case, explaining that "many cases have dealt with situations similar to the present one, wherein a deceased party to a divorce permitted a life insurance policy to lapse by failing to pay the premiums, or changed the beneficiary to the policy, contrary to the requirements of the marital settlement agreement. . . . In such cases, the agreement requiring the insured to maintain a particular beneficiary on a policy gives that beneficiary vested rights in the proceeds of that policy. Accordingly, courts have imposed constructive trusts on the proceeds of the deceased's life insurance because the marital settlement agreement gives the former spouse or children named as beneficiaries in the binding agreement a superior equitable interest in the life insurance proceeds over later named beneficiaries." Starleper, 106 Md. App. at 639-40.