Markwica v. Davis, 64 N.Y.2d 38 (1984)

When a separation agreement mandates a parent to maintain children as beneficiaries on a life insurance policy, a constructive trust is imposed on the policy proceeds in favor of the children, even if the policy was later changed to benefit a subsequent spouse.

Summary

This case addresses whether a separation agreement requiring a father to maintain his children as beneficiaries on his life insurance policy can be enforced against a subsequent beneficiary designated in violation of that agreement. The Court of Appeals held that a constructive trust would be imposed on the life insurance proceeds in favor of the children, even though the father had later designated his second wife as the beneficiary. This decision emphasizes the enforceability of separation agreements and the equitable remedy of constructive trust to prevent unjust enrichment.

Facts

John and Carol Markwica entered into a separation agreement in 1970, which stipulated that John would continue their children as beneficiaries on all his life insurance policies. At the time, John had a $10,000 group life insurance policy through his employer. John and Carol divorced in 1971. In 1975, John married Dorothy Davis and subsequently named her as the beneficiary of his group life insurance policy. John died in 1980, and the insurance proceeds were paid to Dorothy. Dorothy was not aware of the prior agreement.

Procedural History

The children of John and Carol sued Dorothy in 1982 to recover the life insurance proceeds, arguing that the separation agreement created a right to those proceeds. The Supreme Court initially denied the children’s motion for summary judgment. The Appellate Division reversed, granting summary judgment in favor of the children. The Court of Appeals affirmed the Appellate Division’s decision.

Issue(s)

1. Whether a separation agreement requiring a parent to maintain children as beneficiaries on a life insurance policy creates an enforceable right to the policy proceeds, even when a subsequent beneficiary is named.
2. Whether the children’s claim is barred by the failure to establish that John’s estate was insolvent.

Holding

1. Yes, because the separation agreement created a binding obligation on the father to maintain his children as beneficiaries, and the imposition of a constructive trust is a proper remedy to prevent unjust enrichment of the subsequent beneficiary.
2. No, because the action is based on unjust enrichment against the second wife, not a breach of contract claim against the estate.

Court’s Reasoning

The Court reasoned that John’s promise in the separation agreement to keep his children as beneficiaries of his life insurance policy was a binding obligation. When he changed the beneficiary to his second wife, Dorothy, he violated this agreement. Dorothy received the insurance proceeds without providing any consideration and would be unjustly enriched if she were allowed to retain them. The Court emphasized the equitable remedy of a constructive trust, stating that it is appropriate when someone holds property that, in equity and good conscience, should belong to another. The court stated, “Defendant, having furnished no consideration for the receipt of the proceeds of the life insurance policy, has received a gratuitous benefit and would be unjustly enriched in the eyes of the law were she to retain those proceeds against the claims of the children for breach by their father of his agreement to continue them as beneficiaries of the policy.” The court also rejected the argument that the children needed to pursue a claim against John’s estate first, clarifying that this action was based on Dorothy’s unjust enrichment, not a claim against the estate. The court noted, “That the children might also have a breach of contract claim against their father’s estate is of no moment so far as the liability of defendant to the children is concerned.” The Court found no basis to disturb the Appellate Division’s denial of leave to amend the answer to include defenses of laches and prior dissipation, as those defenses were raised late and without sufficient factual support.