By: Jeremy M. Schmidt
J.D. Candidate, 2017
Valparaiso University School of Law
Ohio National Life Assurance Corp. v. Douglas W. Davis, et al. came before the Seventh Circuit on appeal from a summary judgement decision at the trial court. Mavash Morady (Morady), a defendant in this case, was a contracted insurance agent with Ohio National Life Assurance Corp. (Ohio National). Douglas Davis (Davis), another defendant in this case, was working with Morady to defraud Ohio National by using an investment strategy known as Stranger-Owned Life Insurance (STOLI).
Davis and Morady devised a scheme where they chose people that were older because they believed that they would be prime candidates for their scheme. It would begin by Davis approaching an individual, and then asking them to take out a life insurance policy. These people would receive a compensation from Davis for taking out a life insurance policy.
Morady, being the life insurance agent, would meet with the chosen people and have them fill out all of the forms to apply for life insurance. Morady would then fraudulently alter the documents to make these potential clients look like they are younger, and healthier, than they actually were. Ohio National would confirm that these prospective clients were actually people, but they did not check further into any of the clients to ensure the paperwork was completely accurate.
Davis and Morady then would contact the clients about a month after the life insurance went into force. The two then would have the clients sign the policy over to a irrevocable trust that was managed by a company that Morady’s husband owned. The life insurance policy then was owned by the company, and the beneficiary was also the company. The clients never paid any of the premiums because the company paid the premiums for them. The company then would sell the life insurance polices to investors. By doing this, Morady was violating her employment contract with Ohio National because the employment contract does not allow for an agent to sell policies that will be involved in a scheme where a third party will pay the premium, and will thus benefit from the death of the insured.
Once Ohio National found about the scheme Davis and Morady had been carrying out, they voided out all the policies that were involved. Ohio National then filed a complaint against Davis, Morady, Morady’s husband, and other investors. The two sides filed briefs that had a common fact pattern, which means that there was no dispute to the events and how they happened. Ohio National filed a motion for summary judgement, which the court granted in their favor. The court gave Ohio National everything they asked for with the exception for the judgment against Steven Egbert (Egbert). The court reasoned that Egbert was an innocent bystander in the scheme when he made an investment into a life insurance policy, and could not have known the policy was created through fraudulent acts.
The Seventh Circuit decided that summary judgement in favor of Ohio National was correct and the damages awarded were reasonable because Davis and Morady were found to have committed a tort of civil conspiracy.