In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2085
P ROTECTIVE L IFE INSURANCE C OMPANY,
Plaintiff-Appellee,
v.
M EGAN H ANSEN,
Defendant-Appellant,
v.
B&K E NTERPRIZES,
Defendant-Appellee,
and
R OBERT K. STEUER, as Assignee of
B&K Enterprizes,
Intervenor-Appellee.
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 1:08-cv-00312-WCG—William C. Griesbach, Judge.
A RGUED S EPTEMBER 29, 2010—D ECIDED JANUARY 19, 2011
2 No. 10-2085
Before B AUER, W OOD and W ILLIAMS, Circuit Judges.
B AUER, Circuit Judge. Upon the death of Richard
M cDonald, Protective Life Insurance Com pany
(“Protective”) filed this interpleader action, naming both
Megan Hansen and B&K Enterprizes (“B&K”) as defen-
dants. Hansen and B&K filed cross motions for sum-
mary judgment, each claiming to be the beneficiary of
McDonald’s one-million-dollar life insurance policy.
The district court granted summary judgment in favor
of B&K, and Hansen appealed. We have reviewed the
district court’s decision de novo, construing all facts
and reasonable inferences in Hansen’s favor. Finding
no error, we affirm.
I. BACKGROUND
B&K is a Wisconsin limited liability company (“LLC”)
that developed, built, owned, and operated a gas station
and convenience store in Manitowoc, Wisconsin. McDon-
ald was a founding member of the LLC, and he was also
the manager and day-to-day operator of the station.
Because lenders considered McDonald to be a “key man,”
B&K was able to finance its operations by purchasing
a one-million-dollar life insurance policy on McDonald’s
life and then assigning its interest in the insurance pro-
ceeds as security for various loans.
In 2007, McDonald’s personal life was in disarray. He
was in the midst of a divorce while living in a motel and
dating Hansen, a friend of his ex-wife’s daughter. His
professional life was not faring much better. B&K was
No. 10-2085 3
operating at a loss and members of the LLC suspected
that McDonald was mismanaging the company. Con-
firming the members’ suspicions, an audit of B&K’s
books revealed that McDonald appropriated $48,351.85
of B&K’s funds, some of which was used to purchase
items for Hansen and Hansen’s brother.
Although B&K quickly removed McDonald as the
manager of the station, his actions financially ruined the
company. The members therefore hired Michael Culligan
to wind up B&K and liquidate its assets, including
the life insurance policy. At the time of liquidation, the
policy had been paid through March 1, 2008, and
although it had a cash surrender value of $217.50, B&K
decided to dispose of the policy by simply letting it
lapse. However, unbeknownst to B&K, Culligan signed
and submitted a change of ownership form to Protective
in January 2008, essentially asking it to immediately
transfer ownership of the policy from B&K to McDonald.
Subsequently, while believing himself to be the new
owner of the policy, McDonald signed and submit-
ted a change of beneficiary form in order to change the
beneficiary of the policy from B&K to Hansen. McDonald
then committed suicide.
According to Protective’s terms and requirements,
the owner of a life insurance policy may transfer owner-
ship of the policy by signing and submitting a change
of ownership form. However, while an LLC may
submit this form with only one officer’s signature, a
corporation must submit this form with at least
two corporate officers’ signatures. Although B&K was
unquestionably an LLC, the owner named on the policy
4 No. 10-2085
was incorrectly recorded as “B&K Inc.” Thus, following
its own policies, when Protective received the change of
ownership form signed only by Culligan, it sent the
form back to Culligan and explained that he would need
to obtain the signature of another corporate officer and
resubmit the form in order to transfer ownership of the
policy. For unknown reasons, Culligan never did so. As
a result, Protective never changed the owner of the policy.
Protective’s terms and requirements also provided
that only the owner of a policy can change the beneficiary
of the policy. Thus, McDonald’s attempt to change
the beneficiary from B&K to Hansen is only effective if
McDonald was the owner of the life insurance policy
when he submitted the change of beneficiary form.
B&K is currently in receivership. The liquidation of
B&K’s assets did not generate enough proceeds to pay
its secured debt, and all members of the LLC were there-
fore compelled to make substantial cash contributions
to help pay off the debt. Although McDonald was still a
member of the LLC and owned the largest portion of
the LLC at the time of liquidation, he refused to make
any cash contributions, thereby forcing other members
to cover his share. The record reveals that non-member
creditors currently have claims totaling approximately
$83,000, while members have claims totaling approxi-
mately $400,000.
Upon Hansen’s and B&K’s cross motions for sum-
mary judgment, the district court entered judgment in
favor of B&K. Hansen appealed, claiming that McDonald
owned the policy and that Hansen is the rightful benefi-
ciary of the policy.
No. 10-2085 5
II. DISCUSSION
We review the district court’s grant of summary judg-
ment de novo, construing all facts and reasonable infer-
ences in Hansen’s favor. Winsley v. Cook County, 563
F.3d 598, 602 (7th Cir. 2009); Milwaukee Metro. Sewerage
Dist. v. Am. Intern. Specialty Lines Ins. Co., 598 F.3d 311, 316-
17 (7th Cir. 2010). Summary judgment in favor of B&K
is proper only if the pleadings, discovery materials,
disclosures, and affidavits demonstrate no genuine issue
of material fact such that B&K is entitled to judgment as
a matter of law. Fed R. Civ. P. 56(c). Both parties agree
that we should apply Wisconsin state law because a
federal court sitting in diversity applies the substantive
law of the state in which it is sitting. See, e.g., Allstate
Ins. Co. v. Keca, 368 F.3d 793, 796 (7th Cir. 2004).
A. B&K Is the Owner and Beneficiary of the Life
Insurance Policy
Although Protective’s records indicate that B&K is the
owner and beneficiary of the policy, Hansen contends
that in January 2008 McDonald became the owner of the
policy and Hansen became the beneficiary of the policy.
She reaches this conclusion by setting forth a series
of interlocking arguments, which proceed as follows:
(1) B&K and Protective made a mutual mistake when
they named “B&K Inc” the owner of the policy, and we
should reform the policy to read “B&K LLC” in order
to reflect the contracting parties’ true intentions;
(2) after reforming the policy to read “B&K LLC,” we
should find that Culligan transferred ownership of the
6 No. 10-2085
policy from B&K to McDonald because an LLC may
transfer ownership of its policy by submitting a
change of ownership form that bears only one officer’s
signature; and (3) after finding that McDonald owned
the policy, we must find that Hansen is the beneficiary
of the policy because McDonald, as the owner of the
policy, had the authority to name Hansen as the new
beneficiary. Alternatively, should we reject this series of
arguments, Hansen contends that McDonald owned the
policy because B&K and McDonald formed a binding
contract to transfer ownership of the policy, and Hansen
can enforce this contract because she is an intended
third-party beneficiary. We address each of these argu-
ments in turn.
Hansen begins her series of interlocking arguments by
asserting that B&K and Protective made a mutual
mistake when they named “B&K Inc” the owner of the
policy and that we should reform the contract to read
“B&K LLC” in order to reflect the true intention of
B&K and Protective. Under Wisconsin law, a contract
may be reformed “when the writing that evidences or
embodies an agreement in whole or in part fails to
express the agreement because of a mistake as to the
contents or effect of the writing.” Addison Ins. Co. v. Korsmo,
694 N.W.2d, ¶ 11 (Wis. Ct. App. 2005) (citing Vandenberg
v. Cont’l Ins. Co., 628 N.W.2d 876, 829 (Wis. 2001)). Estab-
lishing the existence of a mutual mistake in an insurance
contract, however, requires less proof than is needed
for any other contract. Jewell v. United Fire & Cas. Co.,
131 N.W.2d 276, 280 (Wis. 1964). Putting our con-
cerns with standing aside, we will assume without de-
No. 10-2085 7
ciding that reforming the contract to read “B&K LLC”
is proper.
Hansen next contends that once we reform the
contract to read “B&K LLC,” we must find that Culligan
transferred ownership of the policy to McDonald. For
support, Hansen relies upon Kathleen Britton, the vice
president in charge of Protective’s life insurance
policies, who testified that if B&K had been properly
listed as an LLC, then Culligan’s signature alone would
have satisfied Protective’s terms and requirements.
In effect, therefore, Hansen urges us to find that
McDonald was the owner of the policy because B&K
should have been listed as an LLC and Protective there-
fore should have accepted Culligan’s signature as suf-
ficient to transfer the policy. The problem with Hansen’s
argument is that we have no authority to do so.
We begin by noting that we cannot presume to know
what Protective would or should have done if B&K
had been listed as an LLC. Although Protective’s terms
and requirements were clear, there is nothing in the
record to suggest that transferring ownership of this
policy would have been a simple ministerial task.
Hansen’s reliance upon Britton’s testimony is misplaced
because although Britton testified about Protective’s
general business practices and about whether
Culligan’s signature satisfied Protective’s terms and
requirements for LLCs, she never testified that Protec-
tive would have actually transferred ownership of the
policy from B&K to McDonald if B&K had been listed as
an LLC. There is in fact nothing in the record to prevent
8 No. 10-2085
us from assuming that instead of transferring the policy,
Protective would have commenced an investigation or
otherwise refused to transfer ownership of the policy.
Hansen’s assumption about what would have happened
is thus nothing more than speculation, and we have no
reason to believe that Hansen’s assumption is more
correct than any other assumptions that could be made.
Nevertheless, even if we could somehow discover
what Protective would have done had B&K been named
an LLC, the proper focus here is not on what should
have happened but rather on what actually happened.
Hansen argues that because Protective should have
accepted Culligan’s signature as sufficient to transfer
ownership of the policy, we must find that B&K trans-
ferred the policy to McDonald. This is not a legal theory,
and “what should have happened” is not a governing
standard. Instead, what matters here is what actually
happened: Culligan signed a change of ownership form,
Protective rejected it either rightly or wrongly (we
will presume wrongly) and sent the form back to
Culligan, Culligan never mailed the form back, and
Protective never changed the owner of the policy. Absent
some viable legal theory, we cannot simply unwind
this series of events and declare Hansen the beneficiary
of the policy.
To the extent Hansen argues that we can reform the
contract twice, first to make B&K LLC the owner and
then to make McDonald the owner, we reject this argu-
ment. Although reformation may change “B&K Inc” to
“B&K LLC,” it certainly does not change the owner
No. 10-2085 9
from “B&K” to “McDonald.” Reformation is an equitable
remedy that is available only when a document fails to
fully or accurately reflect the contracting parties’ actual
agreement either because the contracting parties made
a mutual mistake or because one party made a mistake
while the other party committed a fraud. See, e.g., Hoem
v. Town of Franklin, 774 N.W.2d 475, ¶ 15 (Wis. Ct. App.
2009); Korsmo, 694 N.W.2d at ¶ 9 (stating that “reformation
is an equitable remedy. If the circuit court determines
[that] . . . the terms of an insurance contract are not fully
or accurately set forth, it may, at its discretion, reform
the contract to express the parties’ actual intent”). Here,
B&K and Protective intended to create a contract that
named B&K as both the owner and beneficiary of a life
insurance policy on McDonald’s life. They succeeded
in doing so. While the contracting parties might have
made a mistake in characterizing B&K as a corporation,
Hansen does not allege that the contracting parties
made any additional mistakes or that one party made
a mistake while the other party committed a fraud. There
is thus nothing left to reform. Because Hansen points to
no legal theory under which we could find that
McDonald was the owner of the policy, Hansen’s series
of interlocking arguments fail.
At oral argument, however, Hansen argued that even
if we reject her series of arguments, we should still find
that McDonald was the owner of the policy because
B&K and McDonald formed a binding contract to transfer
ownership of the policy, and Hansen can enforce this
contract because she was an intended third-party benefi-
ciary. We disagree. First, assuming the change of owner-
10 No. 10-2085
ship form was a contract, it was a contract between
B&K and Protective. McDonald was not a party to this
contract because he had no control over the contents
of the form, whether B&K would submit the form, or
whether Protective would find the form sufficient.
Because McDonald was not a party to this contract,
Hansen has no authority to enforce it. Second, there is
no evidence in the record proving that Hansen is an
intended third-party beneficiary. In Wisconsin, “A
person may enforce a contract as third-party beneficiary
if the contract indicates that he or she was either specifi-
cally intended by the contracting parties to benefit from
the contract or is a member of the class the parties
intended to benefit.” Milwaukee Area Technical Coll. v.
Fronteir Adjusters of Milwaukee, 752 N.W.2d 396, ¶ 20 (Wis.
Ct. App. 2008). Here, even if the change of ownership
form was a contract between B&K and McDonald,
it made no mention of Hansen or any other beneficiary;
it was merely a contract to transfer ownership of the
policy. It is thus impossible to conclude that Hansen
was an intended third-party beneficiary who is entitled
to enforce the contract.
Accordingly, for the reasons set forth above, we find
that B&K is both the owner and the beneficiary of the
life insurance policy. We therefore affirm summary judg-
ment in favor of B&K. Given our holding, we need not
address B&K’s arguments that McDonald did not give
adequate consideration and that Culligan did not have
authority to transfer the policy.
No. 10-2085 11
B. The Equities Favor B&K
The district court held that even if Hansen had
satisfied all elements of reformation, reformation
would nevertheless be improper because the equities
do not lie in Hansen’s favor. We agree.
B&K purchased a one-million-dollar life insurance
policy on McDonald’s life as a way to finance its business.
It paid the premium on this policy for four years. Mean-
while, McDonald was a dishonest employee who ex-
ploited his position in the company and misappro-
priated B&K’s funds. In an effort to swindle even more
from B&K, McDonald attempted to transfer ownership
of the policy from B&K to himself so that he could make
Hansen the beneficiary of the policy before he killed
himself. Although Hansen denies any knowledge of
McDonald’s planned suicide, the evidence on the
record strongly suggests otherwise. And while creditors
who invested in B&K remain unpaid, Hansen seeks a
windfall in the amount of one million dollars from the
very policy which was purchased in order to protect
the creditors. She does so despite the fact that she never
had any connection with B&K’s business, despite the
fact that neither McDonald nor Hansen ever paid any
insurance premium on the policy, and despite the fact
that her relationship with McDonald was apparently
over at the time of his death. Given the record before
us, there is no doubt that the equities favor B&K and
its creditors. We therefore affirm summary judgment
in favor of B&K. See, e.g., Richards v. Land Star Grp., Inc.,
593 N.W.2d 103, 111 (Wis. Ct. App. 1999) (holding that
12 No. 10-2085
reformation is an equitable remedy that is meant to
grant relief to parties only when the equities lie in their
favor).
III. CONCLUSION
B&K is the owner and beneficiary of the life insurance
policy because it never transferred ownership of its
policy to McDonald. Reformation cannot change this
result, and even if it could, reformation would be
improper because the equities favor B&K, not Hansen.
We therefore A FFIRM the judgment of the district court.
1-19-11