Thomas and Michael Tessier allegedly bilked Frederick and Thaddeus Jakobiec and the estate of their mother, Beatrice Jacobiec, out of millions of dollars.  One part of that scheme allegedly involved the theft of approximately $100,000 in life insurance proceeds due a trust benefiting Thaddeus.   After Beatrice’s death, Thomas was rummaging through Beatrice’s items and found that a life insurance policy existed on the life of Beatrice.  That policy was payable to a trust known as the Smillie Trust.  So began this alleged criminal enterprise.

Thomas and Michael filed an ex parte petition to remove Frederick as trustee and install Michael as the trustee of the Smillie Trust for the benefit of Thaddeus.  Nearly simultaneously, Thomas fraudulently created a second trust for Thaddeus.  Through alleged fraud, forgery, and subterfuge, Thomas convinced the insurance company to pay the death benefit to the fraudulent trust rather than to the correct trust.  Thaddeus sued the insurance company for breach of the insurance contract by making out the insurance proceeds check to the wrong trust thereby allowing Thomas to steal the money.

In Jakobiec v. Merrill Lynch Life Insurance Co., a New Hampshire federal court dismissed the claims against the insurance company and a federal appellate court agreed.  The reasoning was that, even if the insurance company made a mistake by making out the check to a fraudulent trust, the insurance company was not the cause of the beneficiary’s loss.  Because the Tessiers were hellbent on stealing the money and because they had gained control of the legitimate trust, too, they would have stolen the money even if the insurance company had made the check out to the correct trust.

You have to wonder how far this protection extends.

These were pretty bad facts – the wrongdoers here admitted that they were hellbent on getting the money.  Would an insurance company be granted the same protection if it made the erroneous distribution to a run-of-the-mill identity thief?  Based on the court’s reasoning, perhaps, because the criminal activity was an intervening cause.  In other words, it’s still the criminal – not the insurance company – who is the actual cause of the damage.

Here, also, the claims agent appears to have done some digging before cutting the check.  What if he hadn’t?  Would it have made a difference if the agent was reckless or merely negligent?  Maybe, because in that case the agent would have arguably caused the damage as opposed to a third party.

What happens if an agent’s negligence or recklessness is combined with a criminal trying to steal the funds?  While that seems like a fact-intensive inquiry, under this court’s reasoning, the existence of criminal activity may trump any act by the agent because the criminal activity will be the cause of the loss.