Trowbridge v. Pacific Life Ins. Co. CA4/3

Opinion

Filed 8/20/26 Trowbridge v. Pacific Life Ins. Co. CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

JOEL M. TROWBRIDGE et al., Plaintiffs and Appellants, G065229 v. (Super. Ct. No. 30-2019- 01120722) PACIFIC LIFE INSURANCE COMPANY, OPINION Defendant and Respondent.

Appeal from a judgment of the Superior Court of Orange County, Randall J. Sherman, Judge. Affirmed. Law Offices of Mary A. Lehman and Mary A. Lehman; Richard A. Nervig; and Jeffrey Pederson for Plaintiffs and Appellants. Law Offices of Melinda Jane Steuer and Melinda Jane Steuer for Public Investors Advocacy Bar Association as Amicus Curiae on behalf of Plaintiffs and Appellants. Finlayson Toffer Roosevelt & Lilly and Matthew E. Lilly for Defendant and Respondent. * * * The beneficiaries of a trust sued Pacific Life Insurance Company asserting a claim for breach of fiduciary duty and civil conspiracy and seeking rescission with respect to Pacific Life’s underwriting of an indexed universal life insurance policy owned by the trust. The trial court granted Pacific Life’s motion for summary judgment. For the reasons we explain, we affirm. SUMMARY OF UNDISPUTED MATERIAL FACTS AND THE BENEFICIARIES’ ADDITIONAL MATERIAL FACTS I. THE TRUST In 2012, Bettye Trowbridge Vaughen retained Roger Grad, an attorney and partner with Snell & Wilmer, LLP, to provide estate planning advice. Grad devised an estate plan for Vaughen that included the creation of the 2012 Bettye Trowbridge Vaughen Trust for Grandchildren (the trust) later that year. Vaughen was the trustor, Jeannette Robinson and Richard Jackson were appointed as the trustees, and Vaughen’s grandchildren were the beneficiaries of the trust.1 1 The beneficiaries, who are the plaintiffs in this action, include Joel Mason Trowbridge, Tillie Elizabeth Trowbridge, Elsie Jane Trowbridge, via their guardian ad litem Jesse Trowbridge, Amy Peck, Amber Peck, David Moats, Madison Moats, Michael A. Moats, Jenny M. Zeller, Sarah E. Trowbridge, Seth Rhodes, Heather Rhodes Garza, Rachel Rhodes Yanney, Theresa Duvon Balkenbush, Jesse Koster, and Kelly L. Vaughen (collectively, the beneficiaries).

2 II. HORN RECOMMENDS AN INDEXED UNIVERSAL LIFE INSURANCE POLICY Grad referred Vaughen’s estate planning team to Brian Horn for his help in procuring a life insurance policy. Horn, who held himself out as a registered investment advisor, conducted business through Newport Financial Group, Inc. which advertised itself as an “estate and income tax mitigation firm.” Horn was also a “producer” contractually authorized by Pacific Life to solicit and procure applications for life insurance and annuity products offered by Pacific Life.2 In an effort to reduce estate tax liability following Vaughen’s death, Horn suggested Vaughen purchase an indexed universal life insurance policy, insuring the life of her daughter Cynthia Peck, through a “split dollar agreement.” Horn contacted First Financial Funding Corp., referred to as “WinTrust” throughout our record, which was in the business of, inter alia, lending funds to pay for premiums due on life insurance policies. Horn wanted Vaughan to borrow as much as WinTrust was willing to lend for “a single pay insurance policy.” III. THE PACIFIC LIFE INSURANCE APPLICATION PROCESS In February 2014, Horn submitted to Pacific Life an application for the proposed life insurance policy which was signed by Horn as soliciting producer, Cynthia Peck as the proposed insured person, and the trustees on 2 Pacific Life sells its insurance products through an extensive network of independent, appointed, and registered life insurance agents referred to as “producers.” Neither Grad nor Snell & Wilmer have any contractual relationship with Pacific Life and are not otherwise authorized to sell its insurance policies.

3 behalf of the trust as the proposed owner of the policy. The stated purpose of the coverage was for Vaughen to “pass on her estate to generations [three] and [four].” The application included the signatories’ declaration the policy they were applying for “‘will meet [their] [i]nsurance needs and financial objectives based in part upon [their] age, [i]ncome, net worth, tax and family status, and any existing [i]nsurance policies [they] own.’” It also contained Peck’s declaration “‘[t]he statements and answers in this application must continue to be true, to the best of the [i]nsured’s knowledge and belief, as of the date the policy is received.’” To meet Pacific Life’s requirement the application be supported by financial justification for the policy, Peck and Horn asserted Peck had a net worth of $6,087,000. In response to Pacific Life’s request for third party verification of that figure, Horn asked Grad to send a letter “detailing the assets and liabilities of Peck” which reflect a net worth of $6,087,000. Grad prepared such a letter under the letterhead of “Montrachet Consulting, Inc.” After receiving Grad’s letter, Pacific Life questioned who Grad was and, after learning he was Vaughen’s attorney, requested that Grad’s opinion letter on Peck’s net worth be prepared on Snell & Wilmer’s letterhead. Grad complied with that request. At some point before or after Grad’s letters were sent to Pacific Life, Horn was told by someone from Pacific Life: “‘We need to pay for the file, so just get her numbers, and whatever they are, they are.’” The beneficiaries originally alleged Peck’s worth was $600,000. They later submitted evidence showing Peck told Horn her net worth was $50,000 and that he should contact her accountant for accurate financial information. Horn did not remember contacting Peck’s accountant. The beneficiaries assert Grad knowingly misrepresented Peck’s net worth so that 4 Horn and the other defendants could sell a larger policy and hence earn a larger commission. In his required signed producer report to Pacific Life, Horn affirmed he had conducted a suitability review of the proposed policy and concluded the policy was suitable. Horn, however, had not conducted a suitability analysis on the sale of the policy for Vaughen’s estate planning notwithstanding Pacific Life’s contractual requirement that its producers do so.3 Pacific Life did not perform its own suitability analysis. Trustee Jackson testified that Grad had outlined the pros and cons of the proposed policy and said he had some favorable experience with the Internal Revenue Service. Jackson also testified Vaughen and the other trustee relied on Horn and Grad in agreeing to the transaction and they did not review all of the relevant documents. Pacific Life issued the requested policy, dated March 11, 2014, insuring the life of Peck with a death benefit of approximately $17.5 million (the policy). The trust was both the policy’s owner and beneficiary. WinTrust accepted the loan application prepared by Horn and loaned Vaughen $7.5 million to pay the policy’s premium cost of that same amount.4 The policy also contained a cash value component, which, among other things, required Pacific Life to pay out the net cash surrender value in 3 Horn’s producer contract with Pacific Life states that a producer has no authority and agrees not to “[s]olicit or procure applications for any product where such product does not meet the customer’s insurance needs and financial objectives.”

4 The beneficiaries produced evidence that, at the time she took out the loan to pay the policy’s premium, Vaughan lacked the legal capacity to do so.

5 the event the trustees or their assignees later instructed Pacific Life to terminate the policy contract and pay out the then-existing net cash surrender value. In connection with the issuance of the policy, Pacific Life paid commissions of $948,594 to Horn/Newport Financial Group, Inc. and $228,500.97 to NFP Insurance Services, Inc.5 IV. THE POLICY IS SURRENDERED TO PACIFIC LIFE In February 2020, Pacific Life received a surrender request signed by the trustees and WinTrust which directed the surrender of the policy in consideration for Pacific Life’s payment of its then existing net cash surrender value. Vaughen had passed away four years earlier in 2016. In compliance with the surrender request, Pacific Life wired the sum of $6,725,304.25 to WinTrust, as assignee of the trust. The beneficiaries produced the declaration of an insurance expert who stated the policy was unsuitable based on Vaughen’s risk profile and investment objectives. While Vaughen was a moderate to conservative investor, the expert stated the split dollar arrangement between the trust and Vaughen was not a moderate to conservative strategy but speculative. He stated the plan was complicated and the use of leverage to purchase the policy only increased the risk of loss. The expert observed the policy was greater than the purchaser’s liquid net worth; the record showed Vaughen “took her risks” in real property investments. The expert opined holding onto such a policy for more than a 5 Horn inquired about possibly receiving a discounted commission but was informed by Pacific Life that could not happen because it would reduce the payout to “‘everybody in the chain,’” including those at Pacific Life.

6 few years made the policy unsuitable. Ultimately, it turned out the costs of the policy were greater than any savings, but the broker collected a commission of almost $1 million. PROCEDURAL HISTORY In their operative pleading, the fourth amended complaint, the beneficiaries asserted against Pacific Life a claim for breach of fiduciary duty and civil conspiracy, and a claim for recission.6 Pacific Life filed a motion for summary judgment, or, in the alternative, for summary adjudication. The trial court granted Pacific Life’s motion for summary judgment on the ground there were no triable issues of material fact as to the two claims asserted against it. Judgment was entered in Pacific Life’s favor and the beneficiaries appealed. DISCUSSION I. STANDARD OF REVIEW “‘On review of an order granting or denying summary judgment, we examine the facts presented to the trial court and determine their effect as a matter of law.’ [Citation.] We review the entire record, ‘considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained.’ [Citation.] Evidence presented in opposition to summary judgment is liberally construed, with any doubts about the evidence resolved in favor of the party opposing the motion. [Citation.] [¶] Summary judgment is appropriate only ‘where no triable issue 6 The beneficiaries also named Horn, Newport Financial, Grad, Snell & Wilmer, Robin Johnston, NFP Insurance Services, Inc., and WinTrust as defendants in this lawsuit. According to the parties’ appellate briefs, the beneficiaries have settled with all defendants except for Pacific Life.

7 of material fact exists and the moving party is entitled to judgment as a matter of law.’” (Regents of University of California v. Superior Court (2018) 4 Cal.5th 607, 618.) II. BREACH OF FIDUCIARY DUTY AND CIVIL CONSPIRACY “The elements of a cause of action for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Tribeca Companies, LLC v. First American Title Insurance Company (2015) 239 Cal.App.4th 1088, 1114.) While an insurer “is in a legally recognized special relationship” with its insured, “and it has duties that clearly encompass forthright and affirmative disclosure of available policy limits . . . ‘an insurer is not a fiduciary, and owes no obligation to consider the interest of its insured above its own.’” (Village Northridge Homeowners Assn. v. State Farm Fire & Casualty Co. (2010) 50 Cal.4th 913, 929; but see Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150–1151 [the insurer-insured relationship is “often characterized by unequal bargaining power [citation] in which the insured must depend on the good faith and performance of the insurer” leading “courts to impose ‘special and heightened’ duties”].) In their opening brief, the beneficiaries acknowledge “an insurer like Pacific Life is not a per se fiduciary.” They argue a triable issue of material fact nevertheless exists as to their breach of fiduciary duty claim with respect to whether Pacific Life (1) is vicariously liable for Horn’s breach of fiduciary duty given Horn was its agent, (2) aided and abetted Horn’s breach of fiduciary duty, and (3) “is directly liable to the beneficiaries by ratifying Horn’s acts that breached his fiduciary duty.” For the reasons we explain, no triable issue of material fact exists as to the beneficiaries’ breach 8 of fiduciary duty/conspiracy to commit breach of fiduciary duty claim, regardless of the theory. A. Vicarious Liability “A defendant ‘is [vicariously] liable for the torts committed by her agent within the scope of the agency.’” (Hughes v. Farmers Ins. Exchange (2024) 107 Cal.App.5th 73, 82.) “‘An agent represents his principal for all purposes within the scope of his actual or ostensible authority, and all the rights and liabilities which would accrue to the agent from transactions within such limit, if they had been entered into on his own account, accrue to the principal.’ [Citations.] Conversely, ‘[a] principal cannot be held [liable] when an actual agent acts beyond the scope of his actual or ostensible authority.’” (Id. at p. 83.)7 Horn’s producer agreement with Pacific Life established Horn had the authority to solicit and procure life insurance applications and certain other insurance products for Pacific Life. That agreement further established Horn did not have authority to bind Pacific Life in the provision of any particular insurance policies. The beneficiaries’ breach of fiduciary duty claim is based on Horn’s role as an estate tax mitigation advisor to Vaughen’s estate planning team, including his recommendation Vaughen acquire the policy for the trust. The beneficiaries submitted evidence showing Horn, doing business as 7 “‘Actual agency is based on consent, and turns on whether the principal has the right to control the agent’s conduct. [Citations.] Ostensible agency is based on appearances, and turns on whether . . . “the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent” even though the third person is not actually an agent.’” (Hughes v. Farmers Ins. Exchange, supra, 107 Cal.App.5th at pp. 82– 83.)

9 Newport Financial, held himself out as a registered investment advisor with specialized knowledge in estate tax mitigation using insurance. There is no evidence showing Horn had actual or ostensible authority to act in such an advisory capacity on Pacific Life’s behalf. Furthermore, there is no evidence Pacific Life participated in any way in the provision of such advice. The beneficiaries cite Fischl v. Pacific Life Ins. Co. (2023) 94 Cal.App.5th 108, 123 (Fischl) for the proposition a life insurance company can be vicariously liable for breaches of fiduciary duties by its agents/brokers in selling unsuitable policies. Fischl is distinguishable in that it did not involve an indexed universal life insurance policy as is at issue in the instant case but variable life insurance policies for which insurance companies are required by regulation “to assess whether such insurance is ‘suitab[le]’ to recommend and issue to potential investors.” (Id. at p. 114.) Although Horn was contractually obligated to Pacific Life to conduct a suitability analysis in connection with applications for life insurance policies he would submit to Pacific Life, Pacific Life was not required by regulation or otherwise to engage in such an analysis itself. In any event, although the Fischl court noted “a broker’s negligently performed suitability analysis in most cases puts the insurance company on the hook” for negligence, it did not address an insurance company’s liability for breach of fiduciary duty, whether directly or vicariously. (Fischl, supra, 94 Cal.App.5th at p. 128.) The beneficiaries’ breach of fiduciary duty claim based on a theory of agency, therefore, fails as a matter of law. B. Aiding and Abetting “California has adopted the common law rule for subjecting a defendant to liability for aiding and abetting a tort. ‘“Liability may . . . be 10 imposed on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to the other in accomplishing a tortious result and the person’s own conduct, separately considered, constitutes a breach of duty to the third person.”’” (Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, 1144.) “California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted.” (Casey v. U.S. Bank Nat. Assn., supra, 127 Cal.App.4th at p. 1145, citing Lomita Land & Water Co. v. Robinson (1908) 154 Cal. 36, 47 [in affirming summary judgment in favor of defendants as to a claim of aiding and abetting a fraudulent land scheme claim, court stated “[t]he words ‘aid and abet’ as thus used have a well understood meaning, and may fairly be construed to imply an intentional participation with knowledge of the object to be attained”], italics added.) Here, the undisputed material facts and the beneficiaries’ additional facts do not show the existence of a material fact Pacific Life had actual knowledge of any tortious activity by Horn or any other defendant in this case. The trial court therefore correctly rejected the beneficiaries’ aiding and abetting theory. C. Ratification The beneficiaries argue a triable issue of material fact exists as to whether Pacific Life is directly liable for breach of fiduciary duty on the ground it ratified Horn’s tortious conduct. “[A] principal may become liable for an act he did not originally authorize, if the principal ratifies the act.” (Shultz Steel Co. v. Hartford Accident & Indemnity Co. (1986) 187 Cal.

11 App.3d 513, 523.) But “[i]t is an inherent element of ratification that the party to be charged with it must have fully known what he was doing . . . . ‘[T]he very essence either of an election or ratification is that it is done advisedly, with full knowledge of the party’s rights.’” (Fergus v. Songer (2007) 150 Cal.App.4th 552, 571.) Here, the undisputed facts show Horn completed the insurance application signed by Horn, Peck, and the trustees with the attestation the policy “will meet [their] insurance needs and financial objectives based in part upon [their] age, income, net worth, tax and family status, and any existing [i]nsurance policies [they] own.” Peck also separately declared the truth of the statements in the application, including the statement she had a net worth of $6,087,000. Pacific Life asked for third party verification of Peck’s net worth and accepted Grad’s attestation set forth on Snell & Wilmer’s letterhead. In addition, in his producer report to Pacific Life, Horn affirmed he had conducted a suitability review of the policy and concluded it was suitable. No evidence suggests Pacific Life was on notice, much less aware Horn or any other defendant was engaged in tortious conduct in the procurement of the policy. There is no evidence showing Pacific Life was aware of the business methods of Horn or any other defendant upon which the beneficiaries base their breach of fiduciary duty claim. Nor is this a case “where ignorance of the facts arises from the principal’s own failure to investigate and the circumstances are such as to put a reasonable [person] on inquiry.” (Reusche v. California Pacific Title Ins. Co. (1965) 231 Cal.App.2d 731, 737.) No evidence suggests Pacific Life should have investigated further into the purpose of the policy or the method by which it was selected by Vaughen and her estate planning team.

12 The beneficiaries point to evidence someone at Pacific Life told Horn that Peck’s net worth was required because Pacific Life “need[ed] to pay for the file” and to “just get her numbers, and whatever they are, they are” as raising a triable issue of material fact Pacific Life was aware something wrong was afoot with the policy. But this evidence does not support the inference the speaker was requesting inflated or otherwise false numbers or that the policy application would be accepted by Pacific Life no matter what number was offered. No triable issue of material fact therefore exists as to Pacific Care’s liability for breach of fiduciary duty based on a theory of ratification. D. Conspiracy to Breach Fiduciary Duty The civil conspiracy aspect of the beneficiaries’ claim for breach of fiduciary duty and civil conspiracy was based on the allegation Pacific Life conspired with others to effect a breach of fiduciary duty. “Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. [Citation.] By participation in a civil conspiracy, a coconspirator effectively adopts as his or her own the torts of other coconspirators within the ambit of the conspiracy. [Citation.] In this way, a coconspirator incurs tort liability co- equal with the immediate tortfeasors.” (Applied Equipment corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510–511.) Significantly, “[b]y its nature, tort liability arising from conspiracy presupposes that the coconspirator is legally capable of committing the tort, i.e., that he or she owes a duty to plaintiff recognized by law and is potentially subject to liability for breach of that duty.” (Id. at p. 511.)

13 For all the reasons discussed ante, Pacific Life cannot be liable for conspiracy to commit a breach of fiduciary duty because on this record, it does not itself owe the beneficiaries a fiduciary duty in the first place. III. RECISSION CLAIM “In California, the Insurance Code has long provided that either party to a contract of insurance may rescind on the basis of the other’s misrepresentation. ‘If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.’ (Ins. Code, § 359 . . . ; see also Ins. Code, § 331 [same remedy for concealment].) Moreover, the injured party may rescind, even though the misstatements ‘were the result of negligence, or, indeed, the product of innocence.’” (Philadelphia Indemnity Ins. Co. v. Montes-Harris (2006) 40 Cal.4th 151, 157.) As stated in the beneficiaries’ opening brief, the term “concealment” is defined explicitly as neglecting to communicate that which a party knows and ought to communicate to the other. (Ins. Code § 330.) In their opening brief, the beneficiaries argue they “presented evidence that Pacific Life concealed the unsuitability of the complex [indexed universal life insurance] policy.” They further argue they “alleged – and it was not refuted – that Pacific Life concealed from the beneficiaries the very existence of the subject policy, the cost of that policy, circumstances surrounding its funding, losses, and other details.” The undisputed material facts show in his producer report, Horn informed Pacific Life he had conducted a suitability analysis and the policy was suitable. They also show Pacific Life did not conduct its own suitability analysis and was not otherwise on notice the policy might not be suitable.

14 Therefore, there is no triable issue of material fact Pacific Life concealed any fact regarding the suitability of the policy. Furthermore, the record does not show Pacific Life was required to affirmatively communicate the existence of the policy, its costs, and the circumstances surrounding its funding, losses and other details to the beneficiaries. In any event, the beneficiaries submit no evidence showing Pacific Life concealed any such information from the beneficiaries within the meaning of Insurance Code section 331. Summary judgment was properly granted as to the beneficiaries’ rescission claim as well. DISPOSITION The judgment is affirmed. Respondent to recover costs on appeal.

MOTOIKE, P. J.

WE CONCUR:

DELANEY, J.

SCOTT, J.