                   IN THE COURT OF APPEALS OF IOWA

                                  No. 14-2138
                            Filed October 28, 2015


KATHY A. SCHINDLER,
    Claimant-Appellant,

vs.

MICHAEL DEAN DRAHOS and JAMES MATTHEW
DRAHOS, FIDUCIARIES OF THE ESTATE OF
DENNIS ALBIN DRAHOS, DECEASED,
     Defendants-Appellees.
________________________________________________________________


      Appeal from the Iowa District Court for Linn County, Ian K. Thornhill,

Judge.



      A plaintiff appeals the probate court’s rejection of her subrogation claim.

AFFIRMED.



      Gregory J. Epping of Terpstra & Epping, Cedar Rapids, for appellant.

      Erin R. Nathan, Philip D. Brooks, and Larry G. Gutz of Simmons Perrine

Moyer Bergman, P.L.C., Cedar Rapids, for appellees.



      Heard by Vogel, P.J., and Vaitheswaran and Bower, JJ.
                                             2


VOGEL, Presiding Judge.

       Kathy Schindler appeals the district court’s denial of her subrogation claim

against the Estate of Dennis Drahos.1 She claims the court did not correctly

apply the law of subrogation when it denied her claim against some of the assets

of the Estate. We agree with the court’s analysis and conclusion that Kathy did

not prove she had the right of subrogation, and we therefore affirm the district

court’s decision.

I. Background Facts and Proceedings.

       Kathy first met Dennis at work in the late 1970s—at a business that

Dennis would later own. Their relationship progressed, and they would take trips

together. Kathy described Dennis as her life, both business and personal. Kathy

assisted Dennis in securing credit for his business ventures by giving her

personal guarantees. Dennis Drahos died on January 28, 2013, and his will was

admitted to probate March 1, 2013. Dennis appointed two of his sons, James

Drahos and Michael Drahos, to serve as co-executors. The will devised Dennis’s

property to his five children in equal shares. Kathy filed a claim in probate on

April 5, 2013, asserting she was the beneficiary of five life insurance policies on

Dennis’s life that had been assigned to Cedar Rapids Bank & Trust (the Bank) as

security for Dennis’s debts and those of his company, Timberlake Enterprises,

Ltd. Kathy did not dispute the validity of Dennis’s assignment of those policies to


1
  The Estate filed a counterclaim against Kathy for slander of title and interference with a
prospective economic advantage because Kathy filed a lien against the Estate’s real
property to secure the claim she made in probate. The court rejected the counterclaims,
finding Kathy did not act with malice when she placed a lien on the property owned by
the Estate. While her subrogation claim was ultimately not successful, the court
concluded Kathy was acting reasonably and in good faith. The Estate does not appeal
this ruling of the district court.
                                          3


the Bank, as she gave her written consent at the time of the assignments and

consented to the Bank’s request for payment of those policies upon Dennis’s

death.      However, Kathy asserted in her claim in probate that she was

“subrogated to all rights of [the Bank] as concerns the estate and/or Timberlake

Enterprises, Ltd., including security in and to property of the estate and/or

Timberlake Enterprises, Ltd. pledged to [the Bank]” to the extent of the death

benefits paid under the life insurance policies. The total amount paid to the Bank

from the life insurance policies for Dennis’s death was $606,709.53. The Estate

disallowed the claim, and Kathy requested a hearing, which took place on May

27, 2014.

         District court ruled that Iowa law applied with respect to the allocation of

the burden of proof on Kathy’s claim. The court determined Kathy needed to

prove by “a fair preponderance of the evidence” that she was subrogated to the

rights of the Bank. The court concluded that there was nothing in the law or the

facts presented to support the conclusion that Kathy had subrogation rights to the

Bank’s property lien by virtue of being a named beneficiary on the life insurance

policies properly assigned to the Bank. The court concluded that to find to the

contrary would undermine long-standing Iowa law recognizing the assignability of

life insurance policies as consideration for loan contracts. Kathy filed a 1.904(2)

motion, asking the district court to enlarge its factual and legal findings. The

motion was denied, and Kathy now appeals.

II. Scope and Standard of Review.

         This is an action involving a contested probate claim, and as such, it was

tried in probate court as a law action. See Iowa Code § 633.33 (2013). Our
                                        4

review is therefore for correction of errors at law. In re Estate of Crabtree, 550

N.W.2d 168, 170 (Iowa 1996). “We are bound by the trial court’s findings of fact

provided they are supported by substantial evidence.” Id.

III. Subrogation of Bank’s Rights as a Creditor of Estate.

      Our courts have long ago recognized the right to assign a life insurance

policy to secure a debt. See Anderson v. Aetna Life Ins. Co., 188 N.W. 883, 884

(Iowa 1922) (“The general rule is that, where one has a valid policy on his own

life, made payable to assigns, he may make such disposition of the proceeds of

said policy as he sees fit, and can assign the same to one who has no insurable

interest in his life, where the assignment is made in good faith and is not a mere

subterfuge for the purpose of securing insurance by one without an insurable

interest.”). Kathy does not seek to alter, set aside, or subordinate any aspect of

the assignment of the life insurance proceeds to the Bank. She agreed to the

assignment when it was made and consented to the payment of the policy

proceeds to the Bank when Dennis died. However, she asserts she is entitled to

recover the value of the life insurance proceeds from other assets of the Estate

by way of being subrogated to the Bank.

      The Bank had a pool of assets that collateralized the loans the Bank made

to Dennis, which included the life insurance assignment.      Because the Bank

chose to collect a portion of the debt from the life insurance proceeds upon

Dennis’s death, instead of seeking to satisfy Dennis’s debt obligation from other

estate assets, Kathy asserts she is entitled to seek the amount of money she

would have collected from the life insurance policies, but for the Bank’s

assignment, from the other assets in the collateral pool from which the Bank
                                        5


could have satisfied the debt. She claims the Estate gained the benefit of the life

insurance proceeds that should have gone to her. She seeks a subrogation

interest on $606,709.53 of the Estate’s assets—the money she lost out on when

the Bank used the life insurance proceeds to satisfy some of Dennis’s debt

obligation upon his death.

      Subrogation is a doctrine, grounded in equity, that gives “relief to a person

or entity that pays a legal obligation that should have, in good conscience, been

satisfied by another.” Allied Mut. Ins. v. Heiken, 675 N.W.2d 820, 824 (Iowa

2004). The principle is employed to correct or prevent unjust enrichment. See

State ex rel Palmer v. Unisys Corp., 637 N.W.2d 142, 156 (Iowa 2001). “Where

one person is more fundamentally liable for a debt which another person is

obligated to pay, such a person shall not be enriched by escaping the obligation.”

Id.

      Kathy concedes there is no Iowa case addressing the specific claim she

made in probate court but claims other jurisdictions have recognized a

beneficiary’s right to subrogation under similar circumstances. See J. C. Vance,

Right of Life Insurance Beneficiary Against Estate of Insured Who Used Policy as

Collateral, 91 A.L.R.2d 496 (1963) [hereinafter Vance]; see also In re Estate of

Winstead, 493 N.E.2d 1183 (Ill. App. Ct. 1986). Even if such a cause of action

were available in Iowa, we agree with the district court that Kathy did not satisfy

her burden of proof.
                                           6


       As the person bringing the claim in probate, it was Kathy’s burden to prove

her right to recovery by a preponderance of the evidence.2 In re Estate of Hunt,

129 N.W.2d 618, 623 (Iowa 1964) (“The general rule is that the burden of

pleading and proof rest upon the same litigant. He who asserts an issue must

prove it.”); Carlson v. Bankers Trust Co., 50 N.W.2d 1, 6 (Iowa 1951) (“In such a

probate action as this, tried as an ordinary action at law, only a preponderance of

evidence is required.”).

       The law Kathy cites in support of her claim provides,

       Generally, the decedent’s intent is the paramount factor in
       determining whether the beneficiary of an insurance policy on the
       decedent’s life should be subrogated to the rights which a debtor-
       assignee who collected the proceeds of the policy would have had
       against the decedent’s estate but for the availability of the
       insurance proceeds.

Winstead, 493 N.E.2d at 1188; see also Vance, at § 2 (“It is apparent in almost

all the decisions that the courts are concerned with ascertaining, from all the

facts and circumstances of the particular case, what the insured wished to be

done with respect to the payment of his debt, and, if possible, to give effect to his

desires.”).

       In support of her assertion that Dennis did not intend for the debt to be

paid from the life insurance proceeds, Kathy points to the testimony of Gary

Becker, the Bank’s senior vice president relationship manager, who stated when

Dennis executed the promissory notes at issue he intended the primary source of




2
  While the district court noted the allocation of the burden of proof was a contested
issue at the hearing, Kathy concedes on appeal that she held the burden of proof for her
claim.
                                           7


repayment would be the lease income on the commercial building and the sale of

the residential real estate lots.3

       Dennis died of cancer approximately eight months after being diagnosed.

Kathy testified Dennis made it clear to her as he was becoming ill from cancer

that she was the beneficiary of his life insurance policies. However, testimony at

the hearing established Dennis had a conversation with Gary Becker six to eight

months prior to Dennis’s death regarding Dennis’s awareness of the life

insurance policies. Gary testified it was his understanding Dennis viewed the

insurance proceeds “as a way to smooth any estate issues when it came to—

when it came to the development ground.” This conversation indicated to Gary

that Dennis knew the life insurance would be applied to the loans. Dennis “was

trying to make sure that he didn’t leave any bigger mess than he could on the

estate.” Gary inferred from Dennis’s comments that his priority was to use the

life insurance proceeds to satisfy his debts as Dennis believed that was one way

to get the loans repaid quicker and get the Estate “out from under those

responsibilities.”

       Dennis’s son, James, also testified to a conversation he had with Dennis

after the cancer diagnosis. Dennis was concerned about the amount of debt he

had and the burden that would place on his children. Dennis had a meeting in

his home where he discussed his finances with James, Ron Landergott—
3
  Counsel for Kathy asserted at oral argument that Dennis’s death did not result in a
default of the loan; thus, the Bank was not entitled to accelerate the payment on that
loan by collecting the entirety of the life insurance proceeds. Upon our review of the
record, we do note that one of the promissory notes at issue does define a “default
event” to include the death of the borrower. We also note that the “cross collateral and
cross default agreement,” executed by Dennis in September 2011, states that “any
default by any of the Borrowers in the payment or performance under any of the
Agreements shall constitute a default under each of the Agreements.”
                                           8


Dennis’s insurance agent, Randy Nazette—Dennis’s attorney, and Kathy. During

the meeting, Ron specifically addressed the life insurance policies and indicated

those would be paid to the Bank. Ron advised that if Dennis wanted any money

to go to Kathy other arrangements would need to be made. It was James’s

understanding Dennis wanted the life insurance proceeds to go toward the debt

and Kathy was “well taken care of.” The debt that was not satisfied by the life

insurance proceeds would need be paid from other assets such as the sale of the

residential lots Dennis owned. Another of Dennis’s sons, Michael, also had a

conversation with Dennis about the life insurance proceeds. It was Michael’s

understanding Dennis wished for the life insurance proceeds to be used to pay

off as much of the debt to the Bank as possible and the rest of the debt would be

paid from lot sales.

       While Kathy asserts it was not Dennis’s intent that the life insurance

proceeds be used to discharge the debt owed to the Bank, she has little evidence

to support such a conclusion. We therefore find substantial evidence supports

the trial court’s decision that Kathy failed to establish by a preponderance of the

evidence that it was Dennis’s intent she be subrogated to the Bank’s rights

against the property of the Estate.4 We affirm the district court’s judgment.

       AFFIRMED.




4
  Because we agree with the district court Kathy did not satisfy her burden to prove her
entitlement to subrogation against the assets the Bank holds as collateral for Dennis’s
loans, Kathy likewise has no claim to a lien on the property of the Estate.
