Supreme Court: More Facts Needed In Life Insurance Dispute

The Wisconsin Supreme Court on Tuesday decided the question of who should get a life insurance payout - a dead man's minor children or his second wife - needs more exploration before the correct answer can be known.

In a 3-1 decision, the court reversed a Court of Appeals ruling that favored the children, over a stern dissent about the sanctity of contracts. Justices Brian Hagedorn and Rebecca Dallet did not participate in the case, which wound up involving three judges who would run against each other in two elections.

In settlement of his 2009 divorce from Joan Pulkkila, James Pulkkila agreed to keep a $250,000 life insurance policy that named their two children as "sole and irrevocable beneficiaries" paid up until they became adults.

But in 2014, he changed the beneficiary to his new wife, Lynnea Landsee-Pulkkila. When James died a year later at age 47, she got the $250,000.

Joan Pulkkila asked Waukesha County Circuit Court Judge Paul Bugenhagen Jr. to enforce the provision in the divorce and impose a constructive trust to benefit the kids, who had been teenagers when their father died.

Bugenhagen, while sympathetic, concluded divorce's marital settlement agreement specified an exclusive remedy for any failure to keep up the insurance: a lien against James' estate, in favor of the children.

James' estate, however, was worth less than $6,000.

The Court of Appeals, in a 2-1 decision, reversed Bugenhagen and found that a constructive trust should be imposed for the benefit of the children.

Chief Judge Lisa Neubauer joined Judge Paul Reilly in that majority. Hagedorn, then on the Court of Appeals, dissented and agreed with Bugenhagen.

Hagedorn and Neubauer were each running for Supreme Court justice at the time. Hagedorn won that Spring 2019 election. Bugenhagen then announced he would run against Neubauer for her seat on the Court of Appeals. She won that race on Monday.

Tuesday's majority opinion, written by Justice Ann Bradley, disagreed with Bugenhagen's finding that the lien was the only remedy to the dispute, and that the Court of Appeals was premature to order a constructive trust. The case will now return to Bugenhagen for more fact-finding to see if a constructive trust might indeed be the solution.

In a 28-page dissent, Justice Rebecca Bradley called the decision improper meddling in a contract.

"Divorced Wisconsinites beware: from this day forward, a court may at any time rewrite the terms of your marital settlement agreement if your former spouse comes to court pleading 'unfair,'" she wrote.

About half the dissent is devoted to summarizing more than 50 cases and law review articles about the contractual, and binding, nature of marital settlement agreements. Bradley writes that just because the agreements are incorporated into divorce judgments doesn't make them susceptible to later modification by courts, absent reasons like mistake, fraud or duress.

She goes further to argue that even if the Pulkkilas had not specified the lien against James' estate at the exclusive remedy for a breach of the life insurance provision, a constructive trust is not an option.

"This court should have applied the law, respected the parties' bargain, and honored the contractual remedy the parties chose instead of offering an extra-contractual remedy grounded in equity and fairness," she wrote.

Contact Bruce Vielmetti at (414) 224-2187 or bvielmetti@jrn.com.