Higdon v. Lincoln National Insurance Company, 1:13-cv-02152

Background

John J. Germenko purchased a life insurance policy in 1985 and in 1991 funded an irrevocable life insurance trust (Trust) naming the Policy as the Trust corpus and changing the named beneficiary to the Trust.
Germenko died in 2010; insurer (Lincoln/ING) refused to pay death proceeds, citing premium nonpayment.
Germenko’s two daughters (the Germenkos) filed the original state-court complaint in 2013 asserting they were named beneficiaries and suing for breach of contract; defendants removed to federal court based on diversity.
Defendants challenged standing, asserting the daughters were not beneficiaries; plaintiff then filed an Amended Complaint substituting Jeffrey Higdon, the Trustee, as plaintiff and alleging the Trust is the sole beneficiary.
Defendants moved to dismiss under Rule 12(b)(1) arguing that because the original plaintiffs allegedly lacked standing, the federal court never acquired subject‑matter jurisdiction and the post‑removal amendment cannot cure that defect.
The district court denied the motion without prejudice and ordered supplemental briefing on whether the original plaintiffs fit exceptions in Restatement (Third) of Trusts that would allow beneficiaries to sue (e.g., entitlement to immediate distribution or trustee inability), because the court could not resolve standing as a matter of law on the record.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the court has subject‑matter jurisdiction given the original plaintiffs’ standing	Germenkos were third‑party beneficiaries of the Policy (as Trust beneficiaries) and thus had standing when they filed	Original plaintiffs lacked standing; if so, federal court never acquired jurisdiction and amendment substituting trustee is ineffective	Denied dismissal; court could not conclude original plaintiffs lacked standing and ordered supplemental briefing
Whether the Amended Complaint’s allegation that the Trust is the sole beneficiary precludes plaintiff from arguing Germenkos were third‑party beneficiaries	Amended allegation can be read as naming the Trust as the named beneficiary, not foreclosing third‑party beneficiary status	Amended Complaint is a judicial admission that forecloses the third‑party beneficiary argument	Court found the allegation ambiguous and not dispositive; it will consider the third‑party beneficiary argument
Whether trust beneficiaries may sue on a contract held by the trust	Beneficiaries may sue if exceptions apply (e.g., entitled to immediate distribution or trustee is unable/unavailable) per Restatement (Third) of Trusts	Generally only trustee may sue on trust claims; beneficiaries lack standing to sue third parties on trust property	Court recognized general rule but noted Restatement exceptions may apply; ordered briefing to determine applicability
Whether the case should be dismissed now or after supplemental briefing	Plaintiff sought to proceed and cure via trustee substitution	Defendants sought immediate dismissal for lack of subject‑matter jurisdiction	Court denied dismissal without prejudice and invited renewed motion after supplemental briefing

Key Cases Cited

Kerns v. United States, 585 F.3d 187 (4th Cir.) (distinguishes facial and factual 12(b)(1) challenges)
Velasco v. Government of Indonesia, 370 F.3d 392 (4th Cir.) (courts may consider evidence outside pleadings on factual jurisdictional challenges)
Evans v. B.F. Perkins Co., 166 F.3d 642 (4th Cir.) (plaintiff bears burden to prove subject‑matter jurisdiction)
Meyer v. Berkshire Life Ins. Co., 372 F.3d 261 (4th Cir.) (court not bound by party’s legal characterization; discretion on judicial admissions)
Int’l Ass’n of Fire Fighters, Local 2665 v. City of Clayton, 320 F.3d 849 (8th Cir.) (general rule that trustee, not beneficiary, holds cause of action for trust property)
Jaffree v. Wallace, 837 F.2d 1461 (11th Cir.) (discusses effect of lack of jurisdiction at time of removal on later amendments)