A federal judge from the Northern District of Texas has ruled for an insurance company in its dispute with Oklahoma State University (OSU), which was trying to regain the premiums it paid when it purchased insurance policies on wealthy athletic department boosters.
In so ruling, the court found OSU officials signed documents attesting that they received the policies, triggering a 10-day window set forth by an Oklahoma law that allows a party to back out of a deal within that time frame. OSU had maintained that that the clock didn’t start on the provision until they received the full contracts some two years later.
On the advice of OSU booster and legendary oilman T. Boone Pickens, the university established the so-called “Gift of a Lifetime” program in 2007 as a way to sustain and increase its revenues for decades to come. Twenty-seven boosters agreed to have life insurance policies taken out in their name that would pay the school when they died. In court filings, the university revealed that it was told it could make as much as $350 million through the program.
As part of the arrangement, OSU’s booster arm, Cowboy Athletics, would pay an annual $16 million premium payment for the policies, which was to be covered by a premium finance loan. That loan would then be repaid using the death benefits from the policies, and any excess would go toward building the fund’s income stream. True to form, the plaintiff made the first two annual payments of $16 million each.
Soon thereafter, university officials began to question the arrangement with defendant Lincoln National Life Insurance Co., and in January 2009, University President Burns Hargis reportedly asked an alumnus in the insurance industry to analyze the policies. After several requests to the brokers, Cowboy Athletics received the policies on March 24, 2009. Nine days later, on April 3, it sought to cancel the coverage, pursuant to the 10-day free-look provision in the contract. It requested a full repayment of the premiums, or more than $33 million.
OSU sued, claiming it paid inflated costs for coverage on the lives of the 27 donors and that the insurance agents – defendants James Glenn Turner Jr., John Ridings Lee, and Larry Keith Anders — had failed to deliver the physical policies in a timely manner.
The tipping point for the defendants, according to the court, was that OSU Athletic Director Mike Holder signed policy delivery receipt forms two years earlier and didn’t ask to see full copies, which Lincoln had kept.
The court ruled that Holder technically had received the policies on behalf of Cowboy Athletics Inc., the private foundation run by OSU’s athletic department.
“It was Holder’s own decision not to read the legal documents he signed and to not read the policies. Based on these documents, both Lincoln and Cowboy subsequently treated the issued Policies as valid and they both performed under the contracts,” the judge wrote. “For Cowboy to now claim breach of contract based on an alleged failure of delivery of the Policies would itself be inequitable.”
Furthermore, the brokers did not misled Oklahoma State, which “chose to proceed despite warnings from its advisers regarding mortality rates and statistical sampling error and warnings from the Brokers concerning the absence of long term financing.”
The court also required Cowboy Athletics to cover costs incurred by Lincoln and the other defendants in the case.
Clinton Howie, an attorney at Stacy & Conder LLP who represented Turner in the case, was pleased with the ruling, issuing the following statement: “We have maintained from the beginning that Mr. Turner, not only did nothing wrong, but repeatedly warned Cowboy Athletics about the very risks they later complained about in the lawsuit.”
OSU was less than thrilled.
“We are surprised and disappointed with the judge’s ruling,” said OSU spokesman Gary Shutt. “We are reviewing the opinion and assessing our options, including a possible appeal.”
The opinion is available at http://www.rgmfirm.com/pdfs/Order_Granting_MSJ.pdf
