Life Insurance Beneficiary

ERISA Life Insurance

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A federal law commonly known as ERISA governs benefits obtained through an employer. If you are facing a dispute regarding the proper beneficiary of employer life insurance benefits, contact lawyers experienced in handling such cases.

 

What is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that governs employee benefits, such as pension plans, health insurance, disability insurance and life insurance.  ERISA requires plans to provide participants with plan information regarding management, requirements, and protocols for accessing benefits. Employer provided life insurance is generally considered part of an ERISA welfare benefit plan. ERISA requires plans to provide participants with plan information, including the terms and limitations of the plans. Sometimes employers directly manage life insurance plans, but typically they are administered by large insurance companies such as Metlife, Prudential, Hartford, Aetna, Dearborn National, or Mutual of Omaha.

In general, ERISA does not cover group health plans established or maintained by governmental entities, churches for their employees, or plans which are maintained solely to comply with applicable workers compensation, unemployment, or disability laws. It is very important to contact a lawyer experienced in ERISA claims to determine if life insurance obtained through employment is indeed governed by ERISA.

The first step that any lawyer experienced in handling life insurance disputes will take is determining if the dispute is governed by state or federal law. This is critical, as federal law overrides or "preempts" most state laws. That is particularly the case if the life insurance policy is governed by ERISA. 

Special rules apply to ERISA disputes.  They most often are resolved in federal courts and by Judges, not juries. Therefore, it is important that the attorneys you consult have experience in handling ERISA cases and appearing in federal court. 

 If a dispute arises regarding the proper beneficiary of a life insurance policy, insurance plan administrators rarely run the risk of paying twice if a court determines it paid the wrong claimed beneficiary. Therefore, federal law allows the insurance company to file what is known as an interpleader lawsuit so that a court can determine the proper beneficiary. The insurance company administrator is protected and the competing claimants are able to have a court determine the proper beneficiary.  In our experience, many disputes can be resolved through settlement either before the interpleader is filed, or not long after as the parties evaluate the uncertainty and length of litigation.


ERISA Policy Benefits

ERISA life insurance benefits can often be substantial, particular if an employee selects optional coverage at several multiples of their salary. Our firm has handled such disputes where the amount of the benefit is in the millions, although it is more common for the benefits to be in the $200,000 to $500,000 range. With such large amounts at issue, it is not surprising that disputes can arise regarding the proper beneficiary.  This is particularly the case where human resources departments may not regularly educate employees about updating their beneficiary designation or the proper manner to designate a beneficiary. 

Many beneficiary designations are made by policyholders at the time that the application for the policy is completed.  A number of issues can arise as the result of changes made to beneficiary designations. Most ERISA plans will specifically outline what steps are required in order to effectuate changes to beneficiary designations. Where such steps are not taken and/or partially taken, disputes can arise as to who is the rightful beneficiary.

Often, a policy holder will get divorced but forget to change the policy designation from the prior spouse. Sometimes it can be proven that the benefits were promised or pledged to someone other than the named beneficiary or the insured made efforts to change the designation.  Other times, the named beneficiary may have done something to prevent their recovery of the policy proceeds. In disputed cases, the insurance company will often seek a ruling from a court to determine the rightful beneficiary.  

Beneficiary designations can be challenged on the basis that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so. The evidence necessary to prove such claims is very similar to that in a traditional will contest, although the capacity required to make a designation is theoretically greater than the capacity to make a will. Capacity and undue influence claims are possible for ERISA policies because they are not attacks on the designation based on reference to external documents or state laws regarding designations. Instead, they are attacks on the validity of the designation document itself.

Sometimes, the insured will attempt to change a designation, but fails to do so in the manner prescribed by the insurance company. The insurance company may reject the effort and ask the insured to make the designation on the form and in the manner required by the company. Under federal common law, a beneficiary designation may be effective if it is in “substantial compliance” with the insurance company’s procedure, which has been defined as the insured’s doing all that he could reasonably have done to effect a change. Federal courts apply a similar standard in ERISA cases. 

In rare occasions, the named beneficiary may be accused of causing the death of the insured.  ERISA does not contain an explicit "slayer" exception.  However, a court may apply federal common law and rule that a beneficiary who causes the death of the insured should not receive the benefits. 

 Life insurance is considered a non-testamentary asset.  The life insurance policy is a contract between the purchaser and the insurance company, for the benefit of a third party.  Therefore, the contract generally determines who receives the policy proceeds. However, there are sometimes disputes regarding the validity of particular designations. In such cases, you need an attorney experienced in handling ERISA cases.