Court denies fees to life insurance company

In Hartford Life v. Lecou, et al, Judge Susan Watters of the Montana federal district considered an application for attorney’s fees by a life insurance company. She denied the request for fees.

Hartford filed the interpleader lawsuit because it could not determine how to distribute payable life insurance benefits. It then deposited the disputed benefits into the registry of the court. Hartford sought a dismissal, an order enjoining the parties from bringing further legal action against Hartford, and an award of attorney’s fees.

The dispute involved an ERISA life insurance policy. The court noted that Hartford properly filed the interpleader lawsuit:

Hartford’s interpleader is proper, and the Court has jurisdiction to preside over it. The purpose of interpleader is for the stakeholder to protect itself against the problems posed by multiple claimants to a single fund. An interpleader action typically involves two stages: first, the court determines whether the requirements for a rule or statutory interpleader action are met—that is, whether there is a single fund at issue and whether there are adverse claimants to that fund. Second, if the interpleader action is proper, the court then establishes the respective rights of the claimants. Although subject-matter jurisdiction is rarely established for a Rule 22 interpleader by federal question under 28 U.S.C. § 1331, federal courts have jurisdiction to hear interpleader actions brought by fiduciaries under the Employee Retirement Income Security Act. Hartford meets those conditions here: it brings this interpleader action under ERISA, it has established a single fund at issue (the Plan Benefits), and it has established multiple adverse claimants to that fund (Hill and LeCou). Therefore, the interpleader action is proper, and the Court dismisses Hartford.

The competing parties opposed Hartford’s request for an award of attorney’s fees from the policy proceeds, for bringing the interpleader. The court noted that fees are often awarded to the insurance company that brings an interpleader. However, the award of fees in interpleader cases is within the discretion of the court:

“First, courts have found ... that insurance companies should not be compensated merely because conflicting claims to the proceeds have arisen during the normal course of business. Second, courts have declined to follow the general rule where the stakeholder is an insurance company, reasoning that “insurance companies, by definition, are interested stakeholders and that filing of the interpleader action immunizes the company from further liability under the contested policy. Lastly, “some courts have exempted insurance companies from the general rule based on the policy argument that such an award [would] senselessly deplete the fund that is the subject of the preservation through the interpleader.”

This dispute involved a small policy: $25,000. The court found that, in this case, the fees would substantially cut into the amount awarded: “any award of attorneys’ fees would seriously deplete the amount left available to the rightful beneficiary. Accordingly, the Court will deny Hartford’s request for attorneys’ fees and costs.”

In my experience, courts will typically award fees. But my experience is generally with larger policies. In most cases, the competing parties and the life insurance company can agree on a modest award of fees.

J. Michael YoungComment
Illinois federal court denies potential slayer's claim

In BANNER LIFE INS. CO. v. Shelton, the United States District Court, for the Northern District of Illinois Eastern Division considered whether a murdered decedent’s spouse who was also the beneficiary of her life insurance policy should receive the life insurance insurance proceeds if the investigation into the crime was still pending. The court considered under the Illinois Slayer Statute, since the beneficiary had not been ruled out as the killer.

On April 6, 2017, Ramona Shelton died of multiple gunshot wounds. At the time of her death, Ramona had a life insurance policy issued by Banner Life Insurance. The policy designated Derek Shelton, Ramona’s husband as the primary beneficiary and her children, as contingent beneficiaries.

After an inquiry, the medical examiner concluded that Ramona’s death was a homicide.  Armed with this conclusion, the Cook County Sheriff's Department began to investigate the alleged homicide. As a matter of routine, the Sherriff’s Department sought out Derek for information. Derek cooperated with investigators, was interviewed, supplied alibi witnesses, supplied exculpatory documents, and voluntarily took a polygraph test.

The investigation remained open while the matter concerning the rightful beneficiary of the insurance proceeds was determined. Throughout the investigation Sherriff’s Department did not say that Derek was a person of interest, target, or implicated in the death of Romana. The investigation, however, remained open and ongoing while the matter of the insurance proceeds was resolved.

In June 2017, Derek Shelton notified Banner of Romana's death, and filed the required claim forms. On October 2, 2017. Banner then filed an interpleader action and requested the insurance proceeds be deposited with the court. Banner asserting that it could not pay the insurance proceeds given that homicide investigation involving Ramona’s death had not been concluded. Banner further requested the court appoint a Guardian Ad Litem on behalf of Romana's minor children.

The court discharged Banner from the litigation and appointed a Guardian Ad Litem on behalf of Romana's minor children. The GAL objected to Shelton receiving the policy proceeds because Romana's homicide case remained open at the time.

In response to the GAL’s position, Derek then moved for summary judgment with respect to Banner’s interpleader complaint. Citing the Illinois Slayer Statute which states in part, "[a] person who intentionally and unjustifiably causes the death of another shall not receive any property, benefit or other interest by reason of the death, whether as heir, legatee, [or] beneficiary as the basis for relief. Shelton argued as the sole primary beneficiary of the policy and the only person who has asserted a claim to the funds and given the fact he did not “intentionally and unjustifiably” cause Ramona’s death there is no genuine issue of material fact to be litigated in the and is thus entitled to a judgment as a matter of law.   The Court denied Derek’s motion for summary judgment without prejudice allowing him the right to refile at the proper time. Derek appealed the denial of his motion.  

On appeal the Court reasoned that, as a preliminary matter Derek "sustained his burden of establishing a right to the insurance proceeds," and it becomes the burden of the objector to prove "a greater right thereto or, as in this case, some affirmative matter defeating plaintiff's claim." The court noted the mere fact that the homicide investigation remains open does not satisfy that burden; however, because the investigation remains open and ongoing, the GAL does not have access to any evidence that might help satisfy that burden thus without any more information the court could not as a matter of law award the proceeds to Shelton.

J. Michael YoungComment
Father disqualified from receiving SGLI benefits

In Prudential v. Grohman, federal judge William Jung of the Middle District of Florida, Tampa Division, considered a case of parents convicted of child abuse felonies in connection with the death of their child. The court ruled that neither parent was entitled to the benefit.

The father was a servicemember in the US Army. He purchased Servicemembers Group Life Insurance (SGLI) coverage on his infant child. The infant died of what was ruled a homicide caused by seizures resulting from head injuries. The father pled guilty in Tennessee to aggravated child abuse, causing bodily injury.

The court ruled that the father was not eligible to receive the benefits, citing 38 CFR Section 9.5:

(e)(1) The proceeds payable because of the death of an individual insured under Servicemembers' Group Life Insurance or Veterans' Group Life Insurance (“decedent”) shall not be payable to any person described in paragraph (e)(2) of this section. A Servicemembers' Group Life Insurance Traumatic Injury Protection benefit payable under § 9.20(j)(3) shall not be payable to any person described in paragraph (e)(2) of this section.

(2) The persons described in this paragraph are:

(i) A person who is convicted of intentionally and wrongfully killing the decedent or determined in a civil proceeding to have intentionally and wrongfully killed the decedent;

(ii) A person who is convicted of assisting or aiding, or determined in a civil proceeding to have assisted or aided, a person described in paragraph (e)(2)(i) of this section; and

(iii) A member of the family of a person described in paragraph (e)(2)(i) or (e)(2)(ii) of this section who is not related to the decedent by blood, legal adoption, or marriage.

The court then awarded the SGLI policy proceeds to the grandmother of the deceased infant.

Michigan court awards life insurance to ex wife

In Metlife v. McDonald, Judge Michelson of the Eastern District of Michigan evaluated competing claims to a life insurance policy.  The contest centered on the effect of a divorce decree.  As usual for ERISA life insurance beneficiary disputes, federal law controlled, but with reference to a state divorce decree.

Leon McDonald and Sarah McDonald were married  for over 20 years. They divorced in February of 1986.  The Florida Divorce Agreement stated, “The husband [Leon McDonald] shall name the wife [Sarah L. McDonald] as the primary beneficiary of the husband’s General Motors Corporation life insurance policy, and shall name as equal contingent beneficiaries thereof the parties’ daughter [and the parties’ two grandchildren]. The husband shall continue to have the above persons as his primary and contingent beneficiaries, unless such persons agree to a change.”

Leon later married Beatrice McDonald. Despite the terms of the prior divorce decree, Leon named Beatrice the beneficiary of the General Motors life insurance policy.   

Leon then died in 2016.  Sarah and Beatrice filed competing claims to the life insurance proceeds.  Metlife, the ERISA administrator of the life insurance plan, filed the interpleader lawsuit in federal court. Sarah’s position was that the divorce decree trumped the designation form.  Beatrice argued the opposite: that the beneficiary designation controlled.

The court first noted that ERISA’s provisions preempt or “supersede any and all State laws insofar as they...relate to any employee benefit plan” governed by ERISA. Because the Divorce Agreement was incorporated into the divorce judgment entered by the state court, and because it attempted to dictate the beneficiaries of an ERISA-governed policy, it is a state law that relates to an employee benefit plan.  As such, it would typically be preempted.  However, in 1984, Congress amended ERISA to provide greater protection for spouses and dependents after a divorce. In particular, Congress exempted qualified domestic relations orders (or “QDROs”) from ERISA’s anti-alienation and preemption provisions. So if Leon and Sarah’s Divorce Agreement is a QDRO, then the Divorce Agreement would not run afoul of ERISA’s anti-alienation provision. Nor would the Divorce Agreement be preempted by ERISA.

When Congress amended ERISA in 1984 to remove QDROs from the ambit of preemption, it gave greater protection to spouses and dependents by allowing a state order, outside of the four corners of the employee benefit plan, to modify the distribution of the plan’s benefits. But Congress had to balance that “greater flexibility” for family members against a plan administrator’s obligations under ERISA.

The court evaluated whether the divorce decree met the requirements of a QDRO: (1) “the name and the last known mailing address (if any) of the participant”; (2) “the name and mailing address of each alternate payee covered by the order,” (3) “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined,” (4) “the number of payments or period to which such order applies,” and (5) “each plan to which such order applies.” To qualify, the divorce decree must  clearly specify those five items.  

The court reviewed the divorce decree between Leon and Sarah. It listed their names and the marital address.  It listed Sarah as the sole, primary beneficiary. So it “clearly specified” “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined.” Because it is a life-insurance policy, and because Sarah is the sole, primary beneficiary on the policy, the Divorce Agreement by clear implication provides “the number of payments”: one. Likewise, had Sarah died before Leon, one payment of equal share would be made to the surviving contingent beneficiaries. 

Beatrice’s primary argument was that the divorce decree did not meet the fifth requirement because it did not clearly specify “each plan to which such order applies.” Beatrice argued that Leon had five or six life insurance policies.   But in 1985, Leon only had one life insurance policy through General Motors.  Thus, the court found that the policy was specifically identified and that it was QDRO.

Beatrice further argued that the decree was not valid regarding the life insurance, because Florida law prevents divorcing spouses from agreeing to maintain one spouse as the primary beneficiary of the other’s life-insurance policy. But the court found that such is not prohibited under Florida law and rejected that argument.

Finally, Beatrice contended that she paid almost $5,000 for Leon’s funeral expecting that she would receive the life insurance payout.  She asked the court to impose a constructive trust for that amount of the General Motors life insurance proceeds, so that she could be reimbursed for the funeral expenses. The court rejected this argument, stating:

Here there is nothing inequitable about Sarah receiving all the proceeds from the GM policy. When Beatrice paid for Leon’s funeral expenses, she may have believed that she was entitled to the proceeds from the GM policy. But she knew—or should have known—that the issue was not free from doubt. About two weeks before Beatrice paid the funeral home, MetLife mailed her (and Sarah) a letter stating that Sarah had laid claim to the benefits. And the letter quoted the language from the Divorce Agreement requiring Leon to name and maintain Sarah as the beneficiary. So it seems that in paying the funeral home, Beatrice took the risk that she would not be awarded the proceeds of the GM policy. Moreover, Beatrice, Leon’s wife at the time of his death, has not shown that she would not have paid the funeral expenses had there been no GM policy (or if MetLife had decided that Sarah should get the proceeds), that Sarah, who had divorced Leon three decades earlier, had given any indication that she would pay for some of Leon’s funeral, or that Sarah attended the funeral or in any way benefitted from it. Further, Sarah claims, and Beatrice has not denied, that Beatrice received proceeds from Leon’s other life-insurance policies; Beatrice has given no reason why the funeral expenses should not be paid from the proceeds from those policies. In all, equity does not favor Beatrice.

Therefore, the court awarded the entirety of the life insurance benefits to Sara.

If you are facing a life insurance beneficiary dispute, it is extremely important that you contact a lawyer experienced in ERISA life insurance. Many lawyers are not familiar with ERISA and may not evaluate the dispute properly up front.

Arkansas federal court applies the doctrine of substantial compliance

In Primerica v, Woodall, et al, Judge Susan Wright of the Eastern District of Arkansas considered a life insurance dispute involving the doctrine of substantial compliance.  This doctrine is fairly common raised in  life insurance beneficiary disputes. 

The court set out the background as:


On August 25, 1986, Primerica, then known as Massachusetts Indemnity and Life Insurance Company, issued a life insurance policy to Garvin (the “Policy”) insuring his life in the face amount of $100,000. The Policy included spousal term insurance or a spousal rider, which provided a $50,000 payment to Garvin, if alive, upon the death of the insured spouse. The Policy named “Betty Jo Reid” as both the principal beneficiary and the insured spouse, and Garvin and Betty Jo’s children (Kristy, Misty, Jodie, and Jerry) were the designated contingent beneficiaries. 

Garvin and Betty Jo divorced in 1992, and Betty Jo is now named Betty Jo Woodall. Garvin married Ila on July 10, 1993. In October 2001, Garvin contacted Primerica to confirm the identity of the Policy beneficiary, and by letter dated October 5, 2001, Primerica informed Garvin that “Betty Jo Reid” was still listed as the principal beneficiary. 

On April 10, 2002, at Garvin’s request, Primerica mailed him a form titled “MULTIPURPOSE CHANGE FORM.” Later that month, Primerica received a MULTIPURPOSE CHANGE FORM, dated April 21, 2002, signed by Garvin, Ila, and two witnesses. The form had three main sections, clearly separated by box borders. The first section was titled “NAME CHANGE;” the second, “TRANSFER OWNERSHIP;” and the third, “CHANGE BENEFICIARY.” The “CHANGE BENFICIARY” section had three subsections: “PRINCIPAL BENEFICIARY,” “CONTINGENT BENEFICIARY,” AND “SPOUSE RIDER BENEFICIARY.” 

Garvin completed the NAME CHANGE and CHANGE BENEFICIARY sections of the form that he submitted to Primerica. In the “NAME CHANGE” section, a handwritten checkmark appeared beside the selection “Insured Spouse;” “Betty Reid” is written on a line reserved for “Prior Name;” “Ila Elaine Reid” is written on a line reserved for “New Name;” and “marriage” is written on a line reserved for “Reason for Change.” Under the “CHANGE BENEFICIARY” section, which appears on page 2 of the form, the following language appears:

All designations of present beneficiaries and elections of settlement options pertaining to death benefits on the referenced Policy are hereby revoked and the proceeds payable under said Policy are to be paid to the following named person[s] as specified below pursuant to the payment provisions of said Policy, with the right to change the designation reserved.

Immediately following the foregoing language, the name “Ila Elaine Reid” is handwritten on a line reserved for the “Principal Beneficiary,” the number “100” appears on a line reserved for beneficiary percentage allocation, and the word “wife” is written on a line reserved for relationship to the insured. Garvin also supplied Ila’s social security number and birth date, as the form required.


Transamerica wrote a letter back to the insured on May 6, 2002, requesting information supporting that there was a legal name change. But he never responded.

However, he called the insurance company in late 2015 and in 2016 to allegedly confirm that Ila was the designated primary beneficiary.  After he died, Primerica was confused and apparently believed that Betty Jo and Ila were the same person.  However, after a review Primerica decided that Betty Jo was the correct beneficiary.  Ila of course objected and Primerica proceeded to the interpleader lawsuit

Judge Wright reviewed the April 2002 designation change form.  While the insured did not complete it correctly, she found that he clearly intended to make Ila the primary designated beneficiary of the policy. And he supplied Ila’s social security and birthdate, to distinguish her from Betty Jo.

Betty Jo argued that, while his intent may have been clear on the form, it was ultimately nothing more than “a mere announcement of a desire or preference to change his beneficiary.”  And Primerica did not process the change request.

But the court rejected this argument, noting that he had done everything he reasonably could to change the beneficiary from Betty Jo to Ila:


Arkansas follows the doctrine of substantial compliance, which dictates that where “the insured has done everything reasonably possible to effect a change in beneficiary, a court of equity will decree that to be done which ought to be done” . . . The undisputed evidence shows that Garvin intended to change the primary beneficiary of the Policy to his wife, Ila, and that he did everything reasonably possible to make that change. Because Garvin substantially complied with the Policy’s change-of-beneficiary provision, the Court finds that Ila Reid is entitled to judgment in her favor as to the insurance proceeds.


Many states apply the doctrine of substantial compliance to life insurance beneficiary designations.  Many federal courts also recognize the doctrine.  It is extremely important to consult an attorney experienced in handling beneficiary disputes.

Court does not enforce spreadsheet entry

In McKenzie v. McKenzie, SA-17-CA-232-HJB (W.D. Tex. Apr. 9, 2019) the United States District Court, Western District of Texas San Antonio Division the court considered whether an electronic spreadsheet indicating an ERISA policy beneficiary absent any of the other required designations of beneficiary forms offered by the insurance provider would suffice to establish beneficiary status. The court concluded that under ERISA strict compliance with the policy’s documentation requirements were not satisfied by a notation of the decedent’s beneficiary on an electronic spreadsheet.

Tressa McKenzie and Aaron McKenzie were married on July 26, 2009. Aaron’s first marriage had ended in divorce but had produced a daughter, Antwonique McKenzie. Aaaron McKenzie was employed by Star Shuttle which offered an "employee welfare benefit plan" as defined by ERISA.  On or about May 20, 2016, Aaron McKenzie purchased an $80,000 term life insurance policy from Dearborn through Star Shuttle. A third party, Sun Life Financial, acted as the enroller for the Policy.   The Dearborn policy stated that life insurance proceeds would be paid to the decedent’s “beneficiary.”

Aaron McKenzie passed away on January 22, 2017. After his death Star Shuttle attempted to determine the beneficiary of his life insurance policy. Upon investigation it found that there Aaron McKenzie had not designated a beneficiary on a written form; rather, because Aaron had signed up for the policy through an online “enroller” system, there was only a computer spreadsheet indicating the beneficiary. The spreadsheet indicated that the beneficiary was Aaron’s daughter, Antwonique McKenzie.

After Aaron McKenzie’s death, both Plaintiff and Defendant filed claims seeking life insurance benefits. Star Shuttle informed Dearborn that Plaintiff was the beneficiary of the policy, but that it had no more than a spreadsheet entry to show this. Dearborn, in turn, contacted both Plaintiff and Defendant by letter, advising them of their competing claims and indicating that, if an agreement could not be reached between them, it would file an interpleader action in court “to determine judicially which [of them] is the rightful claimant.” “In other words,” Dearborn continued, “if we cannot determine who the beneficiary is, the courts decide.” In response to Dearborn’s letter, Defendant agreed to a 50/50 split of the life insurance proceeds; Plaintiff, however, did not. In light of the dispute regarding the proceeds of the death benefit, Dearborn filed an interpleader action.

The Dearborn policy included a provision allowing for electronic forms to be treated as “written”; by its terms, however, this provision applies only to claim forms, not to the designation of beneficiaries. Further, the policy required that the designation of the life insurance beneficiary “must be made on a form which [Dearborn] provide[s] or on a form accepted by [Dearborn].” According to the policy if no beneficiary was named, Dearborn “will pay the amount of insurance ... to [the decedent’s] spouse, if living.”

For purposes of the above Policy provisions, the term "form" is not defined. However, Dearborn's "Statement of ERISA Rights," which was submitted in evidence, indicates that a "form in writing" may include electronically submitted documents.

According to testimony in a deposition upon written questions given by Star Shuttle records custodian Christina Carmen Casas, Antwonique McKenzie was the designated primary beneficiary under the policy. The only source Casas could identify for this information was a spreadsheet entry in Star Shuttle records indicating that Antwonique McKenzie was the beneficiary.

In consideration of the competing claims to the policy, the court looked to the statutory language of ERISA. Under the statute, a plan administrator is obliged to act following the documents and instruments governing the plan insofar as such documents and instruments are consistent with the applicable provisions of ERISA. See 29 U.S.C § 1104(a)(1)(D).  In accordance with the guidance provided by ERISA, the court noted that the Policy states that the participant may designate a beneficiary "on a form which [Dearborn] provide[s] or on a form accepted by [Dearborn]." Accordingly, the court concluded that Aaron McKenzie did not submit a "form"—his enrollment and designation were processed electronically online and recorded in a spreadsheet maintained by a third-party enroller.

Because Antwonique McKenzie was not the properly designated beneficiary of the Dearborn Policy, the benefits of the Policy must be paid to Aaron McKenzie's surviving spouse, Tressa McKenzie. Because Dearborn neither provided nor accepted the electronic spreadsheet as a form designating a beneficiary, Aaron McKenzie did not "name a beneficiary" under the terms of the Policy. Accordingly, the Policy requires that the insurance benefit be paid to Aaron McKenzie's "spouse if living.” Tressa McKenzie was Aaron McKenzie's spouse at the time of his death; accordingly, she is entitled to the death benefit under the Policy.

J. Michael YoungComment
New Mexico federal court considers interpleader jurisdiction

In PRIMERICA LIFE INSURANCE COMPANY v. Montoya, CV No. 18-109 JCH/CG (D.N.M. May 4, 2018). the federal  Northern District of New Mexico addressed a complex question involving an insurance provider whose interpleader claim forced the court to consider whether a party invoking interpleader may do so even if the remaining claimants do not have diversity of citizenship. The Court affirmed the precedent that where jurisdiction was present at time case was filed, dismissal of stakeholder, leaving only claimants who were nondiverse, did not destroy that jurisdiction.

The case involved a life insurance beneficiary dispute. In 1998 Joseph Trujillo purchased a life insurance policy from Primerica Life Insurance Company. The Policy, named his wife at the time, Cynthia Montoya, and his niece Bianca Trujillo, as the primary and contingent beneficiaries, respectively. After 18 years of marriage, Joseph and Cynthia divorced in 2016. The divorce decree entered by the court made no mention of how the life insurance policy was to be treated after the divorce. Joseph never removed Cynthia as the policy’s primary beneficiary.

Joseph passed away in March 2017. Upon his death, Cynthia, assigned almost $10,000 from the life insurance proceeds to Hass Funeral Services to help pay for Joseph's funeral expenses. Hass in turn assigned the contract to Defendant Heritage Memorial Funding, LLC, a Mississippi entity.  Soon after that, Cynthia, Heritage, and Bianca all made claims against the policy proceeds.

Upon processing Cynthia's claim, Primerica discovered for the first time that she and Joseph divorced. Primerica contended it could not determine what beneficial interests if any, Defendants had to the Policy's proceeds under New Mexico's statute dealing with revocation of non-probate transfers, NMSA 1978 § 45-2-804.

Given the competing claims to the policy between Cynthia and Bianca, Primerica filed an interpleader lawsuit and deposited the $80,000 fund into the Court's registry.  Primerica's Complaint invoked both statutory and rule interpleaders. When presented with the question as to how or if Primerica may be dismissed from the case, the court took note of the two species of interpleader. "Whereas complete diversity is a prerequisite for rule interpleader under Fed. R. Civ. P. 22 (stakeholder must be diverse from all claimants), statutory interpleader requires only minimal diversity (at least two claimants must be diverse, but citizenship of stakeholder is irrelevant.” The Court reasoned that since Primerica was not part of the "real controversy" involved in the case; therefore, the court should only look to the citizenship of Heritage, Bianca, and Cynthia. At the time of filing, diversity of citizenship did exist because of at least one claimant, Heritage, a citizen of Mississippi. However, Heritage had been dismissed from the case earlier, thus leaving Cynthia and Bianca, both residents of New Mexico who did not have a diversity of citizenship.

The court ruled that Primerica should be dismissed from the case even though the full diversity of citizenship of the remaining parties was not present. The court noting that Primerica's discharge from the case “would not destroy the Court's jurisdiction founded on diversity of citizenship even though the remaining claimants, Bianca and Cynthia, are not of diverse citizenship from each other.”  Secondly, the court noted that Primerica had a legitimate fear of multiple liabilities given that “Cynthia and Bianca have asserted mutually exclusive claims to the stake. Primerica asserts no claim to the stake and has represented itself as a disinterested stakeholder wishing to pay its obligations” by depositing its stake into the Registry of the Court and by agreeing to waive its attorneys' fees for litigation associated with this action. Thus, the Court ruled that Primerica should be allowed to avail itself of interpleader.

Life insurance lawyers.

J. Michael YoungComment
Hawaii federal court determines application of slayer statute


In July 2018 the Federal District Court for Hawaii ruled in HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY v. ADVIENTO, Civ. No. 16-00565 HG-RLP (D. Haw. July 10, 2018) that the Hawaii slayer statute precludes a husband who is found guilty of manslaughter, provoked by extreme mental and emotional disturbance of his life insurance policyholder spouse, from recovering the proceedings of a life insurance policy. 

The interpleader beneficiary dispute case was brought by the Hartford insurance company, who requested that the Court decide the rightful beneficiaries to the life insurance policy. The slayer spouse had requested that Hartford grant him the ability to designate the proceeds of his deceased spouse’s life insurance policy as he sees fit by giving the entire amount to his daughter. Hartford requested that the Court decide as to the rightful beneficiaries to the policy.

In 2004 a group life insurance policy was issued to Erlinda Adviento payable in the event of her accidental death. When the policy was issued, a beneficiary was not designated, therefore according to the terms of the policy the proceeds would be payable first to the spouse of the insured, and if not to the spouse, to the surviving children. In this case, Mrs. Adviento was married to Melchor Adviento, the circumstances surrounding the violent end to their marriage would provide the foundation for the legal questions presented to the court in this case.

On October 28, 2007, Mrs. Adviento was killed by her husband who was later found guilty by a jury of murder in the second degree. He was sentenced to a term of life imprisonment with the possibility of parole after a minimum of ten years imprisonment.

Mr. Adviento appealed the all the way to the Hawaii Supreme Court who found that the trial court failed to provide a jury instruction on the affirmative mitigating defense of extreme mental or emotional disturbance even though Defendant Adviento had chosen to waive the defense as part of trial strategy. The case was remanded back for retrial. After reaching a deal with prosecutors on the eve of trial Mr. Adviento pled guilty to a lesser charge of manslaughter and was sentenced to a term of imprisonment of 20 years. Mr. Adviento then requested the right to designate where the proceeds of his spouse’s life insurance policy are directed.

Hawaii’s slayer statute provides that an individual who "feloniously and intentionally kills the decedent forfeits all benefits" to the decedent's estate, including benefits to the decedent's life insurance policy. The court in Adviento was presented with the question of whether Mr. Adviento’s subsequent guilty plea for manslaughter would take his conduct outside the realm of the Hawaii slayer statute.

The court noted:

Slayer statutes are not penal, punitive, or compensatory. . . . Slayers statutes do not cause the killer to forfeit any of their own property. Rather, the rule prevents the killer from benefitting from the wrong he committed. The social interest served by refusing to permit a criminal to profit from his crime is greater than that served by the preservation and enforcement of legal rights of ownership

The court reasoned that under Hawaii law manslaughter is considered a felonious and intentional killing for purposes of the Hawaii slayer statute. The fact that Mr. Adviento’s plea agreement contained a factual finding that the killing of his wife was the product of extreme mental or emotional disturbance was irrelevant to considerations concerning the slayer statute given that a finding of extreme mental or emotional disturbance which precipitates a killing only offers a mitigating defense which reduces murder to manslaughter but does not negate the intent element of the crime. For the purposes of Hawaii’s slayer statute, an individual found guilty of an intentional killing regardless of mitigating circumstances is precluded from benefiting from their victim’s estate. 

If you are confronted with a beneficiary contest where the slayer statute is an issue, contact an experienced life insurance lawyer.

Michigan federal court does not fault insurer for paying portion of policy proceeds

Metlife v. Robinson is a life insurance beneficiary dispute pending in the federal Eastern District of Michigan. Metlife filed an interpleader lawsuit after facing competing claims to the life insurance proceeds of a former employee of General Motors.

The Decedent had basic and optional life insurance coverage through General Motors, administered by Metlife. He had executed a series of different beneficiary designations from 2014 through 2017. According to Metlife, the first designation in 2014 left 100% of the proceeds of the basic and optional policies to his wife. The second designation in 2015 modified the supplemental coverage, leaving it to the decedent’s two children and to his sister. The third designation in 2017 was somewhat confusing. In a form, he designated his spouse as 80% beneficiary of both policies, with the remaining to his two children. But the letter stated he was leaving 100% of the basic and 80% of the supplemental to his wife, with his two children receiving the balance of the supplemental. Metlife then sent him a letter confirming the letter designation. There was also a new designation by telephone later in 2017 that included his two stepchildren.

After his death, Decedent’s two children notified Metlife they were contesting one or more of the designations. They included various documents intended to show Decedent had a negative view of his wife and that he intended a designation scheme different from those Metlife had on file.

Metlife sent 80% of the basic life proceeds to the wife, because under the various designations she was to receive at least that amount. Metlife than filed an interpleader for a court to resolve who should receive the remainder of the benefits.

After Metlife filed the interpleader, the sister and two children filed a counterclaim against Metlife. They contended Metlife wrongfully paid 80% of the basic life benefits to the wife, claiming that: (1) MetLife acted arbitrarily and capriciously to change Decedent’s beneficiary designations; (2) MetLife breached Decedent’s insurance agreement; (3) MetLife breached an implied covenant of good faith and fair dealing; (4) MetLife tortiously breached an implied covenant of good faith and fair dealing; (5) MetLife acted in bad faith; and (6) MetLife engaged in unfair trade practices.

Because the policy was governed by ERISA, Metlife moved to dismiss all of the state law claims. The Court unsurprisingly agreed that federal ERISA law preempted claims under Michigan state law. The court did find that the children could assert an “arbitrary and capricious” claim against Metlife under ERISA. However, the Court ultimately dismissed that claim, finding that under the circumstances Metlife did not abuse its ERISA discretion in distributing 80% of the basic life proceeds to the wife and only interpleading the rest.

Anyone contesting or defending an ERISA life insurance beneficiary designation should consult an attorney experienced in evaluating such claims.

J. Michael YoungComment
Court grants summary judgment in favor of widow

I keep coming across slayer statute cases. They make for interesting scenarios. Garden State Life Insurance v. Estate of Raine, et al, certainly fits that description.

This is a case out of the Federal Southern District of Mississippi. At the time of his death, decedent James Raine was married to Emma Raine and had designated her as the sole beneficiary of the life insurance policy at issue.

According to the opinion by Judge Keith Starrett, James Raine died of gunshot wounds in 2011, while in his home in Poplarville, Mississippi. He was shot multiple times in the forehead, chin, head and neck.

In 2013, James’ family began estate proceedings and contended Emma caused his death. The insurance company responded by filing the interpleader. The Mississippi slayer statute provides, in pertinent part:

If any person willfully cause or procure the death of another in any way, he shall not inherit the property, real or personal, of such other; but the same shall descend as if the person so causing or procuring the death had predeceased the person whose death he perpetrated.

Emma filed a motion for summary judgment, arguing that the Estate had no evidence that she actually caused James’ death. The Court noted:

In order to terminate Emma Raine’s interest in the proceeds, the Estate bears the burden of proving by a preponderance of the evidence that Emma Raine willfully caused or procured the death of James R. Raine. Emma Raine has moved for summary judgment on the grounds that the Estate of James R. Raine cannot prove an essential element of its claim and as a matter of law it is entitled to summary judgment, finding her the rightful beneficiary under the Policy. In particular, Emma Raine claims that the Estate cannot establish that she willfully caused or brought about the death of James R. Raine.


Because the Estate bears the burden of proof at trial to show that Emma Raine willfully caused or procured the death of James R. Raine, Emma Raine is not required to “produce evidence negating the existence of a genuine issue of fact, but only to “point out the absence of evidence supporting the nonmoving party’s case.” She has satisfied that burden. Emma Raine contends that there has simply been no evidence adduced in discovery that the Estate can use to support its position—no witnesses named, no expert, no copy or description of any document, and there has been no written discovery propounded, no subpoenas issued, and no depositions taken.

From the case summary, it appears that Emma had quite a history:

(1) James R. Raine was shot and killed at his home on October 21, 2011; (2) Emma’s second husband, Ernest J. Smith, Jr. was shot and killed at his home; and (3) Emma Raine was subsequently convicted of the murder of her husband number two, Ernest J. Smith, Jr., but not before she collected a portion of $800,000 life insurance proceeds from Primerica

The decision also notes that Emma also had convictions for bankruptcy fraud and tax fraud. However, the Court found that such history did not provide evidence that Emma killed James. The Court summarized such evidence from the Estate as:

The only evidence the Estate submitted in response to the Motion for Partial Summary Judgment is an affidavit from Angela Fowler, James R. Raine’s sister. In her affidavit, Ms. Fowler avers that she is familiar with Emma Raine as her sister-in-law and that Ms. Fowler had the opportunity to observe their relationship and engage in conversations with each of them. See id. Ms. Fowler also states that Emma Raine was bossy and tried to isolate James R. Raine from his family. See id. She states that Emma Raine was not a loving wife and recounts other observations that can best be summarized as Emma Raine acting indifferently when “her little dog was licking James [sic] blood off the floor” and making inappropriate comments to James’ mother the day after his death. Id.


Ms. Fowler further states that she knows Emma Raine owned a gun and that James had taught them both how to shoot. Finally, Ms. Fowler swears that she visited the house where James was killed the day after the shooting and “did not see anything that looked like the house had been broken into;” nothing was missing; valuables were there; there were no signs of burglary; and it “appeared that he was killed in his sleep on the bed and there was no sign of a struggle.”

The Court did not find that amounted to much in support of a slayer statute claim:

Finally, the Estate claims that the only witnesses likely to have discoverable information about the circumstances surrounding James R. Raine’s death are his family and law enforcement officials, but because the case is open and still under investigation, such information is not discoverable. The Estate submitted no other affidavits from family or law enforcement. There is nothing in the record showing that the investigation is still ongoing, nor is there any evidence in the record that any arrests have been made in the almost seven years since the homicide. If there are individuals who are capable of testifying from their own personal knowledge, as the Estate claims on Page 4 of its memorandum, this was the time to present that testimony in the form of affidavits even if discovery from their own witnesses was deemed unnecessary.

The Court obviously felt that if charges were forthcoming, the Estate would have explained why they had not been brought in the seven years since James’ murder.

J. Michael YoungComment
California court rejects wrongful death claim

In Sidorov v. Transamerica Life Insurance Company, Judge Kimberly Mueller of the Eastern District of California considered a number of claims against a life insurance company. The most interesting of those claims were for negligence and wrongful death.

The factual background is that a husband purchased a number of policies on the life of his wife in 2003. Each policy listed the husband as beneficiary. One such policy was issued by Transamerica, with a $2 million dollar benefit.

In 2007, husband apparently reported to Transamerica that wife had died. Transamerica began processing the claim. Husband then notified Transamerica that wife was not deceased, verbally explaining she had “recovered.” Transamerica then closed the pending claim and reinstated the policy.

In January of 2010, Mexican police arrested the husband and an accomplice for the murder of wife at a resort hotel in Acapulco de Juarez. It was unclear if they were ever convicted of a crime, but they were held in a Mexican prison for over six years.

In 2014, a son of the wife eventually opened a probate case in California. The probate court decided that the husband could not receive the Transamerica policy benefits because of California’s “slayer statute.” The probate court further ordered that the son should receive the benefits.

In 2016, son filed a federal court suit against Transamerica. One of the claims was that Transamerica should have paid to him certain premium payments the company received after wife died. The more interesting claims were the ones for wrongful death and negligence.

Son claimed that he learned in 2010 that husband was motivated to murder wife to recover the millions in life insurance policies. He claimed that Transamerica should have been on notice that husband was up to no good, for two primary reasons:

  • Wife had minimal income in 2003 and Transamerica knew or should have known that his mother was over-insured at the time it issued the policy; and

  • The 2007 “report” and application for benefits by husband should have raised red flags. Obviously, people who are deceased do not “recover.” Son alleged that Transamerica failed to engage in any investigation of the obviously fraudulent claim or otherwise report it to the California Department of Insurance.

These are interesting arguments, particularly the 2007 events. As set out in the decision, such an application and withdrawal should have rung alarm bells with Transamerica. That said, it is unlikely that the court would have found Transamerica was legally liable for the wife’s death.

But the court did not reach the merits of those claims. The court noted that the California statute of limitations for negligence and for wrongful death is two years. The court noted that the son filed the federal suit almost seven years after his mother died. The court noted that the son raised the discovery rule. The court dealt with this contention:

Here, [son] has not pled his inability to have made the discovery of multiple insurance policies and information related to those policies by the time he possessed the very paperwork containing these policies. [Son] pleads in the complaint that he “was deeply upset at the perceived injustice of the situation and tossed the materials taken from the house in a box in his closet” in 2011, only providing those materials to his counsel in “or about 2014.” But this allegation does not explain why [son]was unable to review the paperwork he placed in a closet or turn this information over to his attorney at that time. See Briosos v. Wells Fargo Bank, No. C 10-02834 LB, 2011 WL 1740100, at *6–7 (N.D. Cal. May 5, 2011) (plaintiff’s allegation “that he was in a compromised emotional state” without offering “additional factors or explanation as to how this prevented him from exercising reasonable diligence” insufficient; dismissing claim with prejudice). Moreover, that [son] “had not realized the significance of the papers until he spoke with his attorney” has no consequence here. [Son] had the opportunity to obtain critical information from these documents. Thus, taking [son’s] factual allegations as true, the latest date the statutes of limitations could have accrued was December 31, 2011, with a complaint due by December 31, 2013 for any negligence claims

Under the court’s analysis, son missed the statute of limitations by a very wide margin.

It is always important to consult an experienced life insurance attorney as soon as possible when considering a claim regarding benefits.

J. Michael YoungComment
Iowa court enforces marriage dissolution decree

In State Farm Insurance Company v. Avila, et al, Judge Pratt of the federal Southern District of Iowa considered the effect of a divorce on a life insurance beneficiary designation.  The dispute was between the minor children of a prior marriage and the child of a later marriage.

The insured purchased a life insurance policy through State Farm while he was married. They later divorced.  The divorce decree with his ex wife specified that he would maintain their children as irrevocable beneficiaries of the policy.  However, the insured later changed the designation, in favor of a daughter from a later marriage. 

The children of the earlier marriage challenged the later beneficiary designation. In analyzing the dispute, the federal court applied Iowa law.  Iowa law provides that a designated beneficiary of a life insurance policy has no vested interest in the insurance policy.  In other words, “the insured has complete control and domination of the policy” and may freely change beneficiaries.  Therefore, an insured typically is free to change a designation and the prior designee has no claim to prevent a change.

But the federal court also noted another proposition of Iowa law is that when a beneficiary is named pursuant to contract, the insured loses power to designate different beneficiaries.  Iowa precedent had established that this proposition applies to divorce dissolution decrees:

Stackhouse establishes that this second proposition extends to dissolution decrees. In that case, the decedent obtained a life insurance policy during his first marriage. After they divorced, the decree required the decedent to name his two children as the sole beneficiaries of the policy. Id. The decedent later remarried and named his second wife as the beneficiary, with his two children as contingent beneficiaries. Id. Upon his death, both his children and his second wife claimed the life insurance proceeds. The court held decedent ‘could not avoid his obligation ... by changing beneficiaries of the policy,’ and thus, enforced the decree and ordered the life insurance proceeds paid to his two children.

In this case, the insured had taken out a policy before the divorce.  The divorce decree required him to name his children as irrevocable beneficiaries of “the Life Insurance policies currently insuring [his] own life.” Because of this provision, he was not able to change the named beneficiaries after the decree was entered.

The daughter of the later marriage argued that equity favored her position.  She noted that the children of the prior marriage had already collected on a second policy. She contended that the intent was clearly for the children of the prior marriage to receive that second policy, while she received the proceeds of the disputed policy.  But the court rejected that argument:

In interpreting and enforcing the dissolution decree, the Court declines to speculate on [his] intent based on these actions. Indeed, Iowa courts look to the dissolution court’s intent, not the parties’ intent, in construing a dissolution decree, as indicated by the decree’s four corners. The decree clearly states [the children] are irrevocable beneficiaries, and Iowa law compels the Court to enforce that provision.

I see a lot of beneficiary disputes involving divorce decrees or settlements.  The outcome of these cases is dependent upon the law of the particular state and the particular wording of the decree.  It is very important to consult a lawyer experienced in evaluating life insurance interpleader disputes. 

Contestant does not appear. Contestant loses

They say half of life is showing up.  That is demonstrated by a case out of Nevada. In Thrivent Financial for Lutherans, Nevada federal district court Judge Mahan considered a beneficiary dispute where one of the contestants did not show up in court.  Not surprisingly, that contestant lost. 

The decedent had designated her husband as beneficiary of two life insurance policies.  They subsequently divorced.  The divorce was in California. The divorce decree did not mention the life insurance policies.  

Decedent's Executor challenged policy payouts to the former husband. The Executor contended that the designations in favor of the former husband were revoked by operation of Nevada law.

The life insurance company filed the interpleader and served both the former husband and the Executor with the lawsuit.  The former husband hired a lawyer and appeared in the lawsuit. The Executor did not appear.  The former husband filed a motion for default judgment.

The court noted that it is typically the plaintiff who files for a default judgment.  But an interpleader case is different than the normal lawsuit.  In an interpleader, the plaintiff is a holder of funds who is uncertain as to the proper recipient. In this circumstance, it is proper for one defendant who is seeking the policy proceeds to seek a default against another defendant who is seeking the proceedings, but who does not answer and appear. 

The court then noted:

The choice whether to enter a default judgment lies within the discretion of the court. In the determination of whether to grant a default judgment, the court should consider the seven factors set forth in Eitel: (1) the possibility of prejudice to plaintiff if default judgment is not entered; (2) the merits of the claims; (3) the sufficiency of the complaint; (4) the amount of money at stake; (5) the possibility of a dispute concerning material facts; (6) whether default was due to excusable neglect; and (7) the policy favoring a decision on the merits. In applying the Eitel factors, “the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.’

The court granted the default judgment and awarded the benefits to the former husband.  But not before the judge provided a concise analysis of the the deciding issue.  The court noted that Nevada law revoked life insurance designations in this circumstance.  California law did not include such a revocation provision. 

The Court decided that California law applied in this situation:

The court holds that California law applies to this dispute. Bloomquist and decedent were divorced in California, and the divorce decree was entered pursuant to California law. Further, the divorce decree states that each party is aware of Family Code Section 2024, which states, in relevant part, ‘[d]issolution or annulment of your marriage ... does not automatically cancel your spouse’s rights as beneficiary of your life insurance policy. If these are not the results that you want, you must change your will, trust, account agreement, or other similar document to reflect your actual wishes.’ Finally, decedent did not move to Nevada until well after the divorce was finalized in California.

This conclusion seems reasonable given the record available to the court.  Perhaps the Executor would have lost even if he had appeared in the interpleader dispute.  But by not showing up, he did not give himself much of a chance. 

J. Michael YoungComment
Arizona court refuses to apply slayer statute

In Prudential v. Thomas, Judge Tuchi of the US Court for the District of Arizona considered the application of the Arizona slayer statute.  Ultimately, the court found a lack of evidence to deny life insurance benefits to the decedent's wife.

The decedent, Levon Thomas, had purchased a life insurance policy through his employer, Peabody Energy Company.  It was part of an ERISA plan, administered by Prudential Insurance Company of America. Thomas named his wife, Beverly, as the primary beneficiary.  He named his children as the contingent beneficiaries.

Thomas died under the following circumstances, as set out by the court:

In the early hours of March 14, 2015, a fire ignited in a residential trailer located at Space #287 in the Kayenta Mobile Home Park in Kayenta, Arizona. (Doc. 82, Beverly Thomas Separate Statement of Facts (“BT SSOF”) Ex. A.) The fire department and other emergency personnel arrived on the scene shortly thereafter in an effort to extinguish the blaze. (BT SSOF Ex. A.) Upon arrival, the first responders found Beverly Thomas who reported that her husband, LeVon Thomas (“Mr. Thomas”), was still inside the trailer. The firefighters extinguished the fire and proceeded inside where they found LeVon Thomas’s body

Three days later, the Navajo Department of Criminal Investigations performed an autopsy, which revealed that Mr. Thomas died from thermal injuries and smoke inhalation. His manner of death, however, was undetermined, and the Department closed the case because they found no evidence of foul play

Beverly filed a claim for the life insurance benefits. However, Prudential did not pay out the policy because of the circumstances surrounding Thomas’s death. Instead, Prudential filed an Interpleader action lawsuit for a court determination of to whom the benefits should be paid.

One of the claimants filed a motion for summary judgment, asking the court to find that Beverly was disqualified by the Arizona slayer statute. That statute provided:

[a] person who feloniously and intentionally kills the decedent forfeits all benefits under this chapter with respect to the decedent’s estate” and “[t]he felonious and intentional killing of the decedent ... [r]evokes any revocable ... appointment of property made by the decedent to the killer in a governing instrument.” A “conviction establishing criminal accountability for the felonious and intentional killing of the decedent conclusively establishes the convicted person as the decedent’s killer” under the statute. Even if a person has not been convicted, she may be still be held as the decedent’s killer under the statute if, “under the preponderance of evidence standard, the person would be found criminally accountable.

The court noted that the party seeking to apply the slayer statute relied primarily on the fact that Beverly had asserted her 5th Amendment right to against self-incrimination in response to interrogatories. In short, she refused to answer questions about her husband's death to avoid potentially implicating herself in a potential later criminal case. 

The federal court court noted that in civil cases, Arizona courts permit “the trier of fact ... to infer the truth of the charged misconduct.”   However, any such inference must be supported by "independent evidence of the fact about which the party refuses to testify.” The court noted:

the only evidence in the record of Beverly Thomas’s whereabouts and acts on the night in question can be found in the police reported offered by the moving parties. That report indicates only that firefighters “escorted [Beverly Thomas] away from the residence” and she informed them that her husband was still inside. These facts simply are not probative of whether Beverly Thomas “feloniously and intentionally killed” her husband.

Accordingly, the federal court awarded the policy benefits to Beverly. 

Undue influence and ERISA designations

A common claim to invalidate a life insurance beneficiary designation is that the designation was procured by undue influence.  Undue influence factors vary from state to state, but generally involve evidence that someone applied pressure to the owner of the policy in order to wrongly influence a beneficiary designation.   

The evidence is generally circumstantial: rarely is their evidence of such obvious Godfather style influence of a gun to the head/offer that can't be refused.  But undue influence can often be a viable claim where the policy owner depended upon the alleged influencer for general life needs.  Or if the influencer held a power of attorney over the policy owner. Evidence of a policy owner's diminished physical and/or mental capacity can provide powerful support for an undue influence claim. Alcohol and drug use or dependency will also be relevant. 

Policies obtained through an employer are generally governed by ERISA.  There is something of a tension between undue influence claims and ERISA's goal of certainty and predictability for plan administrators.  Courts regularly hold that state laws interfering with such certainty can be preempted by ERISA.  Claims that a designation is the product of influence obviously interject substantial uncertainty into who should receive the benefits and can place a plan administrator of having to evaluate claims of undue influence that involve often complex circumstances. Altough insurers typically avoid this problem by simply filing an interpleader lawsuit and depositing the disputed proceeds into a court's registry. 

Courts typically find that ERISA technically preempts state undue influence laws. But that does not mean that designations can not be challenged on that basis.  Because there is no federal common law of undue influence, federal courts often "borrow" from the undue influence law of the forum state where the court is located.

In Tinsley v. Generam Motors Corp. (227 F.3d 700), the Sixth Circuit Court of Appeals in Michigan considered an undue influence challenge to an ERISA beneficiary designation.  The district court found that the affidavits the contestant submitted in support of her claim were not sufficient to support an undue influence claim.

The court of appeals disagreed.  It first found that ERISA did not block the undue influence claim. The court acknowledged the typical rule in ERISA cases that courts need not look beyond a beneficiary designation form to determine the appropriate beneficiary.  But an undue influence claim involves a challenge to the underlying validity of the designation itself. 

As to the merits of the undue influence claim, the court of appeals noted that:

Courts have looked at a number of factors to determine whether undue influence has been exerted in a given case, including the physical and mental condition of the benefactor; whether the benefactor was given any disinterested advice with respect to the disputed transaction; the “unnaturalness” of the gift; the beneficiary’s role in procuring the benefit and the beneficiary’s possession of the document conferring the benefit; coercive or threatening acts on the part of the beneficiary, including efforts to restrict contact between the benefactor and his relatives; control of the benefactor’s financial affairs by the beneficiary; and the nature and length of the relationship between the beneficiary and the benefactor

The challenger's evidence of undue influence included:

  • The policy owner was in poor physical health at the time he purportedly changed beneficiaries
  • The change was made shortly before his death in order to benefit a neighbor rather than a blood relative
  • The neighbor exerted some control over the policy owner's finances 

The court of appeals found this was enough evidence to at least raise an issue of undue influence sufficient to get to trial. 

Whether you are contesting or defending a life insurance designation, it is very important to retain experienced legal counsel as soon as possible in the process. 

US Supreme Court upholds state divorce revocation statute

Many states have laws providing that life insurance designations in favor of spouses are revoked automatically by a divorce.  The policy reasoning behind the laws is that many people simply fail to make a new designation after the divorce, but do not really want their ex-spouse to have the money.  For example, the owner of the policy may get remarried, have kids, and yet the money may still be designated to the ex-spouse by simple neglect. The state laws are designed to remedy this situation, while often providing that the ex-spouse can still receive the money if the divorce decree so provides or if there is a re designation of the ex spouse after the divorce.

These laws have been the subject of various challenges over the years.  Federal courts have consistently ruled that such laws are ineffective for ERISA policies, which include most policies obtained through an employer.  Or for military SGLI or VGLI policies. The reasoning is that federal plan administrators are obligated to pay the designated beneficiaries and state laws that attempt to interfere with the designations are preempted by federal law.

In  Sveen v. Melin the United State Supreme Court dealt with a different argument.  Mark Sveen and Kaye Melin were married in 1997 and Sveen purchased a life insurance policy, naming Melin as the primary beneficiary and designating his two children from a prior marriage as contingent beneficiaries. The Sveen–Melin marriage ended in 2007 and the divorce decree made no mention of the insurance policy.  

Sveen did not make a new beneficiary designations. After he died in 2011, Melin and the Sveen children made competing claims to the insurance proceeds. The Sveens argued that under Minnesota's revocation-on-divorce law, their father's divorce canceled Melin's beneficiary designation, leaving them as the rightful recipients. Melin claimed that because the law did not exist when the policy was purchased and she was named as the primary beneficiary, applying the later-enacted law to the policy violates the Constitution's Contracts Clause. The District Court awarded the insurance money to the Sveens, but the Eighth Circuit reversed, holding that the retroactive application of Minnesota's law violates the Contracts Clause.

The Contracts Clause of the US Constitution restricts the power of States to disrupt contractual arrangements. It provides that “[n]o state shall ... pass any ... Law impairing the Obligation of Contracts.” Article 1, Section 10. The major problem with the Minnesota law was that it applied to life insurance policies purchased before the law's adoption. 

Despite its potential retroactive application, the Supreme Court ruled that Minnesota's law did not violate the Contracts Clause. The Supreme Court found that that law did not substantially impair the relationship created by the life insurance contract between the policy owner and the insurance company. Most people reasonably do not want an ex-spouse to receive the benefits. And people expect that a divorce decree will alter previous property expectations. The court found it important that the insured could still leave the money to their former spouse if they so wanted.  All they had to do was notify the insurance company after the divorce, to effectively re designate the former spouse as the beneficiary.

The Court summarized:

The Minnesota statute places no greater obligation on a contracting party—while imposing a lesser penalty for noncompliance. Even supposing an insured wants his life insurance to benefit his ex-spouse, filing a change-of-beneficiary form with an insurance company is as “easy” as, say, providing a landowner with notice or recording a deed. Here too, with only “minimal” effort, a person can “safeguard” his contractual preferences. And here too, if he does not “wish to abandon his old rights and accept the new,” he need only “say so in writing.” . What’s more, if the worst happens—if he wants his ex-spouse to stay as beneficiary but does not send in his form—the consequence pales in comparison with the losses incurred in our earlier cases. When a person ignored a recording obligation, for example, he could forfeit the sum total of his contractual rights—just ask the plaintiffs in Jackson and Vance. But when a policyholder in Minnesota does not redesignate his ex-spouse as beneficiary, his right to insurance does not lapse; the upshot is just that his contingent beneficiaries (here, his children) receive the money. That redirection of proceeds is not nothing; but under our precedents, it gives the policyholder—who, again, could have “easily” and entirely escaped the law’s effect—no right to complain of a Contracts Clause violation

State laws differ on the implications of divorce on life insurance designations.  It is always important to contact a lawyer to review the particular state laws at issue.  And to determine if state law even applies or is preempted by federal law.

Fifth Circuit affirms denial of negligence claim

A common question I get from clients is can we sue the life insurance company for filing the interpleader instead of just paying me?  My typical answer is "no" under most circumstances. The law provides substantial cover for a life insurance company to file an interpleader and let a court decide the proper beneficiary.  This is the common process of a prudent life insurance company. 

 In Berry v. Banner, the Fifth Circuit Court of appeals affirmed this concept.  The underlying facts were that the insured had a policy governed by state law.  He designated his then wife as the beneficiary.  They were divorced in 2005 in Oklahoma.  The divorce decree specified that he would maintain her as the beneficiary of the Banner Life policy. The ex-wife sent a copy of the divorce decree to Banner, who put it in its file.

Two years later, he submitted a change of beneficiary form to Banner, seeking to designate a friend as beneficiary under the plan. Banner processed the change of beneficiary.  He died two years later.

Both the ex-wife and designated beneficiary friend filed claims with Banner Life. Banner decided to pay neither while competing claims were pending. The friend filed suit to enforce the designation in her favor.  The insurance company removed the suit and sought interpleader in the United States District Court for the Western District of Texas.  The district court found the ex-wife was entitled to the policy proceeds because of the divorce decree. 

Not satisfied, the ex wife sought damages from Banner Life for negligence in not paying her. She contended the insurance company should have never accepted and processed the later attempted designation, because it had knowledge of the divorce decree.  The Fifth Circuit agreed with the district court that such claim is unfounded:

"First, a number of Viney's factual allegations underlying that claim are based on nothing more than Banner's “failure to resolve its investigation in [Viney's] favor and pay out the life insurance proceeds to [her].”  Any claim for a breach of the duty of good faith and fair dealing under these facts is barred under the interpleader because it is not “truly independent of who was entitled to the life insurance proceeds.”  “To allow [Banner] to be exposed to liability under these circumstances would run counter to the very idea behind the interpleader remedy—namely, that a ‘stakeholder [should] not [be] obliged at his peril to determine which claimant has the better claim.

Second, under Oklahoma law, “[t]he tort of breach of a duty to deal fairly with an insured is an intentional tort and as such requires conduct by an insurer to be willful, malicious, or oppressive for the purposes of delaying or avoiding payment of the insured's claim.”  Though Viney alleged that Banner failed to adequately investigate its records prior to changing the beneficiary, she also alleged that Banner was not aware of that mistake until Viney made her claim to the Policy proceeds. Banner could not have committed an intentional tort, willfully and maliciously, if Banner was not even aware of the mistake at the time of the change."

On a relative basis, the ex wife had a plausible claim that the life insurance company was negligent.  This case emphasizes how far the courts will typically go to provide safe harbor to a life insurance company that seeks cover through the interpleader process. 

J. Michael YoungComment
Arkansas Supreme Court finds for spouse

In Primerica Life Insurance v. Wilson, the Arkansas Supreme Court affirmed a jury's decision to award the life insurance benefits to the spouse of the insured. As set out in the decision, the basic facts were:

The record reflects that in November 1987, Gary purchased a life insurance policy from Primerica in the amount of $100,000. He also purchased a spouse rider and a child rider. At the time, Gary was married to Mary Jane, and he named her the primary beneficiary, with his daughter being the contingent beneficiary. Gary and Mary Jane divorced in March 1993. Gary then married Ronda in July 1994. They were married for nine years, before Gary died from Lou Gehrig's disease on July 25, 2003.

In August 1996, while Gary was paying his life insurance premium, he commented to Ronda: “Well, I guess I need to change the beneficiary on my policy, since I'm going to keep you.” Gary then asked Ronda to get him the telephone, and he called Primerica. Ronda heard Gary say that he was divorced and remarried, and that he needed to change the beneficiary on his policy. She said that he also stated that he needed to change the spouse rider and child rider.

A few weeks later, Gary received a policy-change application from Primerica. On that form, he listed Ronda as his new spouse. According to Ronda, who was present when he filled out the form, Gary noticed that there was no specific beneficiary form, so he wrote on the front page of the policy-change application “change name of spouse & change name of child rider.”

The White County jury decided that the widow was entitled to the proceeds, not the ex-wife. The Arkansas Supreme Court affirmed that decision under the doctrine of substantial compliance.  In doing so, the Arkansas Supreme Court rejected the ex-wife's contention that the jury should not have considered the insured's statements regarding wanting his current wife to have the benefits. The court explained:

These statements evidenced Gary's belief that Ronda was the beneficiary of his life insurance policy and his intention that she be entitled to the proceeds of that policy. Generally speaking, statements of a declarant's belief are not admissible under Rule 803 unless the statements relate to the execution, revocation, identification, or terms of the declarant's will. This court has recognized that provisions in life insurance contracts with reference to beneficiaries or changes in beneficiaries are in the nature of a last will and testament and, therefore, “are construed in accordance with the rules applicable to the construction of wills.”

This is an example of a person who was not the officially designated beneficiary receiving the policy proceeds.  Anyone involved in a life insurance beneficiary interpleader dispute should consult with a lawyer experienced in handling such matters.

J. Michael YoungComment
Federal court interpleader jurisdiction

In Mudd v. Yarbrough, Judge Bunning of the United States District Court, Eastern District of Kentucky, considered a challenge to the court's jurisdiction. The decision involved a Servicemember's Group Life Insurance Policy, SGLI. 

After the insured servicemember's death, Prudential determined that his beneficiary designation was unclear. The servicemember's mother filed suit in the federal court in Kentucky claiming the benefits.  Prudential then filed an interpleader to have the court determine the proper recipient of the benefits. 

The court determined that it was proper for Prudential to file the interpleader,  because of competing claims to the benefits  made by the servicemember's mother, ex-wife, and estate.  The court found that Prudential was legitimately concerned it might face multiple liability if it did not pursue the interpleader.

Regarding proper subject matter jurisdiction, the court pointed to the requirements of 28 USC §  1335 Interpleader:

  • the amount of the controversy is over $500
  • two or more adverse claimants of diverse citizenship
  • the disputed funds must be deposited into the court's registry.

The court found the requirements were met. Prudential deposited the $400,000 policy proceeds into the court registry.  One claimant resided in Florida, the other in South Carolina.  Therefore, there was minimal diversity. 

Because of the low threshold for the policy amount and the minimal diversity requirement, I find that many life insurance beneficiary dispute interpleaders are filed in federal court.  


J. Michael YoungComment
Court admonishes beneficiary claimant to hire an attorney

An individual in an interpleader beneficiary dispute may be tempted to save on costs by representing themselves in court. This can have devastating consequences for a claim that may be worth hundreds of thousands of dollars.

An example is found in a case pending in the United States District Court, Middle District of Pennsylvania: Howerton v. Kandarian, et al. In that case, a pro se party violated the court's Standing Practice Order, by filing a “Request for Documents and Discovery Material.”

In response, Magistrate Judge Arbuckle noted that "the task of federal litigation is a daunting one" and the party was proceeding pro se "at his own peril."  noting that the policy benefits at issue were $268,000, enough to "justify the involvement of an attorney with the necessary skill and experience to guide Mr. Howerton through the minefield that is federal civil litigation."  Judge Arbuckle urged the pro se party to seek the guidance of counsel. 

J. Michael YoungComment