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
Sixth Circuit upholds ERISA breach of fiduciary duty award

The Employee Retirement Income Security Act of 1974 is better known as ERISA.  It was enacted by Congress to protect retirement and welfare benefit plans, such as employer provided life insurance. 


Unfortunately, the courts have interpreted ERISA in ways that typically favor insurance companies and employers over the rights of employees.  A common problem I see is employees who believe they are covered for a particular life insurance plan.  That belief is often well founded, because their employer tells them they are covered and deducts premium payments!


At times, the insurance company will audit a claim and decide that the employee should never have received the coverage at issue. ERISA plans are governed by detailed plan provisions.  Possibly, the employee did not meet qualifications of work status, maybe they did not work enough, maybe they did not sign the right paperwork, etc.


These denials can be frustrating and extremely unfair, because the employer may have assured the employee of the coverage and also made premium deductions from the employees paychecks.  Unfortunately, courts are often not sympathetic to the fundamental unfairness of denying coverage ever existed, despite the employee's payment of premiums and good faith belief they had the coverage.  As a consequence, courts have provided minimal checks on the power of insurers to deny claims, particularly as ERISA does not provide an employee/beneficiary with a right to a jury trial. 


A ray of light comes from the Eastern District of Michigan, as affirmed by the Sixth Circuit court of appeals. Loo v. Church's Chicken involved a claim by a life insurance beneficiary to supplemental life insurance benefits.  As is common with many employers, Church's offered employees "basic" coverage at one times annually salary as a base benefit, paid for by the company. The employee in this case also elected to get employee-paid elective supplemental life insurance, ultimately four times her annual salary.

Church's self-administered the ERISA life insurance plan, even though Reliance Standard Life Insurance Company ultimately paid claims.  Thus, Church's was “responsible for ensuring that coverage elections (including any required proof of good health) are processed in accordance with the terms and conditions of the applicable policy and that premium remittances are accurate and timely."

The plan required that an employee submit an evidence of insurability form. But Church's processed her request anyway, and deducted the premiums for the elective supplemental coverage.  Thus, the employee believed she had coverage.

After the employee got sick and died, Reliance denied the claim for the supplemental benefits, because the employee did not submit the evidence of insurability. I have seen numerous such cases over the years and the courts typically allow the ERISA insurer to not pay if the coverage conditions are not met.  In this case, the court did dismiss the claims against Reliance.

But the court here noted that Church's was responsible for administering the life insurance plan. It then found that Church's breached its ERISA fiduciary duty to administer the group life-insurance policy in the sole interest of the insured employees and their beneficiaries. The misrepresentation was that the employee was covered for the supplemental benefits, as evidenced by the deductions from her pay check. The court found:

"Fiduciaries are liable when their misrepresentations cause an employee to be inadequately informed in her decision whether to pursue benefits. . . Because Church’s misrepresented her coverage level, [she] lost the opportunity to obtain the coverage she wanted through another channel, such as on the individual market for life insurance."

This Sixth Circuit decision should be referenced when an administrator leads an employee to believe they have a certain life insurance coverage. 

Ohio court on evidence of intent

Veach v. Chuchanis (2014 WL 2998982) is a decision by an intermediate court of appeals reviewing Ohio law regarding an insured's efforts to change a beneficiary designation.  However, like in many life insurance beneficiary disputes, the efforts fell short of the insurance company's technical requirements.

Sentry Life Insurance company issued the policy to the insured in 1991. At the time, the insured designated Chuchanis as her primary beneficiary, with Veach as the contingent beneficiary. In 1998 she married Lytle.  She sent a letter to Sentry stating she wanted to change her primary beneficiary to her husband. She asked that Sentry send her confirmation of the change. 

Instead of a confirmation, Sentry sent a reply that stated, in pertinent part: “Enclosed is the form that is needed to change the beneficiary designations on your life insurance policy .”  The insured did not return the form.  Lytle died in 2000.  

The insured died in 2013. Chuchanis claimed the benefits because he contended he was still the officially designated beneficiary and that the insured had told friends over the years that she still wanted him to receive the benefits.  Veach countered that the insured's failure to complete and return Sentry’s change of beneficiary form was waived because she expressed her intent to remove Chuchanis as the primary beneficiary in the 1998 letter. Because Chuchanis was effectively removed, Veach claimed he should receive the money as the undisputed contingent beneficiary. 

In response to the competing claims, Sentry filed an interpleader lawsuit. The lawsuit named Chuchanis, and Veach as parties and asked the court to determine the proper beneficiary. 

The trial court found for Chuchanis as a matter of law, holding that under the doctrine of "substantial compliance" there was no evidence that the insured actually completed the change form removing Chuchanis and attempted to return it to Sentry.  The trial court did not consider as evidence of intent the insured's 1998 letter.

The Ohio court of appeals disagreed with the trial court's reasoning.  It held that, under Ohio precedent, a life insurance company waives technical requirements of a beneficiary change when it files an interpleader suit.  Therefore, in that context, the test should not be "substantial compliance" with such requirements, but what was the insured's “clearly expressed intent”  regarding the proper beneficiary.  The court of appeals returned the case to the trial court so it could hold a trial on the issue of the policyholder's “clearly expressed intent” regarding her beneficiary. 

J. Michael YoungComment
Alabama court rules in favor of designated beneficiary

In Aderholt v. Aderholt (2016 WL 7321570), the Alabama Supreme Court upheld the trial court's award of $150,000 in policy benefits to the designated beneficiary. The dispute was between the deceased's mother and ex-wife.

The deceased had designated his ex-wife as the policy beneficiary while they were married.  They divorced eleven years later. The 2004 divorce decree provided that he would pay her alimony of $500 per month for 15 years.  The decree also provided:

“Each party shall retain ownership of their own life insurance policies. [Sandra] shall remain as the sole beneficiary on [Bobby’s] whole-life-insurance policy through Alfa which has a death benefit of $150,000.00. He shall maintain this insurance and maintain her as the beneficiary for a period of fifteen (15) years.”

He complied with the divorce judgment, maintaining the ex-wife as the beneficiary of the policy and paying her $500 per month in alimony until he died on December 12, 2014. 

After he died, the deceased's mother argued that the ex-wife should not receive the life insurance benefit. Her argument was that the divorce judgment had required her son to maintain his ex-wife as the beneficiary for 15 years because the policy was intended to secure the 15 years of monthly $500 alimony-in-gross payments, not to function as an award in itself.  In her view, the ex-wife was entitled to, at most, the remaining unpaid alimony-in-gross payments, which she claimed totaled $28,500.  Anything beyond that should belong to the deceased's estate.

The ex-wife countered that she was the designated beneficiary and should be paid as such. And the divorce decree required her to be the beneficiary for at least 15 years. 

The Alabama court agreed with the ex-wife's argument. The court conceded that Alabama state and federal courts have, under certain circumstances, disregarded a party’s presumptive contractual rights to the proceeds of a life-insurance policy in order to do equity and to prevent unjust enrichment. However, in this case the court found no compelling evidence that the deceased wanted someone beside his ex-wife to receive the entire policy benefit. Under the facts of the case, the court was unwilling to presume the deceased would not have wanted his ex-wife to receive only the portion of the benefits securing the remaining alimony obligation.

Note that the facts in every case are different, as are the laws of each state. Please consult an experienced life insurance beneficiary dispute lawyer. 

OneJ. Michael YoungComment