What happens if the beneficiary of a policy does not have an insurable interest in the life of the insured? Is the policy still valid? If not, who gets the life insurance proceeds?
Here is a 1998 opinion from the Tyler Court of Appeals that addresses this issue. The opinion is styled, Stillwagoner v. Travelers Insurance Company.
The decedent was a registered nurse employed by Advantage Medical Services, Inc. Unbeknownst to the decedent’s family, the employer took out a $200,000 life insurance policy insuring against accidental death, dismemberment and total disability from Travelers designating Advantage as the beneficiary of the policy. Advantage purchased such life insurance policies covering all of its employees. The decedent was killed in a car accident while driving a company car. Although Travelers disputed that the decedent was in the course and scope of her employment at the time of her death, Travelers eventually settled with Advantage and paid Advantage $190,000. The decedent’s husband discovered the policy and sued Advantage and Travelers. Judgment in favor of Advantage and Travelers is reversed and rendered. Advantage did not have an insurable interest and, therefore, the proceeds belong to the decedent’s estate.