Life Insurance And Competing Claims

Life insurance attorneys in Dallas will run across situations where there are competing claims for policy benefits. Sometimes those claims are legitimate concerns and sometimes not. A 2014, opinion from the US Court of Appeals, 7th Circuit needs to be read. The style of the case is, State Farm Life Insurance Company v. Troy Jonas, et al. Here is relevant information from that case.
Troy Jonas and his wife Jennifer purchased reciprocal policies of life insurance: she owned the policy on her life, with him as beneficiary; he owned the policy on his life, with her as beneficiary. When they divorced in 2011, the court reassigned the policies’   ownership: after the divorce, Troy owned the policy on Jennifer’s life.  Each policy provided that “a change of Owner or Successor Owner does not change the Beneficiary Desig-nation.”  Troy therefore thought it unnecessary to redesignate himself as the beneficiary of the policy insuring Jennifer’s life.  
Jennifer died on August 30, 2012. Troy promptly submitted a claim for the proceeds.   State Farm did not pay.  It expressed concern that the proceeds might belong to the couple’s children who had been named as secondary beneficiaries or to Jennifer’s estate as a result of Texas Family Code, Section 9.301, which provides that if a divorce occurs after one spouse has designated the other spouse as a beneficiary of an insurance policy, the designation lapses with some exceptions and, unless a new designation is made, the proceeds belong to any alternative beneficiary or the decedent’s estate.  Jennifer was domiciled in Texas when she died, and the policy had been issued there; the parties agreed that Texas law applied to this litigation. Troy replied that this provision did not apply when the divorce decree reassigns the policy’s ownership to the named beneficiary.  
Under Texas Insurance Code, Section 542.058(a),Texas law requires an insurer to pay within 60 days of receiving a claim, and provides for “damages” if payment is delayed.   Damages under Section 542.060 are interest at 18% a year plus reasonable attorneys’ fees that the claimant incurs in collecting.  But an insurer that receives “notice of an adverse, bona fide claim” within 60 days of the initial claim may defer payment and properly file an interpleader action and tender the benefits into the registry of the court not later than the 90th day after the date the insurer receives the initial claim.  A life insurer that delays payment of the claim or the filing of an interpleader and tender of policy proceeds for more than 90 days shall pay damages and other items as provided by Section  542.060 until the claim is paid or an interpleader is properly filed.
One final provision of Texas law plays a role in this federal litigation.  Section, 1103.103 provides that if an insurer does not receive a competing claim before it pays the policy’s   designated beneficiary, it is absolved of any liability to a later claimant, whether or not the belated claimant had a superior entitlement to the proceeds.
State Farm did not receive any claim other than Troy’s.  Still, it did not pay.  Instead it filed this action in federal court, nominally as an interpleader under 28 U.S.C. §1335, on October 16, 2012–before the 60 days had run, and well inside the 90 days allowed by §542.058(c).  But there were two problems, one with Texas  law and one with federal law. The problem under Texas law  was that State Farm had not received “notice of an adverse, bona fide claim”.
Troy replied to State Farm’s action by asking the district court to award him the proceeds plus 18% interest and attorneys’ fees. He contended that the suit was unnecessary, State Farm not having received an adverse claim and that delay in payment contravened Texas law.
The federal problem, has implications under Texas law also. This mistake will not be discussed but is worth reading.
The end consequence under Texas   law was that Section 542.058(c) drops out of the picture, for it requires an insurer not only to file an interpleader action but also to “tender the benefits into the registry of the court not later than the 90th day after the date the insurer receives the initial claim.”
State Farm acknowledged that it must pay the proceeds and interest to someone, and Troy is the only claimant.  A genuine risk of multiple liability–being ordered to pay Troy plus the children, or Troy plus Jennifer’s estate–could provide a justiciable controversy, but Texas law eliminates that risk.  Section 1103.103 protects insurers that pay the named beneficiary when no one else makes a competing claim.
When this litigation began, there was no justiciable controversy. The disputes about the rate of interest and whether State Farm must pay the attorneys’ fees that Troy incurred in this litigation did not retroactively create jurisdiction.