Assignment Of Insurance Proceeds

Like other contract rights, the right to insurance proceeds can be assigned, giving the assignee the right to recover under the policy.

This issue is discussed in the 1968, Texas Supreme Court opinion styled, McAllen State Bank v. Texas Bank & Trust Company, Trustee.

Texas Bank claimed proceeds of a life insurance policy as successor to the named beneficiary asserting the policy was pledged as security for a loan made to the deceased.

The lower court had held that the named beneficiary held a superior right to the life insurance policy.

This court got into a lengthy discussion citing other court opinions and eventually ruled as follows.

All the elements of a pledge are present in this case.  The elements of a pledge are (1) a pledgor and a pledgee, (2) a debt or obligation, and (3) a contract of pledge which consists of the following: (a) possession of the pledged property passing from the pledgor to the pledgee; (b) legal title of the pledged property remaining in the pledgor; (c) the pledgee having a lien on the property for the payment of the debt; and (d) a right of redemption of the property in the pledgor.

It is undisputed that the deceased owed a valid debt to the bank.  A contract of pledge is demonstrated by the language of the three notes the deceased executed.  Possession of the insurance policy passed from the deceased to the bank.  The deceased retained legal title in the policy, as evidenced by the fact that he changed the beneficiary of the policy after he gave possession of the policy to the bank.  Also, it is clear from the language of the notes and from correspondence introduced into evidence that the policy was given to the bank to secure the note and that the bank was to have a lien on the policy for the payment of the debt.  In view of these facts it is held that the life insurance policy in question was pledged to the bank.

However, it must be kept in mind that a policy may contain a non-assignment clause, which will be enforced.

An example of the non-assignment clause is found in the 1994, Fort Worth Court of Appeals opinion, Texas Farmers Ins. Co. v. Gerdes.  That clause read,  “Your rights and duties under this policy may not be assigned without our written consent.”  The court found this unambiguously precluded an assignment.