Articles Posted in Life Insurance

Here is a 1994 opinion dealing with the Texas Slayer Statute.  The opinion is from the 14th Court of Appeals and is styled, Adams v. Aetna Life Insurance Company.
The insured was murdered in 1986.  Her husband was initially suspected of the murder, but was cleared by the county sheriff’s department.  After the husband was absolved by the sheriff’s department, Aetna paid him as the named beneficiary on the life insurance policies.  Three years later, it was established that the husband did kill the insured, and the husband was incarcerated.
The grandmother brought suit on behalf of the minor children against the life insurance carriers for wrongful payment of insurance benefits to the husband.  Pursuant to the Slayer Statute of the Texas Insurance Code, section 1103.151, the interest of the beneficiary in a life insurance policy is forfeited when the beneficiary is the principal or an accomplice is willfully bringing about the death of the insured.  The statute further provides if no contingent beneficiary is named, then the nearest relative of the insured shall receive said insurance benefits.  The Plaintiffs alleged that the insurance carriers had constructive notice of their adverse claims and that the companies had acted in bad faith by not conducting a reasonable investigation.

Here is a 1997, Waco Court of Appeals opinion that discusses an issue related to changes to the named beneficiary because of “undue influence.”
T.J. Clark could not read or write.  He relied upon Cobb, his wife’s niece, to take care of his financial affairs for over 20 years.  Clark’s will provided for the remainder of his estate passing to Cobb.  Additionally, Cobb was the beneficiary of three life insurance policies.  Over time, Clark expressed concerns about his niece, Justice, and complained about how she bothered him about his will.  When Clark was close to death from prostate and lung cancer, he was provided morphine.  Additionally, he required oxygen from a tank to help him breathe.  In the last few days of his life, Justice was able to secure a change in beneficiary under the will, as well as a change of beneficiary under the life insurance policies, substituting her for Cobb.  A jury found that Justice unduly influenced Clark to change his will and life insurance beneficiary designation.  The trial court awarded a judgment notwithstanding the verdict, and Cobb appealed claiming the trial court erred in finding no evidence of undue influence, as well as its finding that the finding of undue influence with regard to the life insurance beneficiary designation was immaterial.
The judgment of the trial court is reversed and the case remanded for entry of judgment in favor of Cobb.  The factual circumstances of the case as a whole revealed that Justice unduly influenced Clark to change his will and life insurance beneficiary designation.  A former beneficiary may bring suit to contest a change his will and life insurance beneficiary designation.  A former beneficiary may bring suit to contest a change in beneficiary on the basis that the change was accomplished as a result of undue influence exerted against the insured.  Equity may entertain jurisdiction on the suit to set aside a change and to enjoin the payment of the policy to the substituted beneficiary.  The original beneficiary may also sue the second beneficiary for damages, or charge the second beneficiary as constructive trustee of the proceeds.

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.

Failure to provide written notice of a claim to life insurance proceeds can prove fatal to being able to receive those proceeds.  This is what happened in the 1995, Fort Worth Court of Appeals opinion styled, Hunt v. Jefferson-Pilot Life Insurance Co.
Jefferson Pilot issued a life insurance policy on the life of Hunt in 1989.  Elizabeth Hunt was listed as the primary beneficiary.  In 1990, the Hunts were divorced and Ms. Hunt became Ms. Berks.  Hunt died in 1991 without making any changes to the beneficiary designation on his policy.  Eleven days later, Berks submitted a claim for proceeds under the policy.  Jefferson-Pilot paid the benefits to Berks on October 16, 1991.  Plaintiff, the heir of Hunt, brought this action against Jefferson-Pilot based on the old Section 3.632 of the Texas Family Code, which is now Section 9.301(c)(1) which states a designation of insurance benefits to a spouse is invalidated by a divorce or annulment subsequent to such designation.  The old Section 3.362 and current section also states that an insurer is not liable for payment of the proceeds of a policy to an ex-spouse unless:  (1) before payment of the proceeds the insurer receives written notice at the home of the insurer from an interested person that the designation is not effective under this section, and (2) the insurer has not interpleaded the proceeds into the Registry of the Court.
Similarly, the old art. 3.48 of the Texas Insurance Code discharges the insurer from liability under the policy in the absence of the receipt by it of notice of an adverse claim to the proceeds of the policy from one having a bona fide legal claim.  Accordingly, even if the insurer had received a copy of the divorce decree, it would have only provided Jefferson-Pilot with constructive notice which does not constitute written notice under the old Family Code or the old Insurance Code.  Therefore, Jefferson-Pilot has no liability to plaintiff.

Here’s a case dealing with when a beneficiary designation was filed.  It is a 1995, opinion from the Eastland Court of Appeals and is styled, Maris v. McCraw.
When Maris died in 1987, per personnel file did not contain a written beneficiary designation form designating any person as the beneficiary of her life insurance proceeds.  Maris was survived by her estranged husband and two children from a prior marriage.  The children filed a declaratory judgment action against the husband contending they were entitled to the insurance proceeds because Maris signed and filed the appropriate form with the employing office designating them as beneficiaries and because the beneficiary designation was subsequently lost.  The jury found in favor of the children.  The husband appealed.
On appeal, the trial court judgment in favor of the children was affirmed.  The jury found that before she died, Maris filed a designation of beneficiary.  Before death, Maris signed and filed a “designation of beneficiaries” naming her two children as the beneficiaries of her civil service retirement and “unpaid compensation.”  Two co-employees testified that whenever employees signed the “unpaid compensation form,” they also signed the life insurance beneficiary designation form.  The children also introduced into evidence a handwritten beneficiary designation form.  There was also evidence that it was Maris’ habit to complete handwritten duplicate forms before typing and filing the originals.  Maris’ mother testified that Maris’ personnel file did not contain either the unpaid compensation beneficiary form or the civil service retirement beneficiary form but that these two designation forms were actually filed in Maris’ personal file at home.  There was no evidence that Maris intended to name or ever named her estranged husband as the beneficiary of any property.  Therefore, the circumstantial evidence shows that it is more probable that Maris did, in fact, sign and file the original insurance beneficiary designation form.  The evidence shows that Maris intended for her property to go to her children and not to her estranged husband.

There are times when life insurance claims can be complicated by a divorce.  This is illustrated in a 1997, Amarillo Court of Appeals opinion styled Sever v. Massachusetts Mutual Life Insurance Company.
The issue in this case was whether the oral redesignation of beneficiary after a divorce redesignating the former spouse was effective.  The Texas Insurance Code, section 1103.054 requires the designation of a beneficiary to be in writing.  Texas Family Code, section 9.301 requires that, upon divorce, a provision in a life insurance policy in favor of the former spouse is not effective unless the insured redesignates the former spouse, or the former spouse is designated to receive the proceeds in trust for or on behalf of the benefit of a minor child.  In this case, the insured allegedly orally redesignated the former spouse.
The appellate court held that upon the rendition of the divorce decree, the designation of the former spouse was rendered ineffective by operation of law.  Because a secondary beneficiary was not designated, the policy proceeds were payable to the insured’s estate.  The policy provisions and Insurance Code requiring that the beneficiary be designated in writing controlled.  Consequently, oral statements to the insurance agent were not effective under the policy provision and the Insurance Code to redesignate the former spouse as beneficiary.

It happens frequently.  An insured person changes the beneficiary of their life insurance policy.  Here is a 1997, Waco Court of Appeals opinion discussing this event.  The opinion is styled, Cobb v. Justice.
Here are the facts.  T.J. Clark could not read or write. He relied upon Cobb, his wife’s niece, to take care of his financial affairs for over 20 years.  Clark’s will provided for the remainder of his estate passing to Cobb.  Additionally, Cobb was the beneficiary of three life insurance policies.  Over time, Clark had expressed concerns about his niece, Justice, and complained about how she bothered him about his will.  When Clark was close to death from prostate and lung cancer, he was provided morphine.  Additionally, he required oxygen from a tank to help him breathe.  In the last few days of his life Justice was able to secure a change in beneficiary under the life insurance policies, substituting her for Cobb.  A jury found that Justice unduly influenced Clark to change his will and life insurance beneficiary designation.  The trial court awarded a judgment notwithstanding the verdict, and Cobb appealed claiming the trial court erred in finding no evidence of undue influence, as well as its finding that the finding of undue influence with regard to the life insurance beneficiary designation was immaterial.
The judgment of the trial court was reversed and the case remanded for entry of judgment in favor of Cobb.  The factual circumstances of the case as a whole revealed that Justice unduly influenced Clark to change his will and life insurance beneficiary designation.  A former beneficiary may bring suit to contest a change in beneficiary on the basis that the change was accomplished as a result of undue influence exerted against the insured.  Equity may entertain jurisdiction on the suit to set aside a change and enjoin the payment of the policy to the substituted beneficiary.  The original beneficiary may also sue the second beneficiary for damages, or charge the second beneficiary as constructive trustee of the proceeds.

Are there ways the named beneficiary of a life insurance policy can be defeated for the life insurance proceeds?  Rarely.
Here is a 1998 opinion wherein a wife contested the named beneficiary of a life insurance policy.  The opinion is from the Corpus Christi Court of Appeals and styled, Camp v. Camp.
The Husband purchased a life insurance policy as an employment benefit while he was still single and without children.  He named his mother beneficiary to the policy.  When he later married, he did not change the insurance policy’s beneficiary designation to his wife.  Premiums for the policy were paid from the husband’s employment earnings during the years of his marriage to wife until his death in 1996.

Does the estate of the deceased have legal standing to challenge the distribution of life insurance proceeds?  Probably not.
This is the issue in the 2009, San Antonio Court of Appeals opinion decided in Irwin v. Irwin.
Barbara Jane Irwin and the decedent, Richard Lee Irwin, were married while Richard was employed by the Drug Enforcement Agency (DEA).  While employed by the DEA, Richard participated in a life insurance program and designated Barbara as his primary beneficiary and his sons from a prior marriage, Mike and John, as his contingent beneficiaries.  Richard retired in 1995, and he elected to receive reduced life insurance coverage.  In 2006, Richard and Barbara divorced; their Agreed Divorce Decree awarded Richard all policies insuring his life.  During the pendency of the divorce, Richard signed a new will in which he stated he had filed for divorce in April 2005 and it was his “specific intent not to provide for [Barbara] in this will and to hive his entire estate … to Mike and John ….”  Richard died on April 11, 2007, and his beneficiary at the time of his death was Barbara Irwin.  Pursuant to his beneficiary designation, the Office of Personnel Management paid the proceeds of Richard’s policy to Barbara.

Is it bad faith for a life insurance company to deny a life insurance claim due to an alleged misrepresentation in the application?  Probably not.
Here is a 1996 opinion from the United State Southern District of Texas.  The opinion is styled, Bates v. Jackson National Life Insurance Company.
Bates’ children sued Jackson National for proceeds of a life insurance policy issued to Bates.  They asserted causes of action for breach of contract, bad faith, and Insurance Code violations and DTPA violations.
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