Life Insurance

Life Insurance Proceeds And A Divorce Decree

August 17, 2024 | Mark S. Humphreys

How does a divorce affect the named beneficiary in a divorce decree? This is answered in a 1987 opinion from the 14th Court of Appeals. The opinion is styled, Novotny v. Wittner. The opinion is an appeal from a bench trial. Here is are the facts and discussion.

Appellant and the decedent were divorced on May 24, 1982. On June 14, 1982, just twenty-one days after the divorce, and before the formal divorce decree had been signed, Joseph Patrick Novotny died from a gunshot wound inflicted by Appellant. At the time of his death he had not changed Appellant’s designation as beneficiary on his life insurance policy. Appellant requested payment of the policy proceeds from the carrier, Massachusetts Indemnity and Life Insurance Company. The carrier filed a petition for interpleader and paid the funds, totalling over fifty thousand dollars, into the registry of the court and was subsequently discharged from the suit. The suit was then transferred to the probate court presiding over the decedent’s estate proceedings. After a trial, the probate court awarded the proceeds of the life insurance policy to decedent’s children, Misty Marie and Robyn Lee Novotny, as his heirs at law. Appellee, administrator of the estate of Joseph Patrick Novotny, does not object to this award.

Appellant maintains that the trial court erred in awarding the insurance proceeds to the decedent’s heirs and not to her. She contends the language of the divorce decree was not specific enough to terminate Appellant’s beneficial interest in the insurance policy.

Life Insurance And Subsequent Divorce

July 20, 2024 | Mark S. Humphreys

Life insurance and a subsequent divorce will present problems, one of which was addressed by the United States 5th Circuit Court of Appeals. This is a June 2024, opinion styled, Transamerica Life Insurance Company v. Holly L. Moore versus Jeffrey H. Simpson.

Texas Family Code, section 9.301 generally operates to strip “the insured’s spouse” of beneficiary interests in insurance policies once a divorce decree renders the policy beneficiary an ex-spouse. This case turns on whether “the insured’s spouse” includes someone who was named a policy beneficiary before she became the insured’s spouse: Ian Simpson took out a life insurance policy and named his fiancée Holly Moore primary beneficiary and his father Jeffrey Simpson contingent beneficiary. The couple then married, then divorced, and then Ian died without ever changing the policy beneficiaries.

The district court held that section 9.301 comes into play only if the insured and the beneficiary were married when the insurance policy was purchased. The court reasoned that because a policy purchased prior to marriage did not name “the insured’s spouse,” a later divorce decree would not divest the beneficiary of insurance proceeds. But section 9.301’s text indicates that “the insured’s spouse” centers on an individual’s status at the time a divorce decree is rendered, regardless of when a policy was first obtained. Therefore, the Court reversed the district court’s judgment awarding Ian’s policy proceeds to Holly and rendering judgment in favor of Jeffrey Simpson.

Insurable Interest Made Clear?

July 13, 2024 | Mark S. Humphreys

In order to the be a beneficiary of a life insurance policy, the beneficiary must have a beneficiary interest. So what does that mean?

This question is discussed at length in the 1894, Texas Supreme Court opinion styled, Cheeves v. Anders.

1. Insurable Interest — Public Policy.

Death At The Hands Of The Life Insurance Beneficiary – Who Recovers

July 6, 2024 | Mark S. Humphreys

he question presented here is in the title. If the named beneficiary of a life insurance policy causes the death of the insured, does the beneficiary still get the life insurance proceeds.

The Texas Slayer’s Rule is found in the Texas Insurance Code, Section 1103.151. It says:

Sec. 1103.151. FORFEITURE. A beneficiary of a life insurance policy or contract forfeits the beneficiary’s interest in the policy or contract if the beneficiary is a principal or an accomplice in wilfully bringing about the death of the insured.

Life Insurance And The Texas Slayer’s Rule

June 29, 2024 | Mark S. Humphreys

There are situations where the person named as a beneficiary under a life insurance is responsible for the death of the named insured. It doesn’t seem right that the person who kills an insured should be able to recover the life insurance benefits. Well, it isn’t fight and there is a law to prevent that from happening.

The Slayer’s Rule is found in the Texas Insurance Code, Section 1103.151. It says:

Sec. 1103.151. FORFEITURE. A beneficiary of a life insurance policy or contract forfeits the beneficiary’s interest in the policy or contract if the beneficiary is a principal or an accomplice in wilfully bringing about the death of the insured.

Life Insurance Beneficiaries And ERISA And Divorce

June 22, 2024 | Mark S. Humphreys

In the previous post, Texas Family Code, Section 9.301 is cited for the way Texas, and most other states, handles how an ex-spouse beneficiary are treated regarding a designation of beneficiary in a life insurance policy. It important to know that when the life insurance policy is a policy governed by the Employee Retirement Income Security Act of 1974 (ERISA) that ERISA pre-empts state law rules regarding life insurance polices and divorce. This is pointed out in the 2001, United States Supreme Court opinion styled, Egelhoff v. Egelhoff. Note, that while this opinion discusses Washington State law, that the results would be the same for Texas.

While David A. Egelhoff was married to petitioner, he designated her as the beneficiary of a life insurance policy and pension plan provided by his employer and governed by ERISA. Shortly after petitioner and Mr. Egelhoff divorced, Mr. Egelhoff died. Respondents, Mr. Egelhoff’s children by a previous marriage, filed separate suits against petitioner in state court to recover the insurance proceeds and pension plan benefits. They relied on a Washington statute that provides that the designation of a spouse as the beneficiary of a nonprobate asset-defined to include a life insurance policy or employee benefit plan-is revoked automatically upon divorce. Respondents argued that in the absence of a qualified named beneficiary, the proceeds would pass to them as Mr. Egelhoff’s statutory heirs under state law. The trial courts concluded that both the insurance policy and the pension plan should be administered in accordance with ERISA, and granted petitioner summary judgment in both cases. The Washington Court of Appeals consolidated the cases and reversed, concluding that the statute was not pre-empted by ERISA. The State Supreme Court affirmed, holding that the statute, although applicable to employee benefit plans, does not “refer to” or have a “connection with” an ERISA plan that would compel pre-emption under that statute.

ERISA’s pre-emption section, 29 U. S. C. section 1144(a), states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. A state law relates to an ERISA plan “if it has a connection with or reference to such a plan.” To determine whether there is a forbidden connection, the Court looks both to ERISA’s objectives as a guide to the scope of the state law that Congress understood would survive, as well as to the nature of the state law’s effect on ERISA plans. Applying this framework, the state statute has an impermissible connection with ERISA plans, as it binds plan administrators to a particular choice of rules for determining beneficiary status. Administrators must pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents. The statute thus implicates an area of core ERISA concern, running counter to ERISA’s commands that a plan shall “specify the basis on which payments are made to and from the plan,” section 1102(b)(4), and that the fiduciary shall administer the plan “in accordance with the documents and instruments governing the plan,” section 1104(a)(1)(D). The state statute also has a prohibited connection with ERISA plans because it interferes with nationally uniform plan administration. Administrators cannot make payments simply by identifying the beneficiary specified in the plan documents, but must familiarize themselves with state statutes so that they can determine whether the named beneficiary’s status has been “revoked” by operation of law. The burden is exacerbated by the choice-of-Iaw problems that may confront an administrator when the employer, the plan participant, and the participant’s former spouse live in different States. Although the Washington statute provides protection for administrators who have no actual knowledge of a divorce, they still face the risk that a court might later find that they did have such knowledge. If they instead decide to await the results of litigation among putative beneficiaries before paying benefits, they will simply transfer to the beneficiaries the costs of delay and uncertainty. Requiring administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of minimizing their administrative and financial burdens. Differing state regulations affecting an ERISA plan’s system for processing claims and paying benefits impose precisely the burden that ERISA pre-emption was intended to avoid.

Life Insurance And Divorce

June 15, 2024 | Mark S. Humphreys

What if a spouse is the beneficiary of the other’s life insurance and they get a divorce? People to often, find out the hard way what happens. What happens is the spouse named spouse in the life insurance policy is automatically divulged of any interest in the life insurance proceeds. This is discussed in a 1987 opinion from the 14th District Court of Appeals. The opinion is styled, Novotny v. Wittner.

In the cited case, the divorced spouse appealed an adverse decision regarding her rights to the life insurance proceeds.

A divorced spouse is eligible as a beneficiary of a life insurance policy on the life of the ex-spouse. Termination of the ownership interest in a policy does not necessarily destroy the right to receive the policy proceeds as the designated beneficiary. However, the beneficial interest may also be terminated by the divorce decree where it clearly appears from the decree that it was intended not only to segregate the property of the spouses, but also to deprive either spouse of the right to take as beneficiary under an insurance policy on the life of the other.

Life Insurance Change Of Beneficiary

June 8, 2024 | Mark S. Humphreys

It is not uncommon first a life insurance lawyer to run across a situation where the issue is, Did the insured change the beneficiary of the life insurance policy.

Here is a 1953, Texas Supreme Court opinion dealing with this issue. It is styled, Creighton v. Barnes.

Petitioners, the mother, daughter and a sister of B. B. Barnes, as the named beneficiaries of the two Jefferson Standard Life Insurance Company policies, filed this suit against the Insurance Company for the proceeds of the two policies. The Insurance Company answered with an interpleader suit, wherein it impleaded respondent, the third wife and surviving widow of B. B. Barnes, and said that all of the petitioners and the respondent were claiming the right to the proceeds of both policies, and tendered the money into court, and asked the court to decide which of the claimants were entitled to receive the funds, and asked that it be discharged with its costs and attorneys’ fees. Respondent answered claiming the proceeds by virtue of the will of B. B. Barnes.

Accidental Death Insurance Policies And Aviation Exclusions

April 27, 2024 | Mark S. Humphreys

A typical exclusion found in accidental death policies is an exclusion for death resulting from aviation actions. This exclusion is discussed in a 1997 opinion from the Austin Court of Appeals. The opinion is styled, Board of Trustees of Employer’s Retirement System of Texas v. Benge.

The facts of this case show that the insured flew his plane in an air show. When he landed, his plane went into a “ground loop,” turning completely around before coming to a stop in the neighboring runway. Another plane collided with the insured’s plane. The insured suffered injuries resulting in his death. The insured’s widow sought accidental death benefits. The carrier denied recovery based upon the policy’s aviation exclusion. After a contested case hearing, the Board denied the claim in a Final Order. The insured’s widow sought judicial review. The district court upheld the Board’s finding that the insured had been engaged in air flight or travel which was excluded, but remanded on other grounds. The Board and the insurer appealed.

On appeal, the Court of Appeals found that although the plane had landed, the insured had not disembarked and, therefore, the insured was still engaged in travel or flight. The policy excluded “travel or flight in any vehicle or devise for aerial navigation, including boarding or alighting therefrom.” Even though the plane was standing still on the runway, the insured had not disembarked. The exclusion defines travel or flight as including boarding and alighting from the plane.

Life Insurance Exclusions In A Policy – Felonies

April 20, 2024 | Mark S. Humphreys

What if an insured is killed while committing a burglary? Is that covered in the policy as an accident?

A 1997, Dallas Court of Appeals opinion responds to this question. The opinion is styled, Grant v. Group Life & Health Insurance Company.

Grant used a pry bar to break into a residence of Stokes. When Grant entered the residence Stokes shot him five times, killing him. Grant’s wife sued Group Life to recover benefits under an accident policy for the death of her husband. Group Life moved for summary judgment o the basis that Grant died while committing a burglary and, therefore, his death was not accidental. The trial court granted the summary judgment and Grant appealed.