Articles Posted in Life Insurance

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.

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.

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.

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.

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.

Is it suicide or an accident?  Here is a 1998, Austin Court of Appeals opinion styled, Butler v. Group Life And Health Insurance Company discussing this topic.
During a social occasion, the decedent and a number of his friends picked up an unloaded gun, and began to point the gun into their mouths and pull the trigger.  At some point, ammunition was placed into the gun.  Decedent did not know this.  After the gun was loaded, but while decedent still believed it was not loaded, decedent picked up the gun, pointed it in his mouth, pulled the trigger and killed himself.  Decedent’s beneficiary made a claim for life insurance benefits, accidental death benefits and attorney’s fees and interest under the Prompt Payment of Claims Act.  The policy in questions was issued by Group Life and Health Insurance Co. under the terms of the Texas Employees Uniform Group Insurance Act (the Act).  The Board administering the policy denied the policy because decedent died as a result of intentionally self-inflicted injuries and because his death was not accidental.  The district court affirmed and Butler appealed.
Accidental death and life benefits are payable.  The claims under the Prompt Payment of Claims Act and attorney fees remained denied.

Here is a 1999 case where the named beneficiary of a life insurance policy alleges the insured was not competent to cancel the policy.  The opinion is from the United State Northern District of Texas.  It is styled, Benbow v. All American Life Insurance Company, et al.
All American Life Insurance Company and General American Life Insurance Company each insured Daniel Benbow under whole life insurance policies that provided coverage of $100,000.  Approximately seven months before Daniel’s death, letters were sent to both carriers requesting cancellation of the policies and further requesting that the carriers remit any accumulated cash value of the policies.  Both carriers honored the request and issued checks to Daniel for the current value of the policies.  After Daniel’s death, Diana Benbow contacted the carriers and notified them that Daniel suffered from a bipolar disorder, and she requested that the carriers deem the cancellation of the policies to be invalid.  The carriers contended that the policies had been surrendered, and they refused to pay the claim for benefits.  Diana then sued both carriers in state court alleging breach of contract and violations of the Texas Insurance Code.  Thereafter the carriers moved for summary judgment on all causes of action.
The motions for summary judgment were granted.  With regard to the insurance code violations, the carriers timely acknowledged the claim for benefits.

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.
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