Life Insurance And Interpleader

Life insurance lawyers will have to deal with situations where the proceeds of a life insurance policy are interpleaded into the registry of a court. A February 2014, 14th Court of Appeals opinion dealt with this issue. The style of the case is, Branch v. Monumental Life Insurance Company. Here is some of the relevant information.
Monumental filed this interpleader to resolve competing claims to the proceeds of a $10,000 policy insuring the life of Archie Branch Sr. (“Archie”). The policy was obtained during Archie’s marriage to Loretta Young Branch (“Loretta”), and Loretta was the named beneficiary. Archie and Loretta divorced on May 3, 2011. Six weeks later, Archie died.
According to Loretta, she demanded the insurance proceeds as the named beneficiary, but Monumental refused payment. Monumental learned that a newspaper obituary identified five people as Archie’s children.
The trial court ruled that Loretta “has no legal claim or right” to the deposited funds, which instead belong solely to Archie’s legal heirs and Loretta filed this appeal.
By statute, if an insured’s spouse is designated as a life-insurance beneficiary but the couple later divorces or their marriage is annulled, the earlier designation of the spouse as a policy beneficiary is ineffective. This found in the Texas Family Code, Section 9.301(a). If that happens, then the policy proceeds are payable to the named alternative beneficiary, or if there is none, then the proceeds are payable to the insured’s estate. The same statute provides three exceptions to this rule. The earlier designation of a former spouse as a life- insurance beneficiary is not rendered ineffective if (1) the former spouse is designated as the beneficiary in the divorce decree; (2) the insured redesignates the former spouse as a beneficiary after the divorce; or (3) the former spouse is designated to receive the insurance proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either of the former spouses.
It is undisputed that Loretta was married to Archie when she was designated as the policy’s named beneficiary, and that they subsequently divorced; thus, as a matter of law, her designation as the policy beneficiary was of no effect unless one of the three statutory exceptions applies. Loretta does not contend that she alleged or proved any of these things. In support of this position, she relies on Gillespie v. Moore, a 1982 Amarillo Court of Appeals case and the cases cited therein for the proposition that a divorcing “spouse who conveys the ownership interest in a policy does not necessarily lose the right to receive the policy proceeds as the designated beneficiary.”
The authorities on which Loretta relies are inapplicable because they predate the statute that governs this case. Gillespie, Partin, and Pitts were decided before the legislature declared that the designation of a spouse as a life-insurance beneficiary became ineffective upon divorce. The law changed in 1987, when the legislature enacted section 9.301’s predecessor, Texas Family Code section 3.632.
Where, as here, no marital-property agreement is involved, a divorce’s effect on the designation of a spouse as a life-insurance beneficiary is now governed by statute. Because Loretta does not contend that any of the statutory exceptions apply, we conclude that Archie’s designation of her as a life-insurance beneficiary is ineffective as a matter of law. We accordingly overrule this issue.
This case tells us a few things. One, that when an insurance company is unsure who is a proper beneficiary they will interplead the money into the court and let the Judge decide who is entitled to the proceeds. Two, that the current law does not allow a former spouse to recover under a life insurance policy unless one of the listed exceptions apply. Three, an experienced Life Insurance Attorney needs to be consulted in these matters.