Life Insurance Benefits And Spouses

Are spouses always entitled to life insurance benefits when the other spouse dies?  Life insurance lawyers need to be able to discuss this with prospective clients.

One spouse can designate his or her estate as the beneficiary of the policy, at the expense of the other spouse, absent any showing of actual or constructive fraud.  This was discussed and made clear in the 1994 Fort Worth Court of Appeals opinion styled, Street v. Skipper.

Policies may contain provisions automatically divesting a spouse of any interest in the proceeds, if the parties are “legally separated” or divorced.  This was discussed in the 1981 Eastland Court of Appeals decision styled, Pilot Life Insurance Co. v. Koch.  Also, the divorce decree may divest the former spouse of any right to the insurance proceeds.  This was discussed in the 1987 14th District Court of Appeals in an opinion styled, Novotny v. Wittner.  By statute, a divorce invalidates any pre-divorce designation of the former spouse as beneficiary, unless the former spouse is redesignated.  If the pre-divorce designation is invalidated, the proceeds go to any alternate beneficiary or to the insured’s estate.  If the insurer pays the former spouse based on an invalidated designation, the insurer is liable to pay the proper beneficiary.  This is found in the Texas Family Code, Section 9.301.

In the 2001 United States Supreme Court opinion styled, Egelhoff v Egelhoff, the Supreme Court held that ERISA preempts a state law that revokes a life insurance beneficiary designation when spouses divorce.  The Washington statute reviewed in that decision provided that if the life insurance beneficiary designation of the ex-spouse was made before the divorce, that designation was considered revoked.  Because the insurance was part of an employee benefit plan, the Supreme Court held that ERISA preempted state law so that the benefits would be paid in accordance with the plan documents.  The insured had not changed the beneficiary designation according to the plan, so his ex-wife received the benefits.  Texas has a similar provision in the Family Code, which also would be preempted.

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