Life Insurance Denial And Who Gets The Benefits

Life insurance claims can take many turns, as any attorney who handles very many of these life insurance claims can tell you.  Here is a 2021, opinion from the Southern District of Texas, Houston Division.  It is styled, New York Life Insurance Company v. Srinivas Varati.

New York has filed a Rule 12(b)(6) motion to dismiss and a motion for judgment on the pleadings.  The Court granted the motions.

Here is some background.  Varati is the administrator for the estate of Shanti Nakirekanti.  Shanti died on February 18, 2019, the same day as her late spouse, Sreenivas Nakirekanti (Sreenivas).  Sreenivas died by suicide.  On March 30, 2017, New York had issued a term life policy to Sreenivas.  The policy had a face value of $500,000 and listed Sreevinas as the sole “owner.”  The policy, and Sreenivas’s application for the policy, listed Sreenivas’s children Pranay and Nitya, each as 50% beneficiary.  Section 3.4 of the Policy’s base provisions (the Base Policy) defines “Beneficiary” as “the person or entity named in the application, or in a notice you sign that gives us [the Company] the information we need[.]”

The Company issued the Base Policy with an attached endorsement called the Spouse’s Paidup Insurance Purchase Option (the Option).  Section 1 provides that when the insured that is covered under the Base Policy dies, the eligible applicant shown in Section 2 can purchase a new single premium paidup whole life insurance policy that insures the insured’s spouse.  Section 2 states who is eligible to purchase the New Policy Eligible applicants include the insured’s spouse who is a beneficiary, the owner who is a beneficiary but not the insured’s spouse, and the owner who is a trust and beneficiary.  Additionally, Section 9 addresses “simultaneous death.”  In the event the insured and the insured’s spouse die “simultaneously” (within 30 days of the insured’s death) the insured’s spouse is still eligible, so long as a third party or trust is not the owner and beneficiary.  However, in the event the insured commits suicide, Section 9 is inapplicable.

After Sreenivas’s death, the named beneficiaries, Pranay and Nitya, the children of the insured, who is the owner of the Policy, submitted a claim for Policy benefits to the Company.  The Company paid 50% of the Policy proceeds to Pranay and Nitya, respectively, on May 28, 2019 and June 5, 2019.  The children then caused an estate to be opened on the mother (the Estate).  Varati, the Estate’s administrator, commenced this suit in the name of the Estate.

The Estate alleges that, after Shanti’s death, the Company’s agent told Shanti’s family that Shanti was eligible for the Simultaneous Death benefit in the amount of $500,000.   The Estate further alleges that the agent collected a $1,690.42 premium check for the Simultaneous Death benefit and submitted the claim with the premium to the Company, which deposited the premium check.

The estate made a written demand for an additional $500,000 and New York filed suit in this Court, seeking a declaratory judgment that it has no obligation under
the Policy to pay the benefit to the Estate.  The Estate timely answered and filed counterclaims.

The Court first addresses the Estate’s claim for the Simultaneous Death benefit.  The parties agree that the Court should interpret the Policy in accordance with Texas law.   Insurance policies are contracts, and the rights and obligations arising from them and the rules used to construe them are those generally pertaining to contracts.  When interpreting a contract, a court’s primary concern is to ascertain and give effect to the intent of the parties as expressed in the contract.  Absent ambiguity, contracts are construed as a matter of law. 
However, a contract is ambiguous only if it is subject to two or more reasonable interpretations after applying the pertinent construction principles.

Applying these principles, the Court is of the opinion that Shanti was not eligible for the Simultaneous Death benefit because she was not a named beneficiary under the Base Policy.  Under Section 2, an applicant’s eligibility to purchase a New Policy turns on whether she is a beneficiary for all or part of the Base Policy life insurance proceeds.  The Court interprets subsection 2(a.)’s clause who is a Beneficiary for all or part of the Base Policy Life Insurance Proceeds” to mean that, in order to purchase a New Policy, the Insured’s Spouse must be a beneficiary under the Base Policy.  Section 3.4 of the Base Policy defines “Beneficiary” as “the person or entity named in the application, or in a notice you sign that gives us [the Company] the
information we need[.]”

Moreover, the Estate’s argument that Shanti was eligible to purchase a New Policy
despite not being a named beneficiary conflicts with Section 3.4 and subsections 2(b.) and 2(c.)In both subsections, eligibility turns on whether the person or trust seeking the benefit is a beneficiary.  The Estate’s interpretation renders these subsections meaningless.  The Court reaches this conclusion because the Court presumes that the parties intended to give meaning and effect to the entire writing, and the Court must harmonize all the provisions of the contract so that none will be rendered meaninglessHaving done so, the Court determines that the Estate’s proposed interpretation of Section 2 is unreasonable and, therefore, that the provision is not ambiguous.

Nor is Section 9, the Simultaneous Death provision, ambiguous.  Section 9 states that the insured’s spouse is eligible for the Option benefit “[i]f the Insureds Spouse, who has the right to after the Insureds death[.]”  Because, as a matter of law, Shanti was not a Beneficiary of the Base Policy, she was not eligible for the Simultaneous Death benefit.  Nor does the Option’s incontestability provision
(Section 12) bar the Company from contesting Shanti’s eligibility.  Such provisions “protect the insured from a contest as to the validity of the policy” and “should not be applied to change the meaning of the terms of the policy or to enlarge its coverage.”  Therefore, the Estate’s claim for benefits under the Policy is dismissed with prejudice.

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