Life Insurance & Separation

Dallas life insurance lawyers need to be aware of this 1981, Eastland Court of Appeals case. The style is Pilot Life Insurance Company v. Koch. Here is some of the relevant information:
This is a declaratory judgment case. Pilot Life sought a judgment declaring that it had no duty to pay life insurance proceeds to Lawrence A. Koch because of the death of his wife. Pilot Life had issued a policy of group insurance to Koch’s employer. The policy afforded life insurance coverage for employees and their eligible dependents. Eligible dependents were defined to include “your husband or wife, unless you were legally separated or divorced.” Pilot Life alleged that Mr. and Mrs. Koch were legally separated on the date of her death. A jury found that Mr. and Mrs. Koch were separated at the time of her death. Although that separation was pursuant to a “temporary” court order entered in the pending divorce proceedings between Mr. and Mrs. Koch, the trial court entered judgment for Koch notwithstanding the verdict on the theory that under Texas law there is no status of legal separation of a husband and wife before the marriage is dissolved by a decree of divorce.
On appeal Pilot Life contended that the trial court erred because the evidence established that Mr. and Mrs. Koch were separated pursuant to an order of a district court and thus they were legally separated on the date of Mrs. Koch’s death; and, were, therefore, legally separated within the contemplation of the policy. Pilot Life also urged that the trial court erred in ruling, as a matter of law, that Mr. and Mrs. Koch were not legally separated on the date of Mrs. Koch’s death.
Mr. and Mrs. Koch separated and began living apart on December 23, 1977. On March 23, 1978, Mrs. Koch filed suit for divorce. Temporary orders were entered on March 24, 1978. The orders set aside a residence to Mrs. Koch, divided the household goods and furnishings, set aside certain vehicles for the parties and provided for the discharge of debts.
Mrs. Koch died September 16, 1978. It was much in dispute whether there was a reconciliation between the parties prior to her death. The evidence did show that the parties lived in separate residences until Mrs. Koch died.
The issue is whether the parties were legally separated at the time of Mrs. Koch’s death. The term “legally separated” as used in the insurance policy is not specifically defined in the policy, nor was there found any Texas cases defining the term. Therefore, this court had to ascertain the meaning of the term, and in doing so resort to the usual rules of construction.
First, although contracts of insurance are said to be construed strictly in favor of the insured, nevertheless they are to be construed generally as other contracts, in that unambiguous words and phrases are to be taken in their ordinary meaning unless there is something in the contract that would indicate a contrary intention.
With no definition in the policy, the court had to first determine whether the term has a readily ascertainable meaning in the plain, ordinary and popular sense of the words themselves.
An interpretation that gives a reasonable meaning to all provisions is preferable to one that leaves a portion of the policy useless, inexplicable, or creates surplusage.
Since the policy in issue was not specifically drafted for Texas but was intended for use in every state that Pilot Life is authorized to do business, the words “legally separated” should not be considered only on the basis of Texas law which does not recognize legal separation. The meaning of the words have been examined by both state and federal courts in cases in which the decision turns on whether a party is legally separated for insurance and tax purposes. All such cases found are concerned with final judgments and decrees. Not a single case was found where a court has held that a temporary order, as distinguished from a final judgment or decree, is a legal separation.
It is a settled rule that policies of insurance will be interpreted and construed liberally in favor of the insured and strictly against the insurer, and especially so when dealing with exceptions and words of limitation. When the language of a policy is susceptible of more than one reasonable construction, the courts will apply the construction which favors the insured and permits recovery.
This court held that a reasonable construction of the policy language, “unless you were legally separated or divorced,” means finality of judgment. Thus, the trial court ruled correctly.
Texas Family Code, Section 9.301, states that a pre-divorce designation of a spouse is invalidated upon divorce. As such, if an insurance company pays the pre-divorce spouse, it will still be liable to any alternate beneficiary or to the insured’s estate.

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