Dallas Fort Worth Insurance Lawyer Blog

It happens frequently.  An insured person changes the beneficiary of their life insurance policy.  Here is a 1997, Waco Court of Appeals opinion discussing this event.  The opinion is styled, Cobb v. Justice.

Here are the facts.  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 had 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 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 was 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 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 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.

Are there ways the named beneficiary of a life insurance policy can be defeated for the life insurance proceeds?  Rarely.

Here is a 1998 opinion wherein a wife contested the named beneficiary of a life insurance policy.  The opinion is from the Corpus Christi Court of Appeals and styled, Camp v. Camp.

The Husband purchased a life insurance policy as an employment benefit while he was still single and without children.  He named his mother beneficiary to the policy.  When he later married, he did not change the insurance policy’s beneficiary designation to his wife.  Premiums for the policy were paid from the husband’s employment earnings during the years of his marriage to wife until his death in 1996.

Does the estate of the deceased have legal standing to challenge the distribution of life insurance proceeds?  Probably not.

This is the issue in the 2009, San Antonio Court of Appeals opinion decided in Irwin v. Irwin.

Barbara Jane Irwin and the decedent, Richard Lee Irwin, were married while Richard was employed by the Drug Enforcement Agency (DEA).  While employed by the DEA, Richard participated in a life insurance program and designated Barbara as his primary beneficiary and his sons from a prior marriage, Mike and John, as his contingent beneficiaries.  Richard retired in 1995, and he elected to receive reduced life insurance coverage.  In 2006, Richard and Barbara divorced; their Agreed Divorce Decree awarded Richard all policies insuring his life.  During the pendency of the divorce, Richard signed a new will in which he stated he had filed for divorce in April 2005 and it was his “specific intent not to provide for [Barbara] in this will and to hive his entire estate … to Mike and John ….”  Richard died on April 11, 2007, and his beneficiary at the time of his death was Barbara Irwin.  Pursuant to his beneficiary designation, the Office of Personnel Management paid the proceeds of Richard’s policy to Barbara.

Can a life insurance company deny a life insurance claim due to an alleged misrepresentation in the application?  Maybe not.

Here is a 1996 opinion from the United State Southern District of Texas.  The opinion is styled, Bates v. Jackson National Life Insurance Company.

Bates’ children sued Jackson National for proceeds of a life insurance policy issued to Bates.  They asserted causes of action for breach of contract, bad faith, and Insurance Code violations and DTPA violations.

Attorneys who handle life insurance cases can tell you that the application being attached to the policy is one of the basic rules of life insurance.  This is illustrated in the 1994, Texas Supreme Court opinion styled, Fredonia State Bank v. General Life Insurance Company.

In this case, the insured died as a result of a gunshot wound to the head.  Prior to his death, he had purchased two life insurance policies, each in the amount of $250,000.00 issued by General American Life Insurance Company.  General American denied the beneficiary’s claims for benefits.  Fredonia State Bank, an assignee of one of the two policies and executor of the insured’s estate, sued to collect the proceeds of the policy.

General American asserted as defenses that the insured had committed suicide and that the insured had made misrepresentations regarding his medical history, which were material to the risk assumed by General American.

The life insurance application has to be attached to the life insurance policy when it is delivered to the owner of the policy.

Here is a case from the United States Fifth Circuit Court of Appeals.  It is a 1997 opinion styled, Annette Riner; Suzette Marriott v. Allstate Life Insurance Company.

Following his divorce in 1994, Mr. Marriott wanted to replace his life insurance policy, naming his daughters (Riner and Ms Marriott) as beneficiaries.  Mr. Marriott had endured five back surgeries and was in chronic pain at the time the Allstate agent took his application.  In the application, Mr. Marriott disclosed that he had chronic back problems and certain other medical problems.  The application, however, was marked “no” with respect to whether he had ever received treatment for the use of alcohol or depression within the last three years.

Here is a 1998, opinion issued as the result of an employer purchasing a life insurance on an employee and naming itself as the beneficiary.  The opinion is from the Tyler Court of Appeals and styled, Stillwagoner v. Travelers Insurance Co.

The decedent was a registered nurse employed by Advantage Medical Services, Inc.  Unbeknownest 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.

Life Insurance Lawyers should find this interesting in case they did not already know it.  It is a 2023 opinion from the U.S. Court of Appeals for the Fifth Circuit.  The opinion is styled, In The Matter Of Frank W. Gordon; Judith B. Gordon, John Patrick Lowe v. Frank W. Gordon; Judith B. Gordon.

Lowe is the duly appointed Chapter 7 Trustee of the bankruptcy estate of the Gordons.

The Gordons claimed the surrender value of two life insurance policies as exempt from the bankruptcy proceedings under Texas state law..  Lowe objected to the exemption and the bankruptcy court overruled the objection.  This appeals Court affirms the District Court ruling.

Life Insurance Attorneys need to understand that an employer cannot make itself the beneficiary of an employees life insurance policy.  This is discussed in a 1998, opinion from the 14th District Court of Appeals.  The opinion is styled, Tamez, et al v. Certain Underwriters at Lloyd’s, London, International Accident Facilities, Inc., et al.

In 1991, National Convenience Stores (NCS) purchased an accidental death insurance policy from Lloyd’s.  The policy provided that Lloyd’s would pay NCS $250,000 upon the accidental death of any NCS Texas employee killed during the course and scope of employment with NCS.  NCS did not have workers’ compensation insurance.

Ramon Tamez and Cheryl McCarthy were both killed while employed by NCS, although it was disputed whether McCarthy was in course and scope.  NCS filed a claim for proceeds under the policy as a result of the death of both individuals.  NCS was paid by Lloyd’s, but NCS later returned the benefits paid as a result of McCarry’s death stating McCarty was not in course and scope at the time of her death.  The representatives of both Tamez and McCarty sued Lloyd’s and NCS in an attempt to recover the benefits under the policy.  The primary issue in dispute is whether NCS had an insurable interest in the life of its employees.  The causes of action asserted against Lloyd’s included breach of contract, breach of the duty of good faith and fair dealing, conspiracy, conversion, and violations of the Texas Insurance Code.  As to NCS, the representatives alleged that NCS held the insurance benefits in a constructive trust for their benefit.