INSURANCE FORMS NOT END ALL REGARDING BENEFICIARY DISPUTES

An interesting case regarding a dispute of insurance proceeds in the Eleventh Circuit, US Court of Appeals, came down this past July. (Prudential Insurance v. Kopp). The case involved a dispute about who was entitled to death benefits under a decedent’s life insurance policy. Specifically, the question was whether a written request to change the beneficiary of the policy that the insurance company never processed is valid. The insurance company stated that since it never processed the paperwork, the initial beneficiary remains the beneficiary. However, the court held that strict compliance to an insurer’s internal regulations about changing beneficiaries is not always necessary. The court sent the case back to the district court to review the facts behind the matter to determine who should get the insurance proceeds.

In this case, the question was whether a written request to change the beneficiary of the policy to the wife of the decedent, submitted to the insurance company and signed by the decedent and one of his sons was sufficient to show that the wife was the beneficiary notwithstanding the fact that the insurance company did not process the request. The district court denied the request of the wife. The wife argued that the district court applied too strict a standard of compliance and that, as an equitable matter, she is entitled to receive the death benefits from her husband’s life insurance policy. The district court ruled against the wife.

Specifically, the form that the decedent and one of his sons submitted to change the beneficiary to the wife was to change the owner of the policy from a trust to the decedent, and the beneficiary to his wife. However, the insurance form stated that each trustee was to sign unless the trust itself or state law provides otherwise. In this case, the second trustee, the other son, never signed the form even after the insurance company sent notice it did not process the request because of that reason.

The appeals court disagreed with the district court with regard to the standard that it used to deny the wife’s claim. Applying, Georgia law, the court stated that when a insurance company stands indifferently to the parties, strict compliance with the insurer’s regulations are not required, and the court is permitted to use its equitable powers to determine which claimant should receive the benefits. The court reasoned that an insurer’s regulations are made solely for its benefit and protection. So if the insurer is not an interested party, the court may award the funds on equitable principles. The court held that the insurer’s regulations merely serve as an indication of the possible intent of the insured or other party authorized to request a change in the beneficiary.

Finally, the court held that a change in beneficiary request is effective where it is clear that the requesting party has a right to make a change, intends to change it, and takes reasonable step to bring about the change.

What does this all mean

This case is interesting because most people believe that insurance forms and the details of the forms are a matter of law, rather than an insurance company’s internal regulations. This means that there may be flexibility when someone claims to be a beneficiary even if the forms are not fully completed. The laws vary in each state, but this case shows that the policy holder’s intent is key. Unfortunately, the flip side is that there can be more reason for litigation.

For further discussion feel free to contact me at DBosco@boscolegal.com, or connect with me on LinkedIn if were are not already connected.