When It’s Too late to Change Beneficiaries

March 14, 2018 § Leave a comment

Annie Patterson owned an Alfa life insurance policy in the amount of $50,000 on the life of her nephew and ward, Christopher Nance. Annie was also the beneficiary. She named Christopher’s mother, Angela Nance, as contingent beneficiary. The policy included a provision that, “upon death of the owner, ownership and control of the policy … shall pass to the estate of the deceased owner.”

Annie died in April, 2013, and her father, C.D. Pulliam, attempted to make himself owner and beneficiary, along with his siblings. They submitted an affidavit to Alfa claiming to be Annie’s sole heirs. One of C.D.’s siblings also completed a “Change of Ownership” form that purported to make C.D. owner and primary beneficiary of the policy. C.D. claimed that Alfa produced the form and directed that it be signed. He also claimed that he paid all premiums on the policy after Annie’s death.

No estate was ever opened for Annie.

After Christopher died in November, 2014, Alfa issued a letter to Annie stating that her recent policy change request had been “closed as incomplete” due to irregularities in the form submitted.

Alfa interpled the policy proceeds per MRCP 22 in January, 2015, naming C.D. and his siblings as defendants, since they claimed to be beneficiaries. C.D. filed a counterclaim against Alfa. The chancellor ruled that Alfa had properly interpled the funds and dismissed C.D.’s counterclaim as moot. The chancellor also ruled that C.D. had no legal right or authority to change ownership or beneficiaries of the policy. C.D. appealed.

In Pulliam v. Alfa Ins. Co. and Nance, handed down January 30, 2018, the COA affirmed on the issue of C.D.’s power and authority to change ownership and beneficiaries. Judge Wilson wrote for a unanimous court:

¶23. “Generally, a policy of life insurance is a stand-alone contract whose purpose is to provide a sum of money to the named beneficiary upon the death of the listed insured.” Barber v. Balboa Life Ins., 747 So. 2d 863, 866 (¶11) (Miss. Ct. App. 1999). The policy owner may select any individual as the policy’s beneficiary. Van Zandt v. Morris, 196 Miss. 374, 380, 17 So. 2d 435, 436 (1944). However, “[t]he policy owner’s rights largely end at the death of the insured. The policy beneficiary then has a right to the proceeds, which until death is only an expectancy. At the insured’s death the right to change the beneficiary no longer exists; the rights of the beneficiary have vested.” Evans v. Moore, 853 So. 2d 850, 855 (¶22) (Miss. Ct. App. 2003) (citations omitted).

¶24. As discussed above, the policy was issued to Annie as the owner and primary beneficiary, with Angela designated as the contingent beneficiary. The policy provides that “upon the death of the owner, ownership and control of the policy . . . shall pass to the estate of the deceased owner.” “The language and provisions of insurance policies are viewed as contracts and are subject to the same rules of interpretation as other contracts.” Hayne v. The Doctors Co., 145 So. 3d 1175, 1180 (¶12) (Miss. 2014). “Because insurance policies are creatures of contract, if the language is clear and unambiguous, then the language of the policy must be interpreted as written.” Id. Therefore, when Annie died ownership and control of the policy passed to her estate.

¶25. The chancellor concluded, and we agree, that C.D. and Otis had no authority to change the ownership of the policy or designate new beneficiaries. No estate was ever opened for Annie, nor was there ever any determination of her heirs. The only purported authority for C.D.’s and Otis’s action is an affidavit they provided to Alfa identifying themselves (and Willie Mae) as Annie’s heirs. This was insufficient to give them authority to change the ownership of a policy that, by its clear and unambiguous terms, was the property of Annie’s estate. Cf. Long v. McKinney, 897 So. 2d 160, 174 (¶60) (Miss. 2004) (holding that an “estate must, of course, be opened and administered through the chancery court” before claims may be pursued on its behalf); Delta Health Group Inc. v. Estate of Pope ex rel. Payne, 995 So. 2d 123, 125-26 (¶12) (Miss. 2008) (holding that when “no estate had been opened,” a party could not act as “the administrator of a non-existent estate”).

¶26. While there does not appear to be a Mississippi case addressing this precise issue, courts in other states have reached the logical conclusion that parties such as C.D. and Otis lack authority to make changes to the ownership or beneficiaries of a life insurance policy owned by a deceased relative. In Prudential Insurance Co. v. Stephens, 498 F. Supp. 155, 157 (E.D. Va. 1980), the court held that when the policy owner died,

title to the policy passed to her administrator whenever he may qualify as such, not to her husband . . . in his capacity as the sole heir of her estate. Although her husband was preferred by statute for appointment as administrator of her estate, he had to apply to qualify as administrator. Because he never qualified, title to the policy never passed to him, and any act of dominion he exercised over the policy, other than those acts specifically permitted by statute, had no legal effect. A change of the beneficiary of a life insurance policy does not fall within the . . . narrow categories of permitted acts.

Id. at 157. [Fn 1] (Emphasis supplied) (internal citation omitted).

[Fn 1] Like Virginia, Mississippi has certain statutes that permit a decedent’s heirs at law to take possession of certain categories of the decedent’s assets without opening and administering an estate. See, e.g., Miss. Code Ann. § 91-7-322 (Rev. 2013); see generally Robert A. Weems, Wills and Administration of Estates in Mississippi § 2.52 (3d ed. 2003). It is not apparent that any of these statutes would apply to the facts of this case or that C.D. complied with the necessary statutory requirements. Nor has C.D. argued that any of these statutes apply or authorized him to change the ownership and beneficiaries of the policy. Therefore, this opinion does not address the applicability of any such statutes.

¶27. Similarly, in [Ky. Cent. Life Ins.] v. Vollenweider, supra, the Missouri Court of Appeals held that the deceased policy owner’s husband lacked authority make changes to the policy, although he was the insured and was named as her executor in her will. See Vollenweider, 844 S.W.2d [460] at 462 [(Mo. Ct. App. 1992)]. The court held that the husband “never became the personal representative of [his deceased wife’s] estate because her estate was not opened until after [his] death,” and the husband lacked authority to make himself “the owner of the policy merely because he was named as personal representative under [her] will.” Id.

¶28. The result is the same in this case. Neither C.D. nor Otis opened an estate or took any other steps to obtain the authority necessary to act on behalf of Annie’s estate. Therefore, C.D. and Otis lacked the authority to make changes to the ownership or beneficiary designations of the subject life insurance policy, which became the property of Annie’s estate upon her death. Accordingly, Annie’s designation of Angela as the policy’s contingent beneficiary remained in effect at the time of Christopher’s death. And the chancery court correctly concluded that there was no genuine issue of material fact and that Angela was entitled to the proceeds of the policy.

The court reversed and remanded on the issue of dismissal of C.D.’s counterclaim. That’s an issue for another post.

As for that footnote, it’s worth your time to dig through the statutes to discover the various ways that heirs (usually called “successors” in the statutes) can transfer ownership of a decedent without going through probate. Bank and securities accounts and car titles are susceptible to such procedures. I have not researched whether life insurance may be changed via a similar statute. My uninformed guess is that the reason no such statute was pled or argued on appeal in this case is that there is none.

Say What You Mean and Mean What You Say

January 4, 2016 § 2 Comments

Lee and Leslie Voulters were divorced from each other in 2004 on the sole ground of irreconcilable differences. The divorce judgment incorporated their PSA, which provided that Lee would pay Leslie lump-sum alimony in the sum of $1.08 million at the rate of $10,000 a month until paid in full. He also agreed to maintain a policy of life insurance on his life with a benefit of $1.08 million, with Leslie as beneficiary.

When Leslie filed a contempt action in 2013 charging Lee with missing some lump-sum payments and with failing to provide proof of life insurance, Lee counterclaimed, asking the court to interpret the PSA that the purpose of the life insurance was to protect Lee’s payment of lump-sum alimony, and that the obligation would terminate when the lump-sum alimony was paid in full.

Spoiler alert: There is no provision in the PSA that links the life insurance requirement to the lump-sum-alimony requirement.

Here are the pertinent parts of the agreement:

LUMP SUM ALIMONY/SPOUSAL SUPPORT

Lee shall pay spousal support to Leslie, in the form of lump sum alimony, the total sum of $1,080,000.00, payable in monthly installments of $10,000.00 each for a period of nine years. Such payments for support shall be due and payable by automatic bank transfer from Lee’s checking or other account directly into Leslie’s checking account, commencing on the fifth day of April, 2004, and shall so continue for one hundred and seven consecutive months thereafter. Lee’s obligation to pay such support to Leslie shall be fully vested upon the entry of a Final Judgment of Divorce in this cause, and shall not be modifiable. Lee’s obligation to pay such support shall not terminate upon Leslie’s death or remarriage, nor shall it terminate upon Lee’s death. However, despite the conventional definition of lump sum alimony[,] . . . these payments by Lee to Leslie under this Agreement shall be taxable to Leslie, and deductible by Lee, for state and federal income tax purposes.

LIFE INSURANCE

Lee agrees to maintain life insurance on his own life in an amount not less than one million, eighty thousand dollars ($1,080,000.00), naming Leslie as primary beneficiary thereon. Proof of such insurance coverage shall be furnished to Leslie within fifteen (15) days following the date of execution of this Agreement. Furthermore, Lee shall direct his insurance carrier to provide coverage information to Leslie at least twice a year if requested by Leslie.

. . . .

EFFECT OF AGREEMENT

. . . .

The respective rights and obligations of the parties hereunder are deemed independent and may be enforced independently irrespective of any of the other rights and obligations set forth herein. This Agreement contains the entire understanding of the parties, who hereby acknowledge that there have been and are no representations, warranties, covenants, or understandings other than those expressly set forth herein.

RELEASE AND WAIVER

Subject to the provisions of this Agreement, each party has released and forever discharged . . . his or her heirs, legal representatives, Executors, Administrators, and assigns . . . from all causes of action, claims, right or demands . . . in law or in equity . . . except . . . causes of action for divorce or separation action now pending . . . . Each party releases, waives, and relinquishes any and all rights . . . to share in the estate of the other party upon the latter’s death . . . . (Emphasis added.)

Both parties offered testimony about their intent in negotiating the language into the agreement. Lee argued that the agreement was ambiguous because it had no termination date. Leslie argued that she negotiated it for support, which she needed because her estate was meager in comparison to Lee’s.

One question before I tell you how the chancellor ruled: do you see anywhere in that language quoted above any link between the life insurance obligation and the lump-sum alimony?

The chancellor ruled that the agreement was unambiguous, and that it did require Lee to maintain the life insurance regardless of the status of the lump-sum payments. Lee appealed.

On December 8, 2015, the COA affirmed in Voulters v. Voulters. The opinion by Judge Barnes includes a nice recitation of the law of contract interpretation, life insurance and insurable interests, and even attorneys fees in contempt actions and on appeal.  I definitely commend it to your reading.

What I want to focus on here is this: If you want your agreement to mean a particular thing, then make sure there is language in it that says that particular thing. Remember that when the judge is called on to interpret a contract, she is bound by the language within the four corners of the document, and she may not accept parol evidence to vary or “explain what the parties meant” by those terms unless she first finds the agreement to be ambiguous. Just because Lee did not include a termination date for his life insurance obligation, that did not render the agreement ambiguous. It rendered instead the meaning that it had no termination date. In other words, it meant exactly what it did and did not say.

Be careful in your draftsmanship. Take time to make sure it says exactly what your client needs it to say. I think I was saved a hundred times or more by the simple practice of drafting the agreement and setting it aside for at least a day. I would then pick it up and read it afresh, often catching something that could be read two ways, or was simply not clear enough to do the job. Sometimes I would imagine myself to be another person altogether, looking at it as an outside observer. Anything to get an objective perspective.

Remember that some day someone entirely unconnected with the negotiations and the emotion of the divorce case is going to be reading your work with absolutely none of the knowledge that you had when you drafted it. It may be a judge, or it may be another lawyer having to represent your client, or — heaven forbid — a lawyer looking for a cause of action against you. That’s why it’s critical when you draft an agreement to give some thought and care to the words, phrases, and language construction that you use. That’s what your client is paying you for: to have absolutely no more trouble out of this matter after the final judgment is entered.

How Much Life Insurance is Enough? Or Too Much?

February 20, 2014 § 6 Comments

The chancellor ordered Bill Coggins to pay his ex, Alicia, $540 a month in periodic alimony. He also ordered Bill to make Alicia the beneficiary of $175,000 in life insurance on Bill’s life ” … to insure the payment of alimony in order to compensate [Alicia] and allow her to to survive …” if Bill should predecease her.

Bill appealed, complaining that the life insurance requirement was “excessive considering its purpose,” as in Johnson v. Pogue, 716 So.2d 1123, 1134 (¶41) (Miss.App. 1998).

In Coggins v. Coggins, decided Febarary 11, 2014, the COA agreed and reversed the chancellor’s ruling. Judge Maxwell wrote for the majority:

¶35. An alimony payor “may be required to maintain life insurance in an amount sufficient to satisfy payment of alimony obligations that survive the payor’s death.” Bell, Mississippi Family Law § 9.08[4][c] (citing In re Estate of Hodges, 807 So. 2d 438, 442-44 (¶¶14-23) (Miss. 2002)). The key phrase is “alimony obligations that survive the payor’s death.” ¶36. Periodic alimony is an obligation that “terminates automatically” upon the payor’s death and cannot be imposed upon the payor’s estate, absent an express agreement. Armstrong, 618 So. 2d at 1281; see In re Hodges, 807 So. 2d at 443 (¶19). While lump-sum alimony fully vests at the time of the divorce judgment, periodic alimony only vests on the date each payment becomes due. In re Hodges, 807 So. 2d at 442 (¶17). So when the payor dies, the only alimony obligations that survive—and the only obligations that may be insured—are unpaid lump-sum alimony and unpaid periodic-alimony payments that have already vested.

¶37. Recognizing the possibility that an alimony payor may fall behind in periodic-alimony payments and then die leaving those vested payments unsatisfied, this court has acknowledged the chancellor’s authority to require the alimony payor to maintain a life insurance policy to protect the recipient spouse against such a contingency. Pogue, 716 So. 2d at 1134 (¶41); see also Beezley v. Beezley, 917 So. 2d 803, 808 (¶17) (Miss. Ct. App. 2005). But in Pogue, this court found that requiring the payor to maintain a $75,000 life insurance policy to protect against the potential failure to make $500-per-month alimony payments was “excessive.” Pogue, 716 So. 2d at 1134 (¶41).

¶38. How much more excessive then is the requirement that Bill designate Alicia as the beneficiary to $175,000 in life-insurance proceeds to protect against Bill defaulting on his $504-per-month alimony payments and then dying before curing the default. This amount of insurance—the equivalent of thirty years worth of alimony payments—assumes not only that Bill may fall behind for three decades but also that Alicia will experience no material change of circumstances altering or terminating her need for alimony. Such an amount is unreasonable. Even when we factor in the unpaid portion of the $25,000 hybrid property settlement/lump-sum alimony obligation that has vested to Alicia, we find requiring Bill designate Alicia receive seven times that amount upon his death is still excessive.

¶39. We remand for the chancellor to consider whether requiring Bill to designate Alicia as a beneficiary is necessary to protect against the alimony obligations that may survive Bill’s death. If the chancellor determines the designation is necessary, he should require Bill to designate Alicia as beneficiary to a portion commensurate to those potential obligations.

There must be proportionality between the amount of alimony reasonably expected to come due and the amount of life insurance to protect that amount. The only guide we have from the case law, however, is that for $500 monthly alimony $75,000 is too much, and $175,000 is ‘way too much.

Do you always include a prayer in your divorce pleadings for life insurance to secure child support, alimony, and other obligations? And do you have your client and possibly other witnesses testify about the need for it? If you don’t do either or both, you should start.

And don’t overlook marshalling some proof about what the cost of the life insurance will be. I have denied that prayer for relief because I had no idea from the evidence in the record what the premiums would cost the paying party.

A MILITARY LIFE INSURANCE POTHOLE

December 10, 2010 § 2 Comments

You have tried your divorce case to a conclusion and your client, the wife, is awarded custody and statutory child support.  The husband, an active-duty member of the Navy, is ordered to maintain his  Serviceman’s Group Life Insurance (SGLI) policy for benefit of the minor child.  It would appear that everything is peachy-keen.  Your client is on cruise control, right? 

Not so fast, my friend.  Your client’s limo is headed for a major pothole.  Consider the following:  

Richard and April Ridgway were divorced in 1977 in the State of Maine.  They had three children at the time.

In the divorce judgment, the trial court ordered Richard to maintain his SGLI policy in the face amount of $20,000 with April as beneficiary for benefit of the three minor children. 

Richard later married Donna and changed the designation of the beneficiary to provide that the proceeds would be paid as specified “by law,” which under federal law means that it would be paid to his widow, who would be Donna.  Richard died and both April and Donna filed claims to the proceeds.

April filed suit in Maine courts seeking imposition of a constructive trust for benefit of her children.  Donna joined the suit seeking payment to herself based on the designation of beneficiary by Richard.

The case wended its way to the U.S. Supreme Court, and in Ridgway v. Ridgway, 454 US 46 (1981), that court held that due to the supremacy clause, a state court ruling must yield to federal law that gives a serviceman the unfettered right to designate his own SGLI beneficiary, and for such policies to be exempt from attachment, execution and other process for collection.

What all this means is that the state trial court judge’s rulings vis a vis the SGLI is essentially meaningless. 

So what can you do?  One solution may be to ask the court to take judicial notice of the Ridgway decision (and provide the judge a copy), and have your client testify that she insists that the husband obtain and maintain a private policy of life insurance with the children as sole named beneficiary.  If you put all your client’s eggs in the SGLI basket, she may find it empty when egg-gathering time arrives.  And she just might look to you to make things right. 

Thanks to attorney Bill Jacob for this.  I have not researched this issue for later authority, but Bill tells me it is good law.

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