Disputes Over the Rightful Beneficiary of Life Insurance Proceeds

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Many of the life insurance cases we handle involve disputes regarding who should receive the benefits. Attorney J. Michael Young is a recognized authority in handling such disputes and has published an article regarding Recognizing Life Insurance Beneficiary Disputes

 Life insurance is considered a non-testamentary asset.  The life insurance policy is a contract between the purchaser and the insurance company, for the benefit of a third party.  Therefore, the contract generally determines who receives the policy proceeds.

Typically, the owner of the policy names a beneficiary and that person or entity receives the proceeds upon the insured's death.  However, there are exceptions or the answer is not so clear.

Often, a policy holder will get divorced but forget to change the policy designation from the prior spouse. Sometimes it can be proven that the benefits were promised or pledged to someone other than the named beneficiary or the insured made efforts to change the designation.  Other times, the named beneficiary may have done something to prevent their recovery of the policy proceeds. In disputed cases, the insurance company will often seek a ruling from a court to determine the rightful beneficiary.  

 

Beneficiary designations can be challenged on the basis that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so. The evidence necessary to prove such claims is very similar to that in a traditional will contest, although the capacity required to make a designation is theoretically greater than the capacity to make a will. Capacity and undue influence claims are possible for ERISA policies because they are not attacks on the designation based on reference to external documents or state laws regarding designations. Instead, they are attacks on the validity of the designation document itself.

Sometimes, the insured will attempt to change a designation, but fails to do so in the manner prescribed by the insurance company. The insurance company may reject the effort and ask the insured to make the designation on the form and in the manner required by the company. Under Texas law, a beneficiary designation is effective if it is in “substantial compliance” with the insurance company’s procedure, which has been defined as the insured’s doing all that he could reasonably have done to effect a change. Federal courts apply a similar standard in ERISA cases.

 

Beneficiary disputes can be complex.  A key issue to determine is whether Texas or federal law applies to the controversy. Most policies are purchased by individuals through an agent, but many are purchased through an employer with group coverage.  Federal law, through ERISA, will often apply if the policy was purchased through an employer.  In such cases, you need an attorney experienced in handling ERISA cases.  We have handled beneficiary disputes pertaining to individually purchased policies, ERISA group policies, SGLI military policies, and FEGLI federal employee policies.

 Consultations are free and confidential.  Sometimes a beneficiary dispute can be resolved before it heads to court.  If you are involved in such a dispute, please contact Texas attorney Michael Young as soon as possible.