Court overturns account beneficiary designation

Life insurance beneficiary designations are not the only beneficiary designations that can be contested. Bank, retirement, 401k, IRA and other designations can also be contested.

In Estate of Minton, the Texarkana Court of Appeals upheld a jury verdict finding a decedent lacked sufficient mental capacity to execute Payable on Death (POD) designations. The dispute involved a checking account and various Certificates of Deposit (CD), owned by the decedent. The total value exceeded $400,000.

The decedent executed the POD designations in March of 2010, eight months before his death. The beneficiary had been a friend of the decedent for about three years. On behalf of decedent’s heirs, his estate administrator filed suit to overturn the designations, claiming alternatively that the decedent lacked sufficient mental capacity or was unduly influenced to make the designations.

The trial judge dismissed the undue influence claim, but allowed the capacity claim to go to the jury. The jury found the decedent lacked the required mental capacity to execute the POD designations. The court of appeals upheld the verdict, citing the following evidence:

  • Decedent stayed at McAllen Nursing Center from January 23 to January 24, 2010. The nurse's notes admitted into evidence indicated that he was alert and able to follow directions, but also that he was uncooperative and confused during his visit;

  • A few days later, he was sent to Legends Transitional Nursing Home (Legends). The nursing home's records indicated that Minton was alert, but forgetful and demanding. An “Elopement Risk Assessment,” signed by the attending physician, indicated that he was cognitively impaired with poor decision making skills, and his “Fall Risk Assessment” indicated that he had “intermittent confusion;”

  • He was admitted to McAllen Nursing Home on February 5, 2010. The admission notes indicated that he was alert but forgetful and confused. According to the nurse's notes, he was discharged on his own request from the nursing home the next day, after being instructed on the risks of leaving;

  • A friend testified that in January 2010, decedent had problems thinking and making decisions, was easily agitated, and would not allow health care workers to assist him. He testified that he often had employees run errands for decedent but that it was difficult to find help because he was rude to anyone who helped him. He was bed-ridden and would stay for hours in his own feces and urine, but would refuse to be cleaned and would request that the police be called to have his healthcare workers removed;

  • the day after he signed the POD designations, he was admitted to the emergency room at McAllen Heart Hospital. The hospital admission documents stated that he was unable to sign the documents. The hospital records also indicated that he had “adjustment disorder.”

The beneficiary of course provided testimony and some evidence that the decedent had capacity to execute the designations. He also argued the the contestants did not have evidence of incapacity on the very day of the designations, only before and after.

The court of appeals found that there was plenty of evidence supporting the jury’s verdict of lack of capacity. The court also cited basic Texas law that evidence of incapacity could come from before and after the execution: “the jury was entitled to infer that evidence of Minton's irrationality and dementia in the months preceding and following the signing of the contract were probative of his capacity to contract on the date the contract was signed .”

If you are involved in a dispute regarding an account beneficiary designation, it is very important to contact a lawyer experienced in evaluating such disputes.

Court Rules against Ex Wife's claim to life insurance proceeds

In Branch v. Monumental Life insurance Company, the Houston 14th Court of Appeals considered the claim of an ex-wife to life insurance proceeds.  The court of appeals affirmed the Brazoria County court's ruling that she was not entitled to the proceeds.

Archie Branch bought a life insurance policy during his marriage to Loretta Branch.  He named Loretta as the sole beneficiary.They were then divorced. Archie died six weeks after the divorce was final.

Loretta claimed the life insurance proceeds.  The life insurance company decided not to pay when it learned of the divorce. It filed an interpleader lawsuit, naming Loretta and Archie's children as defendants and interested parties.

Loretta contended she was entitled to the proceeds as the  designated beneficiary. The court noted in response:

By statute, if an insured’s spouse is designated as a life-insurance
beneficiary but the couple later divorces or their marriage is annulled, the earlier
designation of the spouse as a policy beneficiary is ineffective. See TEX. FAM.
CODE ANN. § 9.301(a) (West 2006). If that happens, then the policy proceeds are
payable to the named alternative beneficiary, or if there is none, then the proceeds
are payable to the insured’s estate. Id. § 9.301(b). The same statute provides three
exceptions to this rule. The earlier designation of a former spouse as a lifeinsurance
beneficiary is not rendered ineffective if (1) the former spouse is
designated as the beneficiary in the divorce decree; (2) the insured redesignates the
former spouse as a beneficiary after the divorce; or (3) the former spouse is
designated to receive the insurance proceeds in trust for, on behalf of, or for the
benefit of a child or a dependent of either of the former spouses. Id. § 9.301(a).

Loretta responded that she was entitled to the proceeds because she paid the policy premiums. The court rejected this argument. The divorce decree awarded ownership of the policy to Archie. Loretta failed to prove that her circumstance met any of the exceptions set out in the Texas Family Code regarding the effect of divorce upon life insurance designations. She did not get the money.  Instead it went to Archie's lawful heirs. 

There are ways to address the claims of an ex spouse that may be successful in obtaining life insurance proceeds.  It is extremely important to consult an experienced Texas life insurance attorney in that situation. 



Federal Court awards proceeds to beneficiary over lender

Jackson National Life Insurance v. Dobbins (Civil Action No. 3:16-CV-0854-D) is a life insurance beneficiary interpleader case.  Judge Fitzwater of the Northern District of Texas, Dallas Division, had to decide if the policy proceeds went to the designated beneficiary or a lender who had been assigned the benefits by the insured.

The insured had obtained the policy in 1999, with a million dollars in benefits.  In 2001, he designated a limited partnership as the primary beneficiary.  This designation remained in effect until his death. 

However, in 2007 the insured took out a loan from a bank. As part of the loan process, he signed papers purporting to assign the policy as collateral. The agreement provided that the policy owner gave the bank, its successors, and assigns “[t]he sole right to collect from the Insurer the new proceeds of the Policy when it becomes a claim by death or maturity.”

However, a dispute arose because the insurance company never recognized the assignment to the bank. The insurance company sent the bank a Collateral Assignment form.  The bank sent the bank a partially completed form in May 2007. The insurance company then informed the bank that it did not accept fax assignment requests and that the form was incomplete. It enclosed a new Collateral Assignment form and requested the bank complete and return the form by mail. The life insurance company never received the new Collateral Assignment form.

After the insured died in 2015, the bank and the beneficiary claimed the benefits. The insurance company filed the interpleader and deposited the disputed life insurance proceeds. 

The bank contended the insured executed a valid assignment of the policy proceeds as part of the 2007 loan and that it notified the insurance company of the assignment. The lender also contended any defects in the form of notice to the insurance company were immaterial, as the filing of the interpleader essentially waived these conditions. 

The court disagreed, finding for the designated beneficiary.  Applying Oklahoma law, the court found the policy was assignable only by its terms.  The particular policy had certain terms for assignment and the lender did not comply and the insurance company never waived compliance. The designated beneficiary had a right to complain of the non-compliance, because their interest in the proceeds vested when the insured died. 

Life insurance beneficiary disputes often turn on technicalities.  So it is very important consult counsel experienced in handling such cases, early in the process. 


Life Insurance Beneficiary Disputes

Thank you to the Estate Planning Section of the Collin County Bar Association for hosting my presentation  on life insurance beneficiary disputes. The presentation was on December 8 and included the following topics:

Common dispute areas

  • The will contest in disguise – undue influence/lack of capacity
  • Attempted beneficiary changes – doctrine of substantial compliance
  • Designations in favor of ex-spouses – Texas Family Code – Texas Estates Code
  • Agreements incident to divorce – QDRO – waivers – agreements to make designations
  • Community property claims – constructive fraud on the marital estate
  • Disqualification of a beneficiary – slayer statute

Texas or Federal Law

  • The first question 
  • ERISA – why it is so important 
  • How to determine if ERISA applies


  • Interpleader 
  • Putting the life insurance company on notice of a dispute
  • Typical insurance company response, the “pre-interpleader” letter
  • State or federal court
  • Negotiation tips

Houston Federal Court rules plaintiff has standing

Ruben Saenz and his late wife purchased a credit life insurance policy through Transamerica. The sole beneficiary was the lender on a truck they purchased. After the wife died, Transamerica denied payment on the policy due to the cause of death being excluded. Saenz then filed a lawsuit against Transamerica. 

Transamerica filed a motion to dismiss the lawsuit, claiming that Saenz did not have individual standing to bring the lawsuit.  He was not a beneficiary of the policy, nor did he establish an estate for his late wife.  Transamerica claimed the only parties who had standing to bring suit were the lender, as the designated beneficiary, or an appointed executor of the late wife's estate.

Saenz raised two arguments in support of standing. First, he argued standing because he was liable on the car loan and any insurance payout in excess of the amount still owed would go to him. Judge Miller, of the Houston Division of the Southern District of Texas, rejected that argument, finding that premise was speculative.

Saenz also argued that the life insurance property was community property, since it was purchased during marriage. Texas Estates Code Section 453.003 provides:

“If there is no qualified executor or administrator of a deceased spouse's estate, the surviving spouse, as the surviving partner of the marital partnership, may... sue and be sued to recover community property.”

The Court noted that a surviving spouse has the power to sue to collect claims due to the community estate. Also, in Texas even though the insured has designated a beneficiary, the surviving spouse has a claim to up to half the insurance proceeds if the policy was community property.  Therefore, Saenz had standing to sue Transamerica for its denial because he had a community property claim to any payment of proceeds. 

Spousal rights to community property policies is a complex issue that turns on a number of factors, including whether Texas or federal law applies. Anyone facing a claim pertaining to spousal rights in a policy should contact a Texas lawyer experienced in evaluating such claims. 

5th Circuit affirms denial of accidental death benefits

In Hagen v. Aetna Insurance Company, the Fifth Circuit Court of Appeals affirmed the trial court's denial of accidental death benefits to a beneficiary. The policy was obtained through the deceased's employment, therefore it was governed by a federal law commonly known as ERISA.

The policy provided that benefits were payable if death "was a direct result of a bodily injury suffered in an accident.”  However the policy also provided that death “must not be due to, or contributed by, an illness or disease of any kind including a reaction to a condition that manifests within the human body or a reaction to a drug or medication regardless of the reason [the insured] ha[s] consumed the drug or medication.” 

The insured suffered a fall in his home, fracturing his hip.  He died a few weeks after surgery.  The autopsy report stated that the cause of death was “complications of blunt force trauma of lower extremity with intertrochanteric fracture of femur” and listed  as contributory causes "COPD, chronic alcoholism, and hypertensive cardiovascular disease. Under manner of death, the report read: “Accident (Fell).” 

Aetna denied payment.  It stated in the denial letter,  "death was caused or contributed to by a bodily infirmity, illness and disease, use of alcohol, use of intoxicants and medical or surgical treatment which are limitations excluded by the Policy.” 

The Fifth Circuit noted that under ERISA, it was not enough for the beneficiary to show that the fall caused the insured's death.  Instead, ERISA allows an insurer to deny payment if “some concrete evidence in the administrative record” supports its determination.  Essentially, courts will support an insurance company's decision in ERISA cases, even if the totality of the evidence weighs against the insurance company's decision.  This is despite the inherent conflict of interest, as the entity whose money will pay the claim is left great discretion to determine if payment is due.

Slayer Statute Prevents a Killer from Obtaining Benefits

A beneficiary killing the insured to recover benefits is obviously immoral and illegal.  Texas law also prevents a killer beneficiary from receiving the money.  Section 1103.151 of the Texas Insurance Code is considered a "slayer statute" and  provides: "A beneficiary of a life insurance policy or contract forfeits the beneficiary's interest in the policy or contract if the beneficiary is a principal or an accomplice in wilfully bringing about the death of the insured."

Upon such a finding, the insurance code further provides that the money goes to the contingent beneficiary.  If there is no eligible contingent beneficiary, the money goes to the insured's nearest relative. 

According to Texas court decisions, the slayer statute does not require a final conviction of murder.  Instead, a party seeking to establish that a beneficiary has forfeited his or her right to collect on the policy need only prove by a preponderance of the evidence that the beneficiary willfully brought about the death of the insured.  This may be proven by circumstantial evidence.

ERISA does not explicitly contain a slayer provision and ERISA generally preempts state laws. However, federal courts have generally recognized that public policy will not allow a beneficiary of an ERISA policy who wilfully kills the insured to receive benefits under the life insurance plan.  Most ERISA plans provide the order of payment if the designation beneficiary is disqualified.

Anyone either challenging or defending a beneficiary designation under either Texas or federal law should consult a lawyer with substantial experience in handling life insurance beneficiary disputes. 

Employer not liable for delay in policy conversion

In Picou v. Fedex, a federal court in Fort Worth examined an employee's efforts to convert an ERISA group policy to an individual policy. The court summarized the dispute as follows:

Welton was employed with FedEx until her resignation on December 31, 2010. Welton allegedly resigned due to the increasingly deleterious effects of breast cancer. While employed, Welton was insured under FedEx's group life-insurance policy. On January 21, 2011, Welton “requested information regarding the conversion of her policy.”  Plaintiffs allege that FedEx failed to transmit this request to Lincoln until February 18. On February 24, Lincoln mailed a conversion application to Welton, requesting that the application be completed and returned by March 11. Unfortunately, by that time, Welton was too ill to complete the application or pay the required premium. She passed away on April 12, 2011. No premiums were paid to Lincoln on Welton's behalf subsequent to her resignation.

The federal court determined that ERISA preempted all negligence claims against Fedex under state law. Furthermore, the court noted that the plan documents directed employees to contact the insurance company directly for conversion paperwork.

From a client

I would recommend J Michael Young to anyone who needs representation for life insurance benefits anywhere in Texas.  He gave me sound legal advice and remained on top of every aspect of my case. He routinely kept me informed about his progress on my case, he is very honest, and his fees were very fair. I am proud to say that I won my benefits with Michael Young's help!

K.D. Houston, Texas


El Paso Court affirms beneficiary status under doctrine of substantial compliance

In Prudential Ins. Co. v. Durante, the El Paso Court of Appeals confirmed that a widow had standing to bring a claim for policy benefits under the Texas doctrine of substantial compliance. Her husband attempted to make a beneficiary designation change and name her as a 50% beneficiary.  However, the insurance company rejected the attempted beneficiary change because it deemed his designation of contingent beneficiaries ambiguous. The insurance company notified the husband in writing that he needed to correct the form, but he died before making the corrections.

The widow made a claim to the benefits and the insurance company filed an interpleader.  The trial court found that the widow was indeed entitled to 50% of the benefits. The Court of Appeals affirmed that decision, finding that the husband had substantially complied with the insurance company's procedures for making a beneficiary change.   It was quite clear that the husband intended for his wife to receive those benefits, even if his designation of contingent beneficiaries was not clear.

Texas Insurance Beneficiary Disputes


If you are involved in a life insurance beneficiary dispute

I routinely handle life insurance beneficiary interpleader suits in State and Federal courts throughout Texas. If I'm hired early enough, I can often get a favorable result before the insurance company files the interpleader.  But I'm often not contacted until a claimant has been served with the lawsuit.

Here are some general observations from my experience:

1)  Hire a lawyer experienced in handling life insurance beneficiary disputes.  I've seen heartbreaking examples of claimants either attempting to represent themselves pro se or hiring a lawyer who is not experienced in these disputes.  The issues can be much more complex than they may seem at first glance and often implicate both Texas and Federal law.  Some are essentially will contests under another guise.    

2) Getting mad at the insurance company is usually pointless.  Sure, it may seem obvious who should receive the benefits.  But the law does not require the insurance company to gamble.  The insurance company protects itself from competing claims by filing an interpleader.  And the law provides that the insurance company may recover its reasonable and necessary attorney's fees from the policy proceeds.

3) Filing a counter claim against the insurance company should only be done with great care and consideration.  Generally, all you are doing is eating away at the policy proceeds as the insurance company ends up getting its attorney's fees awarded.  

4) Work carefully with your lawyer to present the court with the legal and factual basis for why you should receive the policy benefits.  This may seem obvious. But I've seen claimants, generally with inexperienced counsel, who take for granted the superiority of their position and expend more time and energy fighting with the insurance company or over marginal issues.



Congratulations to our clients

Our clients prevailed in two federal court life insurance beneficiary disputes:

United of Omaha v. Spalding, et al; Civil Action No. 3:13-CV-3771-L, in the United States District Court for the Northern District of Texas.  Judgment entered in favor of clients on February 7, 2014.  This was a dispute over $200,000 in ERISA policy benefits. 

Genworth Life and Annuity Co. v. Rodgers, et al; Civil Action No. No. 2:14-CV-00056, in the United States District Court for the Southern District of Texas.  Judgment entered in favor of client on May 21, 2014. This was a dispute over two million dollars in benefits. 

We handle disputed life insurance policy claims throughout Texas, in both state and federal court. 

Federal Employee Group Life Insurance: Beneficiary disputes

As part of our life insurance dispute practice, our firm has evaluated and handled claims involving Federal Employee Group Life Insurance.   The FEGLI program offers term-type life insurance to federal employees that can be carried into retirement.  Congress enacted FEGLI in 1954 to provide low-cost group life insurance to Federal Employees. The Office of Federal Employees' Group Life Insurance, established by MetLife processes and pays claims under the FEGLI Program. 

If you have had a claim for FEGLI benefits denied or believe you will be involved in a dispute regarding the proper beneficiary, please contact an experienced life insurance attorney as soon as possible. Many lawyers are not aware that FEGLI preempts state laws and that pursuing state law remedies can damage a case. 

The plan documents do not always resolve an ERISA dispute

Many of the life insurance beneficiary disputes I evaluate involve coverage obtained through an employer.  Generally, such coverage is governed by ERISA.  Courts typically find that ERISA disputes can be resolved by evaluating the controlling plan documents.  But the plan documents sometimes do not supply sufficient guidance to resolve a dispute. 

For example, in I.B.E.W, Pacific Coast Pension Funds v. Lee, an ERISA administrator asked a federal judge  to resolve a dispute between two beneficiaries claiming to be entitled to pension survivor benefits.  It is important to note that pension survivor benefits are typically treated differently than life insurance benefits under ERISA, with most pension plans requiring that the surviving spouse receive the benefits unless the spouse formally waives such benefits.

The particular plan at issue provided that the spouse was to receive the benefits, absent a waiver. The plan participant specifically designated his purported wife, Lois, to receive his benefits.  However, another woman, Cleta, came forward to claim that she was actually the true spouse because they had been married and never actually divorced.  The court determined it could not resolve the dispute simply by looking at the plan documents.  Instead, it looked to Tennessee law and decided that, upon the facts of the case, that Cleta was still the legally recognized spouse and entitled to the survivor benefits.

This case shows that while courts try to enforce ERISA plan provisions strictly, it is sometimes necessary to look beyond the documents, and even beyond federal law, to determine the proper beneficiary. 

Notation on payment stub didn't change beneficiary

In Knoll v. Banner Life, the Fifth Circuit Court of Appeals upheld a district judge's determination regarding an alleged change of beneficiary.  

 A contestant alleged that the decedent had made a new designation when he allegedly wrote on a payment stub that he wished to change the policy beneficiary.  After a bench trial, the judge ruled that the notation was not effective to change the beneficiary. Importantly, the judge found that the notation was not in the handwriting of the decedent, but was actually written by a friend who disliked the existing beneficiary.  The judge also found the friend's testimony was not reliable.

This case illustrates that the circumstances of a disputed beneficiary change are extremely fact specific.  Under different circumstances, the judge may have found that the writing on the payment stub was effective to change the designation and the court of appeals might have upheld such a decision.

Both Texas and Federal law recognize the doctrine of substantial compliance regarding efforts to change or make a beneficiary designation.  Anyone facing such an issue should contact a lawyer experienced in handling life insurance disputes, as soon as possible.


5th Circuit rules that contestability runs from reinstatement

In Cardenas v. United of Omaha, the Fifth Circuit Court of Appeals ruled that, under Texas law, the two year contestability period runs from the time a policy is reinstated.  

The insured purchased the life insurance policy in 2001. The policy lapsed for nonpayment of premiums in 2005. The insurance company reinstated the policy in 2006, after the insured submitted a reinstatement application.   The insured died in 2007.

The insurance company refused to pay the benefits, contending the insured made material misrepresentations in the reinstatement application.  A jury agreed.   

On appeal, the beneficiary contended that the two year contestability period ran from the initial policy term in 2001, not from the reinstatement in 2006.  The court of appeals disagreed.   

However, the court of appeals did affirm that, under Texas law, if an insured survives the two-year contestability period following the issuance of a policy, the policy cannot be challenged except for nonpayment of premiums. This bar to contestability applies even if the insured made a material misrepresentation in the application. 

The importance of obtaining legal representation early in the dispute

In my experience, anyone involved in a life insurance beneficiary dispute should hire an attorney as soon as possible. The attorney can then formally notify the insurance company of the legal and factual basis for the claim.

The importance is highlighted by a very recent federal district court opinion from Houston. In Harmon v. Harmon, the insured's widow challenged a designation in favor of the insured's daughter.  The widow claimed the designation was procured by fraud, deception, and at a point when the insured was incompetent to make the designation due to lack of mental capacity.

Unfortunately, it does not appear the widow retained an attorney to write a letter to the insurance company before it paid the benefits to the daughter. Instead, the widow claimed she called the insurance company to inform it of the dispute.  She then went to court and sued the insurance company and the daughter.  She lost.

There is a chance the result could have been different had she hired an attorney in Texas to write a letter formally notifying the insurance company of the dispute.  Instead, she put the insurance company in the position of defending its decision to pay the daughter.


The doctrine of substantial compliance

Our firm routinely handles life insurance beneficiary disputes throughout Texas.  Often a beneficiary disputes revolves around an attempted beneficiary designation that the insurance company refuses to accept. 

Insurance companies often place form over substance, and sometimes reject beneficiary designation forms because of relatively minor defects.  However, both Texas and Federal courts recognize the doctrine of "substantial compliance" in evaluating the validity of a beneficiary designation.  In essence, a court may enforce a designation that is arguably technically deficient if  it clearly demonstrates the intent of the insured to designate a particular person as the beneficiary.

It is very important to retain an attorney experienced in handling these cases if you become involved in a dispute regarding the proper beneficiary of a life insurance policy.  You may lose important rights and weaken your position if you do not aggressively and correctly assert the legal and factual basis for your claim to the benefits.

US Supreme Court hears case regarding designation of ex spouse

Since 1987, the Texas Family Code has invalidated life insurance designations in favor of ex-spouses, except for limited exceptions.  The Texas legislature presumed that the insured did not intend to maintain the ex-spouse as a beneficiary unless shown otherwise.

However, courts have ruled that such laws are essentially invalidated in circumstances where the policy is governed by federal law as opposed to state law.  The US Supreme Court is currently considering a Virginia law that is somewhat similar to the one in Texas.  It provides that the widow has a cause of action against the former spouse to recover the benefits. Based on prior decisions, the Virginia Supreme court ruled that the Federal Employee's Group Life Insurance policy was governed by Federal law, trumping the Virginia law.  This Washington Post story reviews the details of the case.