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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Clients are often confused regarding the distinction between mediation and arbitration. Mediation is an informal process wherein the parties attempt to resolve a dispute through negotiation, with the assistance of a mediator.
For example, our firm has represented numerous persons who have been denied life insurance benefits or are involved in a dispute regarding the proper beneficiary of the life insurance. Such cases are filed in either state or federal court, in Texas or elsewhere. However, most such cases are mediated, either through referral from the court or through agreement. Often, the parties are able to resolve the case through agreement. If not, they can continue to pursue the case in court.
Arbitration, on the other hand, is essentially a substitution for going to court. Some, although not many, insurance policies require that a beneficiary contesting a denial pursue arbitration rather than litigating in court. Typically, the case is presented to a single arbitrator or a panel of three arbitrators. The decision of the arbitrator(s) is typically final and not appealable.
Our firm has experience in representating individuals in life insurance disputes throughout Texas, and even outside of the United States. Last year, we represented a family in Columbia who were challenging the Texas life insurance company's denial of benefits. The policy required arbitration in Texas. However, we scheduled a mediation in Austin and the case was resolved to our clients' satisfaction. Therefore, mediation can be an effective method to resolve a case whether it is in litigation or arbitration.
We have handled several disputes in 2012 regarding the proper beneficiary of a Servicemember's Group Life Insurance Policy (SGLI). SGLI coverage was established to provide low cost life insurance to active duty members of the military. The SGLI program is subsidized by the Federal Government to make the premiums affordable to servicemembers. It currently provides up to $400,000 in coverage, through payroll deductions.
Disputes occasionally arise regarding the proper beneficiary of an SGLI policy. When such a dispute arises, it is important to consult with an attorney experienced in handling SGLI claims. Unlike life insurance purchased independently through an agent, SGLI policies are subject to federal law, not state law. That means that state laws regarding spouses or ex-spouses as beneficiaries do not apply, nor do community property laws. Although concepts such as undue influence, lack of capacity, and slayer forfeiture may apply.
Potential disputes may arise regarding the proper beneficiary or regarding a denial by the insurer.
J. Michael Young of the firm of Sanders, O'Hanlon, Motley & Young routinely handles disputes all over Texas regarding life insurance beneficiaries. The Dallas Bar Association has published an article by Michael entitled "Diagnosing the Life Insurance Beneficiary Dispute" in the November edition of its Headnotes magazine. The article can be found at this link on page 15. Please call Michael at 903 892 9133 or use the contact form if you are involved in a dispute regarding life insurance benefits.
Our firm is often contacted by persons who are involved in disputes regarding the proper beneficiary of a life insurance policy. It is important that such persons contact a lawyer early in the dispute process, preferably just after the death of the insured. For example, a potential beneficiary is in a much better position if the insurance company is notified of the dispute before the proceeds are paid out. Our firm handles life insurance beneficiary disputes all over Texas, in both state and federal courts.