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.