Federal court rejects spreadsheet entry as a designation

In Mckenzie v. Mckenzie, Magistrate Judge Bemporad of the Western District of Texas considered whether a purported designation was valid.  He decided that it was not.

One of the biggest differences between a will and a life insurance designation is that a will has certain legal requirements, while a beneficiary designation does not.  For example a will has to either be entirely in the handwriting of the testator or, if typed, has to be signed by two disinterested witnesses.  In contrast, a beneficiary designation only need comply with the terms of the insurance policy, which can be minimal.  More and more, I’m even seeing designations  made through online access, particularly with employer sponsored ERISA policies.

In McKenzie, the insured purchased a policy through his employer. The policy was issued by Dearborn National Life insurance company, as part of an ERISA plan.  Premiums for the insurance were deducted out of the insured’s employment paycheck.

With regard to naming a beneficiary for death benefits, the Policy provided:

Who will receive Your Life Insurance Benefits?

Your beneficiary designation must be made on a form which We1 provide or on a form accepted by Us. If two or more beneficiaries are named, payment of proceeds will be apportioned equally unless You had specified otherwise. The Policyholder may not be named as beneficiary. Unless You provide otherwise, if a beneficiary dies before You, We will divide that beneficiary’s share equally between any remaining named beneficiaries.

* * *

Facility of Payment

If no named beneficiary survives You or if You do not name a beneficiary, We will pay the amount of insurance:

1. to Your spouse, if living; if not,

2. in equal shares to Your then living natural or legally adopted children, if any; if none,

3. in equal shares to Your father and mother, if living; if not,

4. in equal shares to Your brothers and/or sisters, if living; if not,

5. to Your estate.

For purposes of the above Policy provisions, the term “form” was not defined. However, Dearborn’s “Statement of ERISA Rights,” indicated that a “form in writing” may include electronically submitted documents.

After the insured died, a dispute arose between his wife and his daughter from a prior marriage.   According to the records of his employer, he had designated his daughter as the beneficiary.  However, the only source for that determination was a spreadsheet entry maintained by the employer.

When presented with the spreadsheet designation, Dearborn asked the employer for a designation form. The response was “that there [was] no signed documentation that ties the beneficiaries on the spreadsheets to the employee.” Further, “there is not an enrollment form because employees met with enrollers and enrolled electronically. The enrollment team only provided the beneficiary spreadsheet and confirmation statement to employees.”

That was not good enough for the court.  While the court noted that that the requirement of a “form” could include an electronic designation.   The term “form” was not defined in the policy, and Dearborn, in the statement of ERISA rights provided to policyholders, indicates that written “forms” can include electronically filed documents.  The court found:

Although electronic forms can qualify under the Policy in some circumstances, the Court concludes that the designation of Antwonique McKenzie on a spreadsheet created by a third-party enroller does not qualify as a designation form. The Policy clearly requires that in whatever format, the form must be one Dearborn “provide[s]” or one that is “accepted by” Dearborn. There is no evidence before the Court that Dearborn provided the electronic spreadsheet designation; to the contrary, the evidence makes clear that a third-party enroller provided it. Moreover, a clear preponderance of the evidence demonstrates that the spreadsheet designation was not “accepted by” Dearborn. To the contrary, according to the stipulated evidence, Dearborn informed Star Shuttle that the spreadsheet designation was not acceptable: it explained that it generally required “signed documentation that ties the beneficiaries on the spreadsheets to the employee,” and indicated that, absent such documentation, it could “only process off of next of kin, which would be [the employee’s] spouse if he had one.

The Court’s conclusion that Dearborn did not accept the electronic spreadsheet as a designation form is bolstered by Dearborn’s conduct after receiving evidence of the spreadsheet. It advised the competing claimants that, if it could not “determine who the beneficiary is,” it would, absent an agreement between the parties, let “the courts decide”; subsequently, it presented the dispute to the Court by filing an interpleader. If Dearborn had accepted the spreadsheet designation, it would not have had to advise the claimants as to procedures when no determination is made. Nor would it have had to present the case to this Court.”

When evaluating a purported beneficiary designation, it is important to determine if it meets the requirements of the policy.This is particularly true with ERISA policies. Contact a life insurance lawyer as soon as possible if you are involved in a beneficiary dispute.