Court allows agent to change beneficiary, but not to himself

In Transamerica Life Ins. Co. v. Quarm (No. EP-16-CV-295-KC, 2017 WL 5476471 (W.D. Tex. November 13, 2017) the Western District of Texas, El paso, considered whether the son of a decedent/power of attorney for the decedent could name himself a beneficiary of the decedent’s life insurance policy.  The court ruled that the power of attorney holder was not authorized to name himself as a beneficiary of the decedent’s life insurance policy, but could name his sister.

On July 29, 1983, Academy Life Insurance Company (presently Transamerica Life Insurance Company) issued the Decedent, Thomas Quarm a whole life insurance policy. Five years later the decedent named his mother, Joan Quarm, as the primary beneficiary and his brother, Nicholas Quarm, as the contingent beneficiary. Joan Quarm died in 2010, leaving Nicholas Quarm as the sole remaining beneficiary.  Four years later, the Policy’s Retirement Deposit Fund was used to purchase an annuity contract, that provided monthly income to Quarm. The annuity product listed the same beneficiaries as the whole life insurance policy. On November 12, 2012, Transamerica received a “Payout Annuity Policy Change Form” from Christian naming himself as the primary beneficiary and Sarah Susanna Barker, the Decedent’s daughter, as the contingent beneficiary. Transamerica determined that the “Payout Annuity Policy Change Form” applied to both the Annuity Contract and the Policy.

On October 20, 2015, Decedent executed a document entitled “Durable Power of Attorney for Financial Management” (“Power of Attorney”) naming his son Christian Quarm as a power of attorney with authority to perform any act Decedent could do regarding “[i]nsurance and annuity transactions.” This included the power to “modify ... any [existing] annuity or [insurance] policy” and “engage in any transaction he ... deems in good faith to be in [the principal’s] interest, no matter what the interest or benefit to [the] agent.”

 On November 3, 2015, Transamerica received the Power of Attorney from Christian, followed by the required signature pages and notarized signature on November 11, 2015. On February 9, 2016, Transamerica wrote Nicholas advising there had been a change of beneficiary on November 20, 2015. Transamerica provided him a copy of the beneficiary change and informed him it appeared Christian was the proper and sole beneficiary of the Policy. Nicholas wrote to Transamerica on February 23, 2016, contesting the beneficiary change.

 Thomas Quarm died on January 13, 2016. Following his death, Christian and Nicholas made competing for claims to the benefits under the Policy and the Annuity Contract, both claiming to be the sole beneficiary. Transamerica filed an interpleader action on July 20, 2016, and deposited the proceeds of the Policy and Annuity Contract into the registry of the Court on August 19, 2016,

The district court examined whether Christian’s action in naming himself was a breach of fiduciary duty. The court noted that the power-of-attorney document specifically authorized Christian to act for his own benefit: “My agent may buy any assets of mine or engage in any transaction he or she deems in good faith to be in my interest, no matter what the interest or benefit to my agent.” Thus according to the court, Christian’s beneficiary change did not breach his fiduciary duty by engaging self-dealing or acting bad faith given that the language of the power of attorney document appeared to authorize a change in beneficiary.

Despite ruling the change in beneficiary was not a breach of fiduciary duty, Christian could not be a beneficiary of the policy and annuity. The court held that Christian’s use of a power of attorney was subject to the restrictions imposed by the Texas Estates Code which states “An attorney in fact or agent may be named a beneficiary of an insurance contract or an extension, renewal, or substitute for the contract only to the extent the attorney in fact or agent was named as a beneficiary under a contract procured by the principal before executing the power of attorney.” Id. (citing Tex. Est. Code Ann. § 752.108 (b)).

Further, “Unless the principal has granted the authority to create or change a beneficiary designation expressly . . . an agent may be named a beneficiary of an insurance contract . . . only to the extent, the agent was named as a beneficiary by the principal.” Given Christian had not previously been named as beneficiary, he was not authorized to name himself a beneficiary of the policy or annuity. However, the court noted that his designation of his sister Sarah as the contingent beneficiary was authorized by both the statute and a power of attorney: 

“The Texas Estates Code is clear that the requirement of prior designation applies only to attempts by an attorney in fact to designate himself, not another person, as beneficiary. Tex. Est. Code Ann. § 752.108(a)(10) (“The language conferring authority with respect to insurance and annuity transactions in a statutory durable power of attorney empowers the attorney in fact or agent to ... change the beneficiary of an insurance contract or annuity, except that the attorney in fact or agent may be designated a beneficiary only to the extent authorized by Subsection (b).”). While the statute prohibits Christian from appointing himself as beneficiary, it authorizes him to remove existing beneficiaries and designate new ones other than himself. . . . (“The language conferring authority with respect to insurance and annuity transactions in a statutory durable power of attorney empowers the attorney in fact or agent to ... change the beneficiary of an insurance contract or annuity.”); (delegating agent the power to perform any act Decedent could do regarding “[i]nsurance and annuity transactions,” including the power to “modify ... any [existing] annuity or [insurance] policy”). Christian was therefore authorized to remove Nicholas as a beneficiary of the Policy and designate anyone but himself as a beneficiary in his place. Accordingly, his designation of Barker as contingent beneficiary was valid. Because Christian is barred by statute from collecting under the Policy, Barker is the proper beneficiary of the Policy and is legally entitled to collect the remaining Policy funds.”

If you are involved in a life insurance beneficiary dispute in Texas, it is very important to contact a Texas lawyer who handles life insurance cases.