beneficiary disputes

Why Determining the Proper Beneficiary of a Life Insurance Policy Is Not Always Simple

Published on: January 18, 2021 | by Matt Pulle

Many life insurance lawsuits involve disputes over the designation of beneficiaries. In Humana Ins. Co. of Kentucky v. O’Neal (2018), the Sixth Circuit Court of Appeals had to evaluate two competing claims for life insurance proceeds under an ERISA plan (“Plan”).

Under the Plan, the decedent (“Decedent”) could name a beneficiary. If the Decedent did not name a beneficiary, Humana, the administrator of the plan, would pay the benefit at its option to either the surviving spouse or the estate of the Decedent. One year prior to the Decedent’s death in 2015, he named his then girlfriend as his beneficiary (“Prior Beneficiary”). The following year, during the re-enrollment period, the Decedent did not select any person or entity to be his beneficiary.

Shortly after the Decedent’s death, Humana received claims from both the administrator of the Decedent’s estate (“Estate”) and the Prior Beneficiary. After the district court determined that the Estate was entitled to the Decedent’s life insurance benefit, the Prior Beneficiary appealed.

Challenging a Life Insurance Beneficiary Designation Based on Undue Influence

Published on: April 23, 2018 | by Matt Pulle

Under Tennessee law, a party can establish that a beneficiary of a will procured the making of the will by undue influence. If undue influence is proven, the will is invalidated and the beneficiary of the invalidated will receives nothing by virtue of the will. What holds true for beneficiaries of wills procured through undue influence also holds true for beneficiaries of life insurance policies whose beneficiary status was the result of undue influence. A party can challenge a beneficiary’s right to recover under a life insurance policy by showing that the person who owned the policy (“Decedent”) changed the policy’s beneficiary designation because of undue influence.

Tennessee courts recognize that it is difficult for a party to establish undue influence through direct evidence. As a result, in a life insurance policy case, a party seeking to set aside a beneficiary designation can do so by showing “suspicious circumstances.” These suspicious circumstances usually involve the following: (1) a confidential relationship; (2) the Decedent’s physical or mental infirmity; and (3) the beneficiary’s active involvement in causing the designation of a beneficiary or beneficiaries under the life insurance policy.

Of the three circumstances above, establishing the existence of a confidential relationship is arguably the most important part of an undue influence case. So what exactly is a confidential relationship? To start, any fiduciary relationship (attorney-client, guardian-ward, conservator and incompetent) is a confidential relationship.

Familial relationships may also be confidential relationships if one party had a relationship of dominion and control with respect to a weaker party. An example of this might be a nephew taking care of an ailing uncle, who depends on the nephew for basic life care like meals and transportation to medical care providers. If the uncle removed his children as the beneficiaries of his life insurance policy in place of the nephew, a court will likely presume that the change in beneficiary designation came about due to undue influence.

That presumption of undue influence can be a game-changer. In a life insurance policy case, a beneficiary seeking to rebut a presumption of undue influence must do so by “clear and convincing” evidence, which is the highest burden of proof in most kinds of civil litigation. Despite that high bar, parties can—and do—overcome the undue influence presumption by offering evidence showing that Decedents, despite their dependence on stronger parties, made independent decisions when changing beneficiaries of life insurance policies.

Understanding the Insurable Interest Requirement for Life Insurance Policies, Part 2

Published on: October 5, 2017 | by Matt Pulle

In our last post, we discussed the insurable interest requirement in Tennessee. Under that requirement, the prospective owner of the policy must prove that he or she would suffer some type of loss if the insured were to die while the policy was in effect. This requirement prevents speculators from buying insurance on a person’s life in the hopes that the person dies before the death benefit exceeds the amount of premiums paid.

Obtaining and assigning financial instruments can be a lucrative business. So, sometimes, parties may try to structure a life insurance policy in such a way that it appears that the policy were supported by an insurable interest. Courts, however, may well scrutinize such policies, especially if it appears that a speculator used an elderly person as a conduit to acquire a beneficial interest in a life insurance policy that the speculator otherwise could not acquire.

Understanding the Insurable Interest Requirement for Life Insurance Policies, Part 1

Published on: September 22, 2017 | by Matt Pulle

The law which requires a policy owner to have an insurable interest in whatever is being insured seems fairly straightforward. Under Tenn. Code Ann. § 56–7–101, a person who buys an insurance policy must have an insurable interest in what is being insured. For example, you can only take out a homeowner’s policy on your own home, and not on the home of a stranger.

In the context of life insurance, the insurable interest rule requires that the beneficiary of the policy suffer some type of loss if the insured were to die while the policy was in effect.

For example, a minor child would have an insurable interest in his or her parents. An investment firm would have an insurable interest in an entrepreneur to whom it had just given a sizable loan to start a company. In contrast, if a stranger convinced a wealthy senior citizen to let him or her take out a policy insuring the senior citizen’s life, that policy would be void.

As it relates to life insurance, the insurable interest requirement prevents speculators from buying insurance on a person’s life in the hopes that the person dies before the death benefit exceeds the amount of premiums paid.

In practice, the insurable interest requirement is not as simple as it seems. For example, what if there is an insurable interest at the time the policy is issued, but not at the time the person whose life is insured dies? That question was answered by the Court of Appeals of Tennessee in Trent v. Parker (1979). In that case, a corporation took out a life insurance policy on its CEO. The CEO later left the company, and then filed suit against the company asking the court to cancel the policy. Ruling in favor of the CEO, the lower court voided the policy stating that the company no longer had an insurable interest in its former employee.