Things to Consider When Contemplating Divorce

We all agree that divorce is a difficult transition in our lives. Not only does it involve emotional and social disconnect, but it also comes with many financial problems. The good news is you can protect yourself from many unnecessary financial issues by planning early.

Most family law attorneys are great at navigating their clients though a divorce process and may even refer them to financial planners and money managers. If you have a life insurance policy or minor children, we also advise to consult with a life insurance attorney.

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Accidental Death Claim Denied Due To Drug Exclusion

Accidental death and dismemberment policies and riders offer coverage for deaths caused by accidents. Accidents are usually defined as unforeseeable, unintended events.

People buying accidental death coverage often think that this type of insurance covers any accident as long as the person did not die of natural causes. But this is not the case.

Almost all ADD policies have several exclusions in them. Exclusions are provisions in a contract that work to exclude certain deaths from coverage and, if applied, will result in an ADD claim denial.

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Breach of Contract Claims: How Courts Interpret Life Insurance Policies

Q:        What law governs a breach of contract claim?

A:         In the majority of group life insurance cases state law governs the interpretation of life insurance policies when federal jurisdiction is based on diversity of citizenship  (the insured lived in State A and the insurance company is headquartered in State B).[1]

Under laws of many states, contract interpretation is a question of law and to prevail on a breach of contract claim, a beneficiary must show that there was a promise (e.g., a promise to pay life insurance benefits upon the insured’s death); that the insurance company breached that promise (the insurance company denied a claim); and that the beneficiary suffered damages as a result of the insurer’s breach (the beneficiary did not receive the payout).

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FEGLI Beneficiary Change / No Beneficiary Designation

We have written in our other blogs about various issues that may arise in the context of a beneficiary change. However, FEGLI (Federal Employees Group Life Insurance) policies are controlled by an entirely different set of rules.

For example, if the policyowner desires to change the beneficiary on her policy she must sign a special change of beneficiary form in the presence of two witnesses. The two witnesses should also sign the form and to be effective it must be received and approved by the Office of Personnel Management (OPM) before the insured’s death.

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Contesting Beneficiary Designation on a Life Insurance Policy

Contesting Beneficiary Designation on a Life Insurance Policy

Life insurance is essentially a contract between the insured policyholder and the insurance company. Payment of insurance benefits is governed by the policy terms and state or federal laws. Law surrounding estate planning, family, divorce, child support, trusts and wills may all come into a play after a person’s death.

The benefits are usually paid to the beneficiary designated in the policy. However, it is not uncommon for someone other than the named beneficiary to have a valid claim to the policy proceeds. If you find yourself in a situation where your designation as the beneficiary is being contested, or would like to dispute the designation on your loved one’s policy, call our life insurance attorneys for help.

When Do People Usually Dispute Life Insurance Beneficiaries?

The most common examples are disputes involving current or ex-spouses, children from different marriages, the insured’s lack of capacity, undue influence or duress, or improper beneficiary change.

State or Federal Law?

At our insurance law firm, the first step we take in analyzing a beneficiary dispute is determining whether state or Federal law applies. This can be complex, but generally state law applies unless the insured obtained the policy through an employer. If the insurance was obtained as a benefit of employment, it is likely that it will be a policy governed by a federal law commonly referred to as ERISA (Employee Retirement Income Security Act of 1974).

ERISA generally preempts state laws, particularly regarding claims for policy benefits. It trumps state law recognizing a community property interest of a spouse in the policy, as well as provisions in many state statutes that effectively void beneficiary designations in favor of an ex-spouse. ERISA favors strict adherence to plan documents to aid with predictability and uniformity for the benefit of the plan administrator.

The Ex-Spouse as Beneficiary

In many states, a divorce operates to revoke a prior beneficiary designation in favor of an ex-spouse. If you find yourself in a situation where there might be a competing claim from an ex-spouse, call Kadetskaya Law Firm for a free consultation. We will protect your rights to the life insurance proceeds to which you and your children may be entitled. Learn more about an ex-spouse’s rights to life insurance death benefits.

can a beneficiary be contested

The Spouse’s Community Property Claim

If the insured lived in a community property state, assets earned or acquired by either the insured or the surviving spouse during marriage are presumed to be community property. This applies to marriages dissolved by death, as well as by divorce. Under community property state laws, a surviving spouse may have a claim for constructive fraud when an insurance policy was purchased with community funds for the benefit of a person outside the marriage. Read more about the spouse’s rights to life insurance benefits.

Lack of Capacity and Undue Influence

Beneficiary designations can be challenged on the ground that the insured either lacked the mental capacity to make the designation or was unduly influenced to do so. The challenging party will need to present sufficient evidence to support the claim for undue influence or lack of capacity.

Improper Beneficiary Change/ Doctrine of Substantial Compliance

Sometimes, the insured tries to change a beneficiary designation but fails to do so in the manner outlined in the policy. The insurance company may reject the change and ask the insured to make the designation on the form and in the manner required by the company. Many state courts will find that a beneficiary change was effective if the insured “substantially complied” with the policy provisions. Federal courts apply a similar standard in ERISA cases.

Who Can Contest Beneficiary Designation?

Usually, beneficiary disputes arise in the context of a family feud, divorce, marriage, separation or insured’s illness. Anyone with a valid legal claim can dispute the existing beneficiary on the policy.

In the majority of cases, those disputing the existing beneficiary designation have a claim for benefits that is based either on a contract or divorce decree or on allegations of undue influence, duress, insured’s mistake or mental incapacity. 

Beneficiary disputes are complex and require legal counsel on both sides. Our firm has successfully handled many beneficiary contests. We are aware of the legal issues involved in such cases and have the experience necessary to resolve them.

challenging a life insurance beneficiary designation

Does a Will Override a Life Insurance Beneficiary?

Some people erroneously think that a will can override a life insurance policy beneficiary designation. Life insurance is a legally binding document between an insurance company and the insured person where the beneficiary is a third party with an interest in the policy. The insured’s person will is a separate document that is not usually taken into consideration when life insurance benefit is paid out. The life insurance company will pay benefits to the person named as the beneficiary of the policy. 

What Is the Insurance Company’s Role in Beneficiary Contests?

Insurance companies are inclined to allow disputing parties to reach an agreement and will hold the funds until an amicable resolution is achieved. If, however, the parties cannot agree to settle, the insurer will file an interpleader (a lawsuit) and will deposit the life insurance proceeds into a court’s escrow account.

In these cases, the insurance company is not withholding the benefits. It simply cannot determine who should get the payout, so in order to avoid double liability, it allows the court to name the rightful recipient of the benefits. When this happens, the parties involved in a contest will start preparing the case for litigating in court.

The insurance company, acting as a neutral stakeholder, will withdraw from the case. Often, the insurer’s legal costs are taken out of the life insurance amount. This is one of the reasons people choose to resolve beneficiary contests outside of court, especially if the amount of benefits is not large enough to justify this expense.

Challenging a Life Insurance Beneficiary Designation Can Be Costly and Time-Consuming

Litigation can be very expensive and lengthy. At our law firm, we strive to get the most favorable result for our clients in the fastest and least expensive way engaging in negotiations and alternative dispute resolutions before commencing litigation. Our life insurance attorneys will help you determine the best way to a successful beneficiary contest.

What Should I Do If I Am Involved in a Beneficiary Contest?

If you find yourself in the middle of a beneficiary contest, you need to have an experienced life insurance attorney on your side. Our beneficiary contest lawyers will listen to you carefully, evaluate your case, outline possible venues of handling the dispute and design a legal strategy that will work to protect your rights.

Not only do we have the experience needed to negotiate complex beneficiary disputes, but we also work hard at protecting your rights and making sure you are satisfied with the outcome. In addition, we will act on your behalf so you do not have to involve yourself in a stressful dispute.

We will keep you informed of any developments of your case.

contesting beneficiary designation

What Fee Do Attorneys Charge for Handling Beneficiary Disputes?

Different law firms have different fee structures when it comes to handling beneficiary disputes. Some firms will bill you on a per-hour basis and some will offer a contingent fee arrangement.

Our life insurance lawyers work on a contingent fee basis. It means that we will charge a percentage of your payout only after you get paid. If you do not recover the benefits, there will be no legal fee.

This fee structure enables us to commence representation only in cases where we believe the recovery is possible. If you are going through a beneficiary dispute and need advice, please call us at 1-888-510-2212 for a free consultation.

Call us now at (888) 510-2212. Competitive contingent fees.