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. The benefits are usually paid to the beneficiary designated in the policy. However, often, someone other than the named beneficiary may have a valid claim to policy proceeds.
The most common examples are disputes involving current or ex-spouses, children from different marriages, the insured’s possible lack of capacity, undue influence of the insured to change a designation or the insured’s improper efforts to change a beneficiary designation.
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 statute 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 are entitled.
The Spouse’s Community Property Claim
The surviving spouse may obtain the policy proceeds if the designation of an ex-spouse is invalidated under a state statute. If the policy designates a third party who is not the surviving spouse or an ex-spouse, the dispute may involve multiple parties and may escalate to a court action. 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 law, 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 community.
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 requirements for a change. Federal courts apply a similar standard in ERISA cases.
If you find yourself in a situation where there may be a competing claimant to the life insurance benefits, speak with our life insurance attorney about your options. We have achieved successful resolutions of many beneficiary disputes involving complex factual patterns. We pride ourselves in settling cases out of court as well as litigating them.
Call us now at (888) 510-2212. Competitive contingent fees.