Life insurance beneficiary disputes

Who has the right to a death benefit

The starting point is the beneficiary designation on file with the insurer or plan when the insured died. A beneficiary dispute asks whether something displaces that designation. Courts look at the policy or plan terms, every change form, the divorce papers, and the law that governs the coverage. Below are the issues that come up most.

Divorce and former spouses

Divorce causes more beneficiary disputes than anything else. Three sets of rules can apply.

State revocation-on-divorce statutes. Many states have laws that treat a former spouse’s designation as revoked at divorce, as if the former spouse had died first. The Supreme Court upheld applying such a statute to a policy bought before the statute was passed in Sveen v. Melin, 584 U.S. 811 (2018).

But each state’s statute is different. Some reach only divorces after a certain date: Illinois’s provision did not apply to a 2006 divorce in American General Life Insurance Co. v. Martin, and Alabama’s did not apply to a 2003 divorce in Modern Woodmen of America v. Harris. Others apply automatically unless the divorce papers expressly say otherwise, as New York’s did in State Farm Life & Accident Assurance Co. v. Hobin.

The divorce decree. A decree or settlement agreement can require one spouse to keep the other, or the children, as beneficiary, or can award the policy itself to one spouse. In Protective Life Insurance Co. v. Tello, a judgment awarding the policy to the former wife controlled despite later beneficiary changes.

Federal law. Employer plans governed by ERISA pay according to the plan documents, and the Supreme Court held in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), that ERISA preempts state revocation-on-divorce statutes for those plans. Federal employee coverage (FEGLI) and military coverage (SGLI) follow federal statutes that also displace conflicting state law, as the Court held in Hillman v. Maretta, 569 U.S. 483 (2013), and Ridgway v. Ridgway, 454 U.S. 46 (1981).

Whether anyone can recover the money from the claimant who was paid depends on the type of coverage; see When the money has already been paid.

Late, incomplete or forged beneficiary changes

A change form does not always take effect just because it was signed. Courts ask whether the insured followed the policy’s procedure, whether the insurer recorded the change, and whether the signature is genuine.

• Procedure. Some states require strict compliance with the policy’s change procedure; others accept substantial compliance when the insured did everything reasonably possible. In American General Life Insurance Co. v. O.H.M., a change the insurer rejected as incomplete, and the insured never fixed, had no effect under Florida law.
• Forgery. A forged form is void, and the prior designation stands. In Everlake Life Insurance Co. v. Lomax, the forgery was established through unanswered requests for admission.
• Agents. A person acting under a power of attorney can change a beneficiary only if the document and state law allow it, and self-dealing is often restricted. In Transamerica Advisors Life Insurance Co. v. Marsch, a federal court in Louisiana held that an agent under a power of attorney could not name herself beneficiary of the owner’s annuity, because the document barred her from giving his assets to herself without specific authority. Our client, the daughter he had named, kept the annuity.

Capacity and undue influence

A designation can be set aside if the insured lacked the mental capacity to make it or if someone overpowered the insured’s free will. These claims depend on evidence: medical records, testimony from people present at the time, the circumstances of the signing and the relationship between the insured and the person who benefited. Courts generally presume capacity. In Thrivent Financial for Lutherans v. Bressler, serious illness and a relative’s belief that something was wrong were not enough to overturn a signed designation.

Slayer claims

Every state bars a person who intentionally and wrongfully kills the insured from collecting the death benefit, by statute or by common law. Insurers routinely interplead when a beneficiary is under suspicion. A criminal conviction usually settles the question, but a civil court can decide it without one, under a lower standard of proof.

Accusations still require evidence. In Garden State Life Insurance Co. v. Estate of Raine, the court rejected a slayer claim under Mississippi’s statute because it rested on speculation.

When there is a conviction, the bar applies: in Standard Insurance Co. v. Guy, the Sixth Circuit held in a published opinion that a son convicted of murdering his parents could not collect his mother’s ERISA life benefits under either Tennessee’s slayer statute or the federal common-law rule, and affirmed the award to her brother and sister, our clients. In a case arising from the same deaths, Transamerica Premier Life Insurance Co. v. Guy, a federal court in Louisiana held that his conviction disqualified him even while his appeal was pending.

Slayer rules generally reach only intentional and wrongful killings, so a death caused by an accident or by negligence does not automatically bar the beneficiary. In Prudential Insurance Co. of America v. West, the insured died in a car crash recorded as an accident, and although the insurer pointed to criminal charges against our client, his widow, the claims were resolved by agreement and the court ordered $307,000 paid to her.

In Prudential Insurance Co. of America v. Dukarm, the named beneficiary had pleaded guilty to negligent homicide, not an intentional killing; the claims were resolved by agreement, and the court entered a final judgment ordering $361,000 paid to her.

When no beneficiary is named or survives

If there is no valid named beneficiary, the policy or plan’s default order decides who is paid, often a spouse, then children, then the estate. Plans define these terms in their own way. In Zaharopoulos v. Metropolitan Life Insurance Co., a fiancé did not qualify as a domestic partner under an ERISA plan, and the insured’s son received the benefit.

Minors

Insurers generally will not pay benefits directly to a minor. Payment usually requires a court-appointed guardian or conservator, a custodian under the state’s Uniform Transfers to Minors Act, or a court-approved arrangement. Settlements that affect a minor’s share typically need court approval.

A court-approved trust is a common way to protect a child’s share. In American General Life Insurance Co. v. Wilson, the court approved a settlement putting 80% of the benefit in trust for two children, our clients, without a separate guardian ad litem because their father shared their interests. In Principal Life Insurance Co. v. Kestel, where the children’s mother was the competing claimant, a family friend acted for them as next friend, and the court approved a settlement placing $706,000 in trust for the insured’s three children.

A child’s claim can also be resolved without a settlement. In Everlake Assurance Co. v. Taylor, an Oklahoma case, the other claimant never answered, and the court ordered the entire $607,000 benefit paid into a trust for the insured’s two children, our clients.

When the money has already been paid

A payout does not always end the dispute. An insurer may pay the person named on its form before anyone raises a competing claim, or an employer plan may pay a former spouse because federal law requires it. At that point the question changes from who the insurer must pay to whether the person who received the money gets to keep it.

Claims against the person who was paid. The usual tools are a constructive trust, a claim for unjust enrichment, or enforcing a promise the recipient made, such as a waiver of the benefit in a divorce settlement. Many states that follow the Uniform Probate Code go a step further: a former spouse who collects a benefit the state’s divorce statute would have revoked, without giving anything in return for it, must give it back to the person who was entitled to it, and a backup clause applies the same duty when federal law controls whom the plan pays.

Employer plans under ERISA. In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), the Supreme Court held that a plan properly paid a former wife whom the plan documents named, even though she had waived the benefit in her divorce. The Court expressly declined to say whether the estate could then sue her to recover the money.

The Third Circuit, in Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131 (3d Cir. 2012), and the Fourth Circuit, in Andochick v. Byrd, 709 F.3d 296 (4th Cir. 2013), have since held that ERISA does not preempt such a suit, reasoning that once the plan has paid it has no further role and faces no risk of paying twice. The Eleventh Circuit adds a timing limit: a suit of this kind may be brought only after the beneficiary has received the benefits. MetLife Life & Annuity Co. of Connecticut v. Akpele, 886 F.3d 998 (11th Cir. 2018).

The plan documents still decide who is paid first. In Sun Life Assurance Co. of Canada v. Estate of Wheeler, that rule defeated an estate’s community property claim, and our client, the insured’s mother, received the benefit.

Federal employee and military coverage. The answer is different for coverage governed by its own federal statute. In Hillman v. Maretta, 569 U.S. 483 (2013), the Supreme Court held that federal law preempted a Virginia provision that would have made a former spouse repay FEGLI proceeds to the insured’s widow.

Ridgway v. Ridgway, 454 U.S. 46 (1981), reached a similar result for military coverage (SGLI), holding that the servicemember’s designation prevailed over a constructive trust imposed on the proceeds under a divorce decree, and the Tenth Circuit applied Hillman’s reasoning to the federal Thrift Savings Plan in Evans v. Diamond, 957 F.3d 1098 (10th Cir. 2020). For these programs, the designation on file usually settles the matter.

Claims against the insurer. An insurer that paid the person its records named, in good faith and before it learned of a competing claim, is usually protected. That is the point of Kennedy’s plan-documents rule, and the Uniform Probate Code’s divorce provision likewise shields a payor that pays before receiving written notice of the divorce while making it liable for payments made after notice.

A claim against the insurer itself is therefore strongest when it paid after being told of the dispute. Once an insurer deposits the money in a federal interpleader and the court discharges it, 28 U.S.C. § 2361 lets the court bar the claimants from suing it over that money, and the case continues among the claimants.

Why speed matters. Equitable remedies generally reach money that can still be identified. In a related ERISA setting, the Supreme Court held in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 577 U.S. 136 (2016), that once a recipient spent the whole fund on things that cannot be traced, an equitable lien could not reach the recipient’s other assets. Acting early can make the difference:

• In Wilty v. Prudential Insurance Co. of America, the insurer had already paid the insured’s widow when our clients, five of his children, sued. The court froze the money paid to her, a consent order required part of it returned and the rest held for deposit with the court, and the case ended in a court-approved settlement paying our clients $673,000.
• In Hartford Life & Accident Insurance Co. v. Nebergall, our client raised a constructive trust claim while the money was still in court, after a late change named the insured’s former wife. The court approved a settlement that paid our client and created a trust for the insured’s child.
• Silence has its own cost. In Midland National Life Insurance Co. v. Foley, the competing claimant was served but never answered, and the court entered default judgment for our client, the named beneficiary.

If you believe a benefit is about to be paid to the wrong person, send the insurer or plan a written notice of your claim right away. If it has already been paid, the type of coverage, the state whose law applies and any deadline to sue the recipient will decide what can still be done. For a detailed, case-by-case treatment of these questions under ERISA, including how courts have handled them inside an interpleader, see interpleader.com’s guide to ERISA post-distribution claims, a reference site published by our founder.

How we help

We start by getting the documents: the policy or plan, the insurer’s record of every designation and change request, the divorce file, and the claim correspondence. Those usually show which issue will decide the case. Many disputes end up in an interpleader lawsuit; others can be resolved with the insurer or the other claimants before one is filed. Tell us what happened and we will review it at no cost.

Written by the attorneys of Interpleader Law. General information, not legal advice; the law differs by state and by policy, and every case turns on its own facts.