life insurance caselaw survey

Robert R. PohlsPOHLS & ASSOCIATES

12657 Alcosta Boulevard, Suite 150San Ramon, California 94583-4698

Telephone: (925) 973-0300 ▪ Fax: (925) 973-0330E-mail: [email protected]

www.califehealth.com

Sex, Drugs and Violence:A Nationwide Survey of Life Insurance Cases and

The Facts that Give Rise to Disputed Benefit Claims



International Claim Association99th Annual Meeting ▪ Palm Desert, California

September 23, 2008 ▪

PROGRAM OVERVIEW

1. Contract Formation

2. Contestability / Rescissions

3. Sales Practices

4. Viaticals / Life Settlements

5. Premiums / Lapse

6. Beneficiaries / Interpleaders

7. Accidental Death

8. Suicide Exclusions





1. CONTRACT FORMATION

When is the insurance contract formed?

A life insurance trust retained an insurance broker to perform estate planning and procure a policy to fund anticipated estate taxes

8/23 Trust applied for $1M policy with annual premium of $100,0009/1 Proposed insured fell into a coma9/17 Insurer issued $1M policy with annual premium of $105,000

(required personal delivery and proposed insured’s signature)9/22 Broker learned of proposed insured’s coma (canceled plan to deliver policy)

10/19 Proposed insured died Trust argued that, by issuing a policy, the insurer agreed to insure the proposed insured for $1M Jury apparently agreed, awarding: $1,400,000 in compensatory damages $35,000,000 in punitive damages

$501,638.02 in attorneys' fees $36,901,638.02 (at an 8% annual interest rate)

The Prudential Insurance Co. of America v. StewartSupreme Court of Mississippi (9/27/2007)

No. 2006-CA-01105-SCT






When is the insurance contract formed?

"To create a contract of insurance there must be an agreement between the insurer and the insured. There must be a meeting of the minds. . . ." Nunley v. Merrill, 513 So. 2d 582, 586 (Miss. 1987). Thus, if the terms in the policy issued "differ materially" or are "at variance" from those in the application, tender of such policy constitutes a counteroffer. Interstate Life & Acc. Ins. Co. v. Flanagan, 284 So. 2d 33, 36-37 (Miss. 1973).

“The only possible conclusion from the evidence is that an initial offer was made when the proposed insured submitted an application, and the proposed insurer produced in response a policy, which differed in terms, and thus would have constituted a counteroffer. However, as Prudential never presented the policy to the applicant for acceptance, there was no possibility of the occurrence of both an offer and acceptance.”

“. . . the evidence does not demonstrate that a contract for insurance was ever formed between the parties.”

The Prudential Insurance Co. of America v. StewartSupreme Court of Mississippi (9/27/2007)

No. 2006-CA-01105-SCT






Temporary Insurance

Application had a provision which acknowledged that “Temporary Insurance coverage is limited to $50,000 or the amount applied for (excluding Accidental Death Benefit), whichever is less.”

● if age and medical eligibility requirements are met, the coverage takes effect when the applicant signs the application and submits the initial premium.

● coverage ends when "the life insurance policy takes effect," the applicant receives notice that the application has been declined, or the applicant cancels the application.

Applicant died in the tsunami that hit Sri Lanka -- after her application was approved but before her policy was formally issued and delivered

● insurer paid $50,000 amount under temporary insurance (plus interest)

● beneficiary claimed the $50,000 limit applied to the temporary insurance provision, but not to the coverage mandated by California Insurance Code Section 10115

Ambrose v. Farmers New World Life Insurance Co.California 2d District Court of Appeal (8/8/2008)

Unpublished






Temporary Insurance

California Insurance Code Section 10115 provides:

When the applicant pays an amount equal to the full first premium and the insurer approves the application (as applied for) and the applicant dies on or after the application date but before the policy is issued or delivered, “the insurer shall pay such amount as would have been due under the terms of the policy . . . as if such policy had been issued and delivered on the date the application was signed by the applicant.”

“. . . this section shall not prohibit an insurer from limiting the maximum amount for which it may be liable prior to actual issuance and delivery of the policy of life insurance either to (1) an amount not less than its established maximum retention, or to (2) fifty thousand dollars ($50,000), if a statement to this effect is included in the application."

"We see no way of reading the $50,000 limitation as applying to the mandatory coverage under section 10115. . . . By its plain language, then, the limitation applies only to the ‘Temporary Insurance’ that is provided under the terms of the ‘Temporary Insurance Agreement’.“

Ambrose v. Farmers New World Life Insurance Co.California 2d District Court of Appeal (8/8/2008)

Unpublished






A Contract Requires Consideration

Plaintiff applied for $100,000 in coverage on her daughter’s life and tendered a $27 check for the first premium

● policy was issued on June 21st (with effective date of June 23rd)

● insured died on June 22nd (struck by a vehicle while crossing the road)

● plaintiff’s check for the first premium bounced

“If a life insurance policy contains a provision that a policy shall not take effect until the first premium is paid, then the insurance company is not bound on a policy until a premium is paid. Mahoning Assoc., Inc. v. Ohio Nat. Life Ins. Co. (1971), 29 Ohio App.2d 282, 287.”

“Ohio law clearly dictates that ‘a dishonored check constitutes failure of payment.’ W. T. Grant Co. v. Lindley (1977), 50 Ohio St.2d 7, 7. . . Accordingly, [plaintiff’s] failure to provide consideration — in the form of the first month's premium — prior to [her daughter’s] death is dispositive of her breach of contract action.”

Caccavale v. Western & Southern LifeOhio Court of Appeals (9th District) 3/3/2008

2008 Ohio 825






Who is Covered?

Coverage under the employer’s group policy was limited to “active full-time employees.” Documents indicated that plaintiff saw patients fewer than 32 hours per week, but other evidence suggested she worked undocumented hours on administrative matters. Court rejected as unreasonable the insurer’s interpretation that an employee must work at least one 32-hour week before coverage begins.

“. . . an interpretation that requires an employee to live until March 10 in order to have life-insurance coverage on March 1 is preposterous.”

Granite v. The Guardian Life Insurance Co. of America.544 F.Supp.2d 833 (D.Minn. 2008)

Policy afforded coverage for unmarried children between ages 19 and 23 if they are full-time students and dependent on the primary insured. Primary insured knew nothing of child’s finances and believed him to live with grandparents.

“Because the Parkers failed to submit evidence establishing that Robertson was covered under the insurance policy, Stonebridge's duty and obligation to pay benefits to the Parkers never arose.“

Parker v. J.C. Penney Life Insurance Co.980 So.2d 409 (2007)






When does coverage begin?

Bertoni v. Stock Building SupplyFlorida District Ct. of Appeal (7/30/2008)No. 4D07-4241

Plaintiff employee elected $150,000 in spousal life insurance coverage and filled out all papers. Insurance agents never processed paperwork. HELD: No coverage.

Mitchell v. Emeritus Management, LLCU.S. District Court (D. Maine) 11/29/2007Civil No. 07-90-P-H

Plaintiff purchased a life insurance policy on her husband through her employer's group coverage. When her husband was dying, she resigned to care for him. She asked her employer for the proper forms to convert the group life insurance coverage to individual coverage. Despite several in-person and telephone requests, her employer refused (or failed) to do so. Her husband died after the time for conversion expired. HELD: No coverage.

Blackshear v. Reliance Std. Life Ins. Co.509 F.3d 634 (4th Cir. 2007)

Original group policy provided that non-exempt employees have no waiting period. Shortly before the insured died, the employer amended the policy to provide for a 6 month waiting period. Insured died before working for 6 months. HELD: Coverage.






Plaintiff employee elected $100,000 in spousal life insurance coverage. Forms indicated that amounts over $50,000 “will require proof of good health.” Insurer never requested proof of good health. Employer collected premiums and supplied evidence of coverage. HELD: Coverage.

Papenfus v. Flagstar Bankcorp, Inc.517 F.Supp.2d 969 (E.D. Mich. 2007)

Changes in Health

Kuehl v. First Colony Life Insurance Co.16 Neb. App. 661 (2008)

Application set forth agreement to “notify the Insurer if any statement or answer given in the application changes prior to policy delivery.” Applicant began spitting up blood; x-ray showed a “suspicious” shadow; CT scan, PET scan and biopsy confirmed cancer diagnosis. Insurer was not made aware of changes in health.HELD: No coverage.





2. CONTESTABILITY / RESCISSIONS

Consent Must Not be the Product of a Mistake

Insured applied for annuity, believing she was in good health and had a reasonable life expectancy

● made 3 premium payments before being diagnosed with ovarian cancer● died less than 1 week later

“A mistake of this nature does not support a claim for rescission.” Rescission for a unilateral mistake would require proof that:

● insured was “mistaken regarding a basic assumption” of the contract● mistake “materially affected” the agreed exchange of performances● insured did not bear the risk of the mistake● enforcing the contract with the mistake would be unconscionable

“Annuitants who survive the average life expectancy receive benefits beyond the premium; those who die earlier do not recoup their investments, Both risks are contemplated by the parties and, indeed, are an integral part of their bargain.”

Grenall v. United of Omaha Life Ins. Co.California App. Ct. (7/25/2008)

No. A118823






Misrepresentation of Fact

Applicant’s subjective beliefs are irrelevant:

● Application asked about any “hazardous avocation or hobby”

● Insured died in an avalanche during his annual “heli-skiing” trip with friends

● Beneficiary argued that the insured’s response was not a misrepresentation because insured did not believe heli-skiing was dangerous

Objective standard applies:

● A misrepresentation is when an applicant withholds information that "a [r]easonable person would, under the circumstances, have understood" the application requests

● Although “certain activities may well tax the distinction between hazardous and nonhazardous activities . . . no reasonable insurance purchaser would view

backcountry helicopter skiing as such a borderline activity.”

West Coast Life Insurance Co. v. Hoar505 F.Supp.2d 734 (D.Colo. 2007)






Knowledge and Belief

Casamassina v. U.S. Life Insurance Co.958 So.2d 1093 (Fla. 2007)

“The general rule is that ‘a misstatement in, or omission from, an application for insurance need not be intentional before recovery may be denied . . . . However, the general rule is inapplicable here because [the] signed application contained the declaration that the information given was ‘correctly recorded, complete, and true’ ‘to the best of my knowledge and belief’."

The practical consequence is that “an omission or misrepresentation in an insurance application, when the application is completed to the best of the applicant's knowledge and belief, is not a basis for rescission of a policy.”

Lane v. American General Life & Accident Ins. Co.252 S.W.3d 289 (Tenn. 2007)

Even if the "knowledge and belief" language of the insurance application means the applicant has a lesser burden, “there is no genuine issue of material fact as to Mr. Lane's having knowledge that he had been treated at the Fort Sanders' ER and the Knoxville Heart Group less than a month prior to his making the application. Likewise, the record demonstrates that there is no genuine issue of material fact as to Mr. Lane's knowledge that he had an x-ray, an electrocardiogram, and other diagnostic tests performed less than a month before he submitted his application.”






Proving the Misrepresentation

A 68 year old applicant applied for a $5,000 funeral expense policy, shortly before a fatal heart attack

● applicant told the agent he had heart bypass surgery in 1978 and 1979, showed her his scar, and said he still went for checkups on his heart

● agent told the applicant his problems took place so long ago that they did not matter, since the application inquired back only 3 years

Although the treating doctors confirmed that the insured had not been treated for congestive heart failure, the insurer’s underwriter, medical director and outside cardiologist all concluded that the insured’s cardiac problems (and fatal M.I.) were the result of undisclosed congestive heart failure

● Denial letter “clearly stated the denial was based on evidence of congestive heart failure from the medical records United possessed from the preceding three years”

● The medical records obtained during underwriting did not show CHF

● Earlier records (ie., those over 3 years old) obtained during the lawsuit provided some support for that conclusion but were irrelevant to the claim decision

United American Ins. Co. v. Merrill978 So.2d 613 (Miss. 2007)






Proving the Misrepresentation

Applicant denied having asthma, shortness of breath, or hypertension. Less than two years later, she suffered a seizure and went into a coma. She died the following day.

“Cigna offers no explanation how Johnson could suffer from high blood pressure at the time she completed her application yet have each test within the low to normal range at a time during which she was taking no medication to control her blood pressure.”

Ohio law requires clear and convincing proof that (1) the applicant willfully gave a false answer (2) such answer was made fraudulently (3) but for such answer the policy would not have been issued and (4) neither the insurer nor its agent had any knowledge of the falsity of such answer.

The Court finds that “the Insured did not make a misrepresentation and certainly did not do so willfully. The statement that she had not been diagnosed with or treated for high blood pressure in the past five years was not false. The Insured had an episode of erratic blood pressure — blood pressure that was more frequently very low, causing dizziness. Had Cigna's interrogatories asked about general blood pressure problems, this would be a different case. “

Johnson v. Connecticut General Life Insurance Co.541 F.Supp.2d 935 (N.D. Ohio 2008)






Materiality

Beneficiary argued that “heli-skiing” was not material because the insurer still would have issued a policy.

Colorado law provides that a misrepresentation "must be [a]ctually material to the insurer's risk, as demonstrated by customary underwriting procedures.”

● this insurer’s underwriting guidelines provided for a higher premium

● beneficiary’s expert called the price increase “signficant”

● other insurers similarly underwrite the risk posed by heli-skiing

No issue of fact as to whether nondisclosure of heli-skiing materially affected the hazard assumed by Plaintiff under the Butts Policy.

West Coast Life Insurance Co. v. Hoar505 F.Supp.2d 734 (D.Colo. 2007)






Loss Causation

Applicant (19 y.o.) responded “No” to question about whether "[d]uring the past 5 years [he had] used marijuana, cocaine, barbiturates, narcotics, excitants or hallucinogens, except as prescribed medication." Less than two years later, he died of a single gunshot to the head

● toxicology report was positive for opiates, cannabinoids, morphine and monacetilmorphine

● coroner concluded death was “compatible with suicide”

Contestable death investigation revealed post-application admission for detoxification

● marijuana use started one year before application

● cocaine and heroin use started 3 years before application (ie., at age 16)

Puerto Rico law requires that the misrepresented information "contribute] to the loss that gave rise to the action" in order for the insurer to rescind the contract

● admission records revealed depression and suicidal ideations

● “. . . decedent's mental condition lies at the crux of the insurance coverage claim”

Moeller-Tevez v. Allmerica Financial Life Insurance and Annuity Co.534 F.Supp.2d 253 (D.P.R. 2008)






Estoppel

“. . . where an application is made out entirely by the agent of the insurer from his own knowledge, or fraudulently, and the insured, acting in good faith, signs the application without reading it or without knowledge of its contents, the company will be estopped to rely upon the alleged false statements contained therein."

“. . . if the insurer's agent, by misleading statements, induces `the insured to make false answers and the latter acts in good faith, the insurer is bound. The question whether or not an applicant was, through ignorance and good faith, misled by the agent into believing that his answers were truthful, is for the jury to decide."

Jones v. Monumental Life Insurance Co.502 F.Supp.2d 601 (E.D. Ky. 2007)

“Sams acted as an agent of the insurance company to fill in the insurance application. Her ‘act in doing so [was] the act of the company.’ Stix v. Cont'l Assur. Co., 147 Fla. 783, 787, 3 So.2d 703, 704 (1941). If Sams negligently misled John in the application process, the insurance company is ‘estopped’ from relying on resulting errors in the application to deny or revoke coverage.”

Casamassina v. U.S. Life Insurance Co.

958 So.2d 1095 (Fla. 2007)






Post-Claim Underwriting

“The defendant issued the life insurance policy based upon the representations in the application for coverage, and the burden rested upon it to investigate, within the two-year contestability period, the veracity of the representations concerning the insured's financial condition (see New England Mut. Life Ins. Co. v. Caruso, 73 NY2d 74). The insured's finances were a condition of insurance, which were ascertainable by the defendant at the time that the policy was issued, and which it is precluded from contesting more than two years thereafter (see Simpson v. Phoenix Mut. Life Ins. Co., 24 NY2d 262).”

Ilyaich v. Bankers Life Insurance Co. of New York2008 NY Slip Op 00088 (1/8/2008)

“Post-claim underwriting” is a practice involving the insurer’s failure to “complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with an application.”

In California, a health insurer may not rescind if it completed its underwriting “by blindly accepting the responses on a subscriber’s application without performing any inquiry into whether the responses were the result of mistake or inadvertance.”

Hailey v. California Physicians’ Service158 Cal.App.4th 452 (2007)





3. SALES PRACTICES

Allegation: Insurer sold a “private pension fund” that actually was life insurance

Holding: No deceptive practices alleged because “[a]n insured has an obligation to read the policy issued and is presumed to have consented to its terms.”

Farokhi v. The Guardian Life Insurance Co. of New York2008 NY Slip Op 32354(U) [8/25/2008]

Allegation: Insurer misrepresented the tax consequences of benefit plans

Holding: Plaintiffs sought advice from both an accountant and an attorney, and the documents were “replete with recommendations and disclaimers to seek independent guidance.”

Finderne Management Company, Inc. v. BarrettNo. A-1057-05T5 (N.J. Super. 9/9/2008)

Allegation: Insurer improperly collected 13 years of premiums for coverage that did not exist

Holding: Since premiums were not itemized when collected, the "continuing wrong" doctrine could toll the statute of limitations until the facts were discovered or could with

reasonable diligence have been discovered.

Ring v. AXA Financial, Inc.2008 NY Slip Op 30637(U) [2/6/2008]





3. SALES PRACTICES

Allegation: Insurer’s illustrations of a premium offset scenario were fraudulent

Holding: Class certification was not appropriate because the statute of limitations defense will require fact-specific inquiries

Moelis v. Berkshire Life Insurance Co.No. SJC-10067 (Mass. 5/22/2008)

Allegation: Agent wrongfully induced purchase of products that plaintiff could not afford

Holding: Claims based on policies sold more than 6 years before the complaint was filed are barred by the 6 year statute of limitations

Pike v. New York Life Insurance Co.2008 NY Slip Op 30839(U) [3/13//2008)

Allegation: Insurer’s illustrations of a premium offset scenario were fraudulent

Holding: "[A] person is under an obligation to read a contract before signing it, and will not as a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract. [cite]" Because plaintiff read enough of the policy upon delivery to be alarmed and voice concern over some of its provisions, his claims were time-barred.

Weathers v. Metropolitan Life Insurance Co.No. 2007-CA-01180-COA (Miss. App. 7/22/2008)





4. VIATICALS / LIFE SETTLEMENTS

The “life settlements” industry involves a policyholder’s sale of a variable life insurance policy to third parties who pay immediate cash, then “securitize” the policies by selling them in groups to investors.

Bid Rigging: Brokers are secretly paid to refrain from soliciting bids from competitors and to not relay competing bids to sellers

Misleading Sellers: Brokers solicit gross offers, but report only the net purchase price without disclosing their commissions

People v. Coventry First, LLC2007 NY Slip Op 33089(U)9/28/2007

U.S. v. BalsamNo. 07-12946 (11th Cir. 2008)

Money Laundering: Company was simply a vehicle for stealing investors’ money.

18 U.S.C. §1957: Financial transactions with criminally derived proceeds.

Viatical companies buy life insurance policies at a discount from terminally ill policyholders who receive immediate cash to pay for medical bills, make final arrangements, etc.





4. VIATICALS / LIFE SETTLEMENTS

Typical Fact Pattern: The insured obtains ready-cash by selling his or her policy to a stranger whose only interest is in his or her early demise.

● 77 year old retiree applied for $10M policy payable to a life insurance trust

● trust documents named the insured as the “initial beneficiary”

● trust paid first quarterly premium ($149K), then the insured sold his interest in the life insurance trust to the “stranger” for $300,000

● insured died less than one month after the policy was issued

● after a year-long investigation, the insurer paid $10.712,328.77 to the trust

Judicial Analysis: “Only one who obtains a life insurance policy on himself ‘on his own initiative’ and in good faith – that is, with a genuine intent to obtain insurance protection for a family member, loved one, or business partner, rather that an intent to disguise what would otherwise be a gambling transaction by a stranger on his life – may freely assign the policy to one who does not have an insurable interest in him.”

Life Product Clearing LLC v. Angel530 F.Supp.2d 646 (S.D.N.Y. 2008)

Stranger Owned Life Insurance (STOLI)





5. PREMIUMS / LAPSE

Actuarial Basis for Premiums

Alleman v. State Farm Life Insurance Co.508 F.Supp.2d 452 (W.D.Pa. 2007)

Application question about tobacco use neither required nor created reasonable expectation that premium rate for non-tobacco users would be based solely on mortality rate of non-smokers.

Unearned PremiumsLawson v. American Bankers Life Insurance Co.No. 2007-CA-000033-MR (Ky.App.Ct. 2/15/2008)

Insurer earned entire premium for credit life policy when it assumed the risk of the insured’s death during the first 60 months of his mortgage.

Change in Premiums

Pate v. Conseco Life Insurance Co.508 F.Supp.2d 452 (W.D.Pa. 2007)

Although it acknowledged that the insured could choose the amount and frequency of his planned premiums, policy did not authorize insurer to unilaterally increase the planned monthly premium.





5. PREMIUMS / LAPSE

Agent’s Duties re LapseFlaugh v. Basin Insurance Associates, Inc.

No. 26171-9-III (Wash. App. 4/8/2008)Absent a special relationship, an agent’s past assistance with reinstatement after prior lapses did not create a duty to inform of pending lapse.

Mackey v. American General Life Insurance Co.No. A116952 (Cal. App. 3/12/2008)

Company’s Duties re Lapse

Geise v. Nationwide Life and Annuity Company939 A.2d 409 (Penn. 12/18/2007)

1) An insurer cannot forfeit a participating policy for non-payment of premium without first giving notice.

2) An insurer “which adopts and uniformly adheres to the custom or practice of giving notice of payments for such a length of time as leads those insured to believe notice will be given” cannot declare a forfeiture without giving notice.

“[U]sage and custom may be introduced as an instrument of interpretation but may not be used to create a contract.”

“In order to prevail on the theory that the insurer failed to observe a custom of the industry, the insured ‘must establish . . . Not only that such a custom exists, but also that such custom has the binding force of a contract’.”





5. PREMIUMS / LAPSE

Reinstatement

West v. Lincoln Benefit Life Co.509 F.3d 160 (3rd Cir. 2007)

Pennsylvania law provides that the holder of a lapsed policy “shall be entitled to have the policy reinstated” upon (among other things) “the production of evidence of insurability satisfactory to the company” and “payment of all overdue premiums with interest.”

● Insured tendered reinstatement application and check for past-due premiums

● Insured died before underwriting completed its review (9 days after application)

“[P]ayment of the overdue premium was insufficient to effect reinstatement. It was incumbent upon [the insured] to give Lincoln Benefit the proof it required that he was still insurable.”

● “Lincoln Benefit had the right . . . to decide whether the evidence provided by the Wests was satisfactory proof of [the insured’s] insurability”

● At the time of death, Lincoln Benefit had not decided whether the statements on the application provided satisfactory evidence of insurability, and the beneficiary made no claim it was unreasonable to need more than 11 days to decide.

● Since the insured was not insured at the time of his death, Lincoln Benefit was not contractually obligated to pay benefits.





6. BENEFICIARIES / INTERPLEADERS

Preference Beneficiaries

Child born 8 months after the insured’s death is entitled to a preference beneficiary’s share under policy that is payable to the insured’s “then-living children.”

Fort Dearborn Life Insurance Co. v. Turner521 F.Supp.2d 499 (E.D.N.C. 2007)

When the policy identifies preference beneficiaries as “mother and father,” the insured’s mother and father share equally in the proceeds. Evidence that only one parent had custody of the insured was irrelevant.

Brown v. SouthardNo. 2007-CA-000723-MR (Ky. App. 1/25/2008)






Disputed Beneficiary Changes

Weatherly v. WeatherlyA08A1474 (Ga.App. 2008)

Evidence that putative beneficiary signed the change form without the insured’s knowledge or that insured purposefully signed the form in an incomplete manner required a trial.

Tennessee Farmers Life Insurance Co. v. Rose239 S.W.3d 743 (Tenn. 2007)

Evidence suggesting that insured lacked mental capacity or signed POA under “duress, coercion, control and/or undue influence” required a trial.

Allstate Life Insurance Co. v. Moreno2007 NY Slip Op 52272(U) [12/3/2007]

Evidence that insured’s signature on change form was forged required a trial.

SBLI USA Mutual Life Insurance Co. v. Unverricht2008 NY Slip Op 31051(U) [4/8/2008]

Allegation that insured was mentally and physically incompetent when signing change form made it appropriate to interplead the proceeds.






Unprocessed Beneficiary Changes

If “the insurer has done substantially all that is required of him, or all that he is able to do, to affect a change of beneficiary, and all that remains to be done is the ministerial action of the insurer, the change will take effect though the details are not completed before the death of the insured.”

Stanton v. Fisher659 S.E.2d 692 (Ga.App. 2008)

Absent evidence of any contrary intention, the insured’s substantial compliance with the beneficiary change requirements was sufficient proof of his intent to change beneficiaries.

Caterpillar Inc. v. Estate of Lacefield-Cole520 F.Supp.2d 989 (N.D. Ill. 2007)

Evidence that the insured completed the beneficiary change form and delivered it to her employer proved her substantial compliance with the insurer’s beneficiary change requirements.

Standard Insurance Co. v. Burch540 F.Supp.2d 98 (D.D.C. 2008)

Evidence that the insured completed the beneficiary change form but did not deliver the original to the insurer left an unresolved question about his intent to change the beneficiary.

Greater Georgia Life Insurance Co. v. EasonNo. A08A1171 (Ga. App. 7/10/2008)






Divorce -- Automatic Revocation?

Life Insurance Company of North America v. OrtizNo. 07-55308 (9th Cir. 8/1/2008)

Aug. 1998 Named wife #1 as beneficiaryDec. 2004 DivorcedMay 2005 Married wife #2June 2005 Died (GSW to head while on duty)

Majority Opinion:

As a general rule, California requires a change to a beneficiary designation to be made in accordance with the terms of the policy. ‘[I]f it is not, no change is accomplished. . . .”

“In this case, both insurance companies required written notification of change of beneficiary and [the insured] took no steps toward providing such notification.”

● Insured’s divorce lawyer had stressed the necessity of changing the designation

● Insured’s “inaction does not amount to substantial steps to change his beneficiary.”







Life Insurance Company of North America v. OrtizNo. 07-55308 (9th Cir. 8/1/2008)

Aug. 1998 Named wife #1 as beneficiaryDec. 2004 DivorcedMay 2005 Married wife #2June 2005 Died (GSW to head while on duty)

Dissent:

“The majority reaches a senseless, unjust and cruel result by awarding half a million dollars to the former wife of a peace officer felled in the line of duty, leaving the officer’s widow and children out in the cold. We don’t need to do this. The law, the facts, the equities, common sense and the district court’s findings all support the just result here: giving the proceeds of the service life insurance policies meant to protect the officer’s loved ones to the people he actually loved.”

● “Breadwinners buy life insurance to provide financial security for their dependents. Deputy Ortiz had no reason to provide financial security for a woman who wasn’t his dependent and whom, by all accounts, he despised.”

● “It’s true that Deputy Ortiz had not yet changed the beneficiary designation on his policies when he was killed. But the delay wasn’t very long, and certainly doesn’t compel a finding that Deputy Ortiz meant to leave [his ex-wife] a pot of gold and his wife and sons a lump of coal.”







Gray v. NashNo. 2-07-351-CV (Tx. App. 2008)

Texas Family Code Section 9.301(a): “If a decree of divorce or annulment is rendered after an insured has designated the insured’s spouse as a beneficiary under a life insurance policy . . . a provision in the policy in favor of the insured’s former spouse is not effective unless: (1) the decree designates the insured’s former spouse as the beneficiary; (2) the insured redesignates the former spouse as the beneficiary after the rendition of the decree; or (3) the former spouse is designated to receive the proceeds in trust for, or on behalf of, or for the benefit of a childe or a dependent of either former spouse.”

Under the Texas statute, only divorce decrees and annulments nullify beneficiary designations; An order modifying child support obligations is not enough.

Elliott v. St. John’s Regional Health CenterNo. 28424 (Mo. App. 1/15/2008)

Missouri statute (RSMo. Section 461.0511) does not apply to life insurance beneficiary designations.

MONY Life Insurance Co. v. Ericson533 F.Supp.2d 921 (D. Minn. 2008)

Because it violates the Contracts Clause, Minnesota statute (MS Section 524.2-804) is unconstitutional.

Metropolitan Life Insurance Co. v. Flusty545 F.Supp.2d 624 (E.D. Mich. 2008)

ERISA preempts divorce-revocation statutes. See also, Estate of Sauers v. Sauers, 2008 PA Super 97 (2008)






Negligent Policy Administration

Honoring a faciallly-valid change of address form that allegedly facilitates the putative beneficiary’s fraudulent execution of a beneficiary change form does not prevent the insurer from interpleading and will not support an independent claim of negligence.

Bankers Life Insurance Co. of New York v. Somraj2008 NY Slip Op 30370(U) [1/23/2008]

Insurer was not negligent in processing a change of beneficiary form that mistakenly identified the policy number and/or insured.

● “. . . courts are bound to give legal effect to all contracts and their terms, including insurance policies, according to the true intent of the parties.”

● the insured’s “several conscientious decisions” regarding insurance policies and financial affairs provided sufficient evidence to reform the policy to reflect her intent.

Occidental Life Insurance Co. of North America v. Benoit978 So.2d 558 (La. App. 2008)






Slayer Statute

California Probate Code Section 352: “A named beneficiary of a bond, life insurance policy, or other contractual arrangement who feloniously and intentionally kills the principal oblige or the person upon whose life the policy is issued is not entitled to any benefit under the bond, policy, or other contractual arrangement, and it become payable as though the killer had predeceased the decedent.”

Continental Casualty Co. v. AdamoNo. 08-10130 (11th Cir. 2008)

A final conviction of murder is enough.

Nationwide Life Insurance Co. v. RichardsNo. 06-56562 (19th Cir. 2008)

A final conviction of conspiracy to murder is enough.

Estate of Kissinger v. Hoge173 P.3d 956 (Wash. App. 2007)

Successful assertion of the insanity defense raises questions about willfulness and intent that must be tried.

Principal Life Insurance Co. v. Peterson156 Cal.App.4th 676 (2007)

Even when not yet final, a criminal conviction is evidence that the slayer statute should disqualify the beneficiary.

In re Estate of Stafford244 S.W.3d 368 (Tex. App. 2008)

Even without a conviction, a default judgment in wrongful death action can make the slayer statute apply.






Slayer Statute

“Plaintiff has not been convicted or even arrested. While she may be a suspect, she is presumed innocent until proven guilty.”

● Insurer was entitled to judgment in interpleader

● Suspect’s claim to the proceeds cannot be resolved without a trial on the merits

Nager v. United of Omaha Life Insurance Co.2007 NY Slip Op 52004(U) [10/16/2007]

Sparkman v. Reliastar Life Insurance Co.No. 13-03-500-CV (Tex. App. 2008)

A four-year delay does not deprive the insurer of its right to interplead the proceeds.

United Investors Life Insurance Co. v. GrantNo. 05-CV-01716-MCE-DAD (E.D.Cal. 2/15/2007)

Interpleader does not foreclose inquiries into the reasonableness of prior claims handling.

Estate of Grant v. State Farm Life Insurance Co.No. 05-CV-02389-FCD-KJM (E.D.Cal. 10/23/2007)

Since wife’s role as homicide suspect raised questions about her capacity to act as executrix of beneficiary estate, claims handling from before order appointing her as executrix was irrelevant.





7. ACCIDENTAL DEATH

Jones v. ING North America Insurance GroupNo. 8-087/07-1099 (Iowa App. 2008)

Insured with history of epilepsy had a seizure and drowned while bathing. Held: Not unreasonable to conclude that death was “directly or indirectly caused” by a “[p]hysical or mental illness,” rather than “due to an accident.”

Evans v. Mutual of Omaha Insurance Co.No. B192848 (Cal. App. 3/27/2008)

Insured died stood up from a casino table and suddenly died of a heart attack. Held: Having said in a workers’ compensation proceeding that the insured’s cardio-vascular disease was the result of 26 years of occupational stress, claimant could not claim the heart attack was sudden and unexpected.

Accident v. Natural Causes





7. ACCIDENTAL DEATH

Driving Under the Influence

“. . . an accidental injury is one that was not foreseeable, i.e. not the ‘natural and probable consequence’ of the insured’s conduct.”

Sarac v. Minnesota Mutual Life Insurance Co.529 F.Supp.2d 924 (N.D. Ill. 2007)

“Alabama determines whether a death is ‘accidental’ for insurance purposes based solely on the intent of the insured.”

“. . . the question is whether the decedent had a reasonable basis to believe that her conduct made serious injury or death a virtual certainty.”

Tyler v. AIG Life Insurance Co.No. 07-12373 (11th Cir. 4/2/2008)

“Drunk driving is a reckless act, perhaps an act of gross negligence. Any drunk driver who takes to the road should know he runs a risk of injuring another person [or himself]. The extent of the risk will of course vary from case to case, depending on how intoxicated the driver is, how far he drives, how fast he drives, and how many other drivers and pedestrians are sharing the road with him.”

Lennon v. Metropolitan Life Insurance Co.504 F.3d 617 (6th Cir. 2007)





7. ACCIDENTAL DEATH


“. . . as blood-alcohol levels rise, ‘so does the risk of being involved in a fatal crash’.”



BAC = 0.11 Car driven into a gulley

Pando v. The Prudential Insurance Co. of AmericaNo. 07-12373 (11th Cir. 4/2/2008)

BAC = 0.16 Car v. tree

Smith v. Stonebridge Life Insurance Co.473 F.Supp.2d 903 (W.D. Wisc. 2007)

BAC = 0.16 4 Car driven off road / flipped

Arnold v. Hartford Life Insurance Co.542 F.Supp.2d 471 (W.D. Va. 2008)

BAC = 0.18 Motorcycle v. tree

Sarac v. Minnesota Life Insurance Co.529 F.Supp.2d 924 (N.D. Ill. 2007)

BAC = 0.203 Car v. truck

Hill v. Aetna Life Insurance Co.546 F.Supp.2d 343 (S.D. Miss. 2008)

BAC = 0.22 Single car accident

McGillivray v. Life Insurance Co. of North America519 F.Supp.2d 158 (D. Mass. 2007)

BAC = 0.242 Head-on collision

Smith v. Liberty Life Insurance Co.No. 07-30946 (5th Cir. 7/10/2008)



BAC = 0.321 Car v. wall





7. ACCIDENTAL DEATH






















“A jury could find that the death, while the result of the insured’s voluntary actions, was something unforeseen, unexpected, and unusual, or that . . . the insured died as a result of a miscalculation of his capabilities.”





7. ACCIDENTAL DEATH






















“A jury could find that the death, while the result of the insured’s voluntary actions, was something unforeseen, unexpected, and unusual, or that . . . the insured died as a result of a miscalculation of his capabilities.”

“Defendant has not presented any facts that Sarac expected he would die or seriously injure himself if he chose to drive drunk. [fn omitted] Thus, Defendant cannot satisfy the first element of an ‘accidental death’ under Illinois law because it cannot demonstrate that Sarac either intended or expected to die or be seriously injured as a result of his decision to drive under the influence of alcohol.”





7. ACCIDENTAL DEATH

Overdose of Medications

Gower v. AIG Claim Services501 F.Supp.2d 762 (N.D.W.V. 2007)

Insured died in his sleep, wearing 4 Duragesic patches that release fentanyl and surrounded by several bottles of prescription medications. Parties agreed his death resulted from the combined effect of fentanyl, olanzapine, carisprodol and diazepam.

● Insurer asserted that “a reasonable person would have known that ingesting a toxic level of fentanyl in combination with a toxic level of olanzapine – an unprescribed drug for [the insured], was highly likely to result in a fatal overdose.

● “Considering the amount of medicine [the insured] was used to taking, and the large amount of pills and patches available to him before he died, this Court cannot conclude that [the insured] ingested an extraordinarily large dose of dangerous drugs with the expectation that he would die.”

● The “totality of the evidence” weighs in favor of concluding the insured “did not expect his actions to result in death.





7. ACCIDENTAL DEATH

Intoxication Exclusions

Smith v. Liberty Life Insurance Co.No. 07-30946 (5th Cir. 2008)

“In Louisiana, an intoxication exclusion operates where the insurance company demonstrates by a preponderance of the evidence that the insured was intoxicated to the point that he lost normal control of his mental and physical facilities and that the intoxication was a contributing cause of the accident.”

Intoxication: Toxicology report showed the presence of several drugs, and the pathologist testified that they would have “caused drowsiness, slowed mental activity, decreased alertness, and slowed reflexes.”

Causation: “. . . the correlation between drugs and Mr. Smith’s death is uncontroverted.”

• Mrs. Smith contends that the accident may not have been the result of intoxication, but instead may have been the result of “a fourteen year old pickup truck with considerable play in the steering” coupled with high speed and “trees too close to the road.”• Insurer was only required to prove that intoxication (or “being under the influence of” a narcotic) was a contributing cause.





7. ACCIDENTAL DEATH

Intoxication Exclusions

Smith v. Stonebridge Life Insurance Co.473 F.Supp.2d 903 (W.D.Wisc. 2007)

“Causation is a notoriously tricky idea to pin down. No lesser minds than Aristotle have wrestled with its meaning.”

• Because a reasonable insured may have understood “cause” to mean “a cause,” “a

substantial cause,” or “the sole cause,” the exclusion is ambiguous and must be given its narrowest interpretation.

• “. . . it is not possible to conclude that an elevated blood alcohol level was ‘the cause’ of Mr. Smith’s accident.”

• There were no witnesses to the accident, so no one can say with certainty what happened.• “Road conditions in the area were so difficult that even sober drivers struggled to drive safely.”

-- Roads in the area “were snow-covered and slippery, with occasional patches of black ice.”-- 17 other vehicles “landed in ditches” in the same county

that night





7. ACCIDENTAL DEATH

Felony Exclusions

Smith v. Stonebridge Life Insurance Co.473 F.Supp.2d 903 (W.D.Wisc. 2007)

Wisconsin law makes it a felony to cause the death of another “by the operation or handling of a vehicle while the person has a prohibited alcohol concentration.”

• Wisconsin also recognizes “there may be intervening factors between the fact of operating an automobile under the influence of intoxicants and the death of another.”

• The “dearth of facts about the accident” make it impossible to reach an informed determination that the insured was committing a felony.

Steele v. Life Insurance Co. of North AmericaNo. 06-1331 (7th Cir. 11/7/2007)

Felony exclusion made no benefits payable because fatal drunk-driving accident was the insured’s third DUI (a felony under Illinois law).





8. SUICIDE EXCLUSIONS

Hamilton v. Standard Insurance Co.516 F.3d 1069 (8th Cir. 2008)

Missouri statute (MRS §376.620) bars suicide exclusions for policies issued to Missouri citizens.

Moeller-Tevez v. Allmerica Financial Life Insurance and Annuity Co.534 F.Supp.2d 253 (D.P.R. 2008)

Death certificate is prima facie evidence of manner of death, but can be overcome by adequate evidence.

Green v. William Penn Life Insurance Co.2007 NY Slip Op 10076 (12/20/2007)

Because of a “powerful presumption” against suicide, party alleging suicide must prove “no conclusion other than suicide may reasonably be drawn.”

Officer v. Chase Insurance Life & Annuity Co.478 F.Supp.2d 1069 (N.D.Ind. 2007)

Fact that policy’s second anniversary was just 38 days away did not constitute “substantial performance” of a kind that makes suicide exclusion not applicable.