“Put it in writing…” This maxim applies to so many situations in business and life – and particularly in the realm of life insurance. An insured party’s stated intentions regarding beneficiaries and designations may be clear in the course of conversations. But unless those intentions are reflected in legally binding documentation, the matter may be subject to costly litigation – and sometimes, unpredictable court decisions.
A recent case, Motorists Life Insurance Company v. Sherbourne, illustrates how important it is (1) for an insured’s intentions to be documented in writing, and (2) for professional agents to keep in touch with their clients and review their policies with them, especially when and after significant life events occur.
Important case facts
As reported in the November 7 edition of WRNewswire, An AALU Washington Report, William and Patricia Murray were married in 1989. William eventually bought two policies from Dennis Rockhold, an agent for Motorists Life, and in 2002, he designated Patricia as the sole beneficiary of both policies. There was no contingent or successor beneficiary designated.
The Murrays divorced in 2004. The divorce decree did not mention the Motorists policies, and William did not change his beneficiary designation of Patricia on the policies. William allegedly had three separate post-divorce discussions with Dennis regarding his designation of Patricia as beneficiary on the policies. On each occasion, William indicated that he wanted to retain Patricia as the beneficiary on both policies.
William died in 2013. William’s children made claim for the life insurance death proceeds, arguing that under Ohio law, the beneficiary designation in favor of Patricia was revoked upon the divorce. Patricia also made claim for the policy proceeds, and Motorists initiated an interpleader court action.
Ohio law states that an ex-spouse pre-divorce beneficiary designation is automatically revoked as part of the divorce – unless re-instituted as part of the divorce paperwork, or by new designation post-divorce.
The trial court therefore decided that since there was no mention of the Motorists policies in the Murrays’ divorce decree, the provisions of the statute effectively removed Patricia as beneficiary. It ruled, therefore, that William’s estate was entitled to the proceeds.
Patricia appealed. In a decision that surprised many observers, the Ohio appeals court decided that there was uncertainty in the statute over what constituted a “designation of beneficiary.” The court decided that post-divorce conversations with the insured’s agent were enough to affirm the ex-spouse as beneficiary of the insured’s life policies.
This absence of clear statutory language on the post-divorce designation of beneficiary led the court to reverse the decision of the trial court. It ruled that William’s statements to Dennis to keep Patricia as the policies’ beneficiaries were an adequate “designation of beneficiary” as a matter of law, and it directed judgment in favor of Patricia.
Important takeaways for policy holders and life insurance professionals
- State laws vary widely, and courts can make unpredictable decisions. In this case, William’s stated intentions to keep his ex-wife Patricia as beneficiary were adequate enough to preserve those intentions as legally binding. Technically, he didn’t need to state his intentions in writing. However, it took an appeals court reversal to make that so, and that reversal may – or may not – be relevant to similar cases in states outside of Ohio.
- Litigation could likely have been avoided if William had made clear in his divorce paperwork that he intended to keep Patricia as beneficiary.
- Likewise, Dennis could have helped all surviving parties avoid litigation by encouraging William to submit a post-divorce affirmation of Patricia as beneficiary to the insurance company.
When was the last time you reviewed your policy? We encourage you to contact Charles J. Farro to ensure your policy is updated the way it should be based on your life events. Chuck is the president and co-founder of Marsh & McLennan Agency formerly Benefits Resource Group. You can contact him by phone at 216-393-1818 or email firstname.lastname@example.org.