Tennessee Disability and Life Insurance Blog
Under what circumstances will a court rule that the named beneficiary under a life insurance policy is not entitled to receive the proceeds of the policy? In Estate of Lane v. Courteaux (2017), the Court of Appeals of Tennessee wrestled with that issue, before ruling against the party who argued that a named beneficiary should not be entitled to any proceeds under the policy. According to the court, a named beneficiary of a life insurance policy will almost always be able to recover the death benefit, even when there are compelling reasons to award the proceeds to another party.
The facts of Estate of Lane are tragic. A wife had a $600,000 life insurance policy in which she named her husband the sole beneficiary. Later, she was diagnosed with terminal cancer. Shortly after, her husband learned he also had terminal cancer.
Although the husband was not expected to outlive his wife, she passed away before he did. Shortly before her death, the wife, while retaining her husband as a co-beneficiary, added her sister, Amanda Courteaux, as a co-beneficiary. This caught the husband by surprise. When he discovered, after her death, that his wife did add her sister as a beneficiary of the life insurance policy proceeds, he speculated that his wife wanted her sister to provide for their son, who was on the verge of losing both his parents. Under the life insurance policy at issue, the wife’s sister was entitled to $300,000 of the policy proceeds.
Later, the husband believed Courteaux was going to use the proceeds for purposes other than his son’s welfare. He then filed a complaint against Courteaux seeking to have nearly all of her share of the proceeds placed into a trust for the benefit of his son. In his lawsuit, the husband sought relief, in part, under the legal principle of promissory estoppel.
Prior to the trial, the husband passed away, and his executor and estate were substituted in his place. Before he died, the husband gave a deposition in which he testified about a document created by his wife that he discovered after her death. According to the husband’s testimony, the document indicated his wife wanted Courteaux to have only $30,000 of the proceeds for herself, with the remainder of her share to be transferred to her husband to use for their son’s benefit. (It is not clear from the court opinion what exactly this document was, or what it said.) At trial, the deceased wife’s half-sister also testified wife wanted Courteaux to receive only a $30,000 share of the proceeds.
At trial, Courteaux conceded that she and her sister both promised to take care of each other’s children if anything ever happened to one of them. Nevertheless, she testified that the life insurance proceeds were “my money.”
The trial court found that the husband’s executor and estate proved their promissory estoppel claim, and denied Courteaux her share of the life insurance proceeds. In explaining its decision, the court noted that Courteaux promised the wife that she would take care of her son, and, as a result, the wife named her as a partial beneficiary of her life insurance policy. The trial court noted that, had the wife known that her sister would try to circumvent her own promise, she would have relied on someone else for her son’s support.
The Court of Appeals, however, reversed the trial court. It noted that, while the wife may have intended that her life insurance proceeds be used solely for her son’s benefit, that did not change the fact that she added Courteaux as a beneficiary. The court reasoned that an equitable remedy—like the husband’s claim of promissory estoppel—does not come into play where the terms of the policy are clear and unambiguous.
Notably, the husband’s executor and estate, in support of their position, cited Holt v. Holt (1999), a Tennessee case in which the Supreme Court of Tennessee disregarded the terms of a life insurance policy that were clear and unambigous. (We previously wrote a blog post about that case here.)
In Holt, however, the policy holder was required, under a marital dissolution agreement with his ex-wife, to maintain a $100,000 policy for his son. The policy holder did not comply with the divorce decree. As a result, the court held that the son should receive the full proceeds of the $50,000 policy in which the policy holder’s mother (and not his son) was designated as beneficiary.
The Court of Appeals in Estate of Lane distinguished Holt noting that Ms. Lane was not “legally mandated” to name anyone in particular as a beneficiary to her life insurance policy. Therefore, it held that the decedent’s policy should be enforced as it was written.
In life insurance policy lawsuits, lawyers and litigants must always remember that, just because it may seem unfair for a particular person to receive the life insurance policy proceeds, that does not mean that they will not.