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What happens in life insurance policy litigation when an insured intended to change the beneficiary of his or her policy from an ex-spouse to a current spouse, but did not correctly fill out and/or submit all the necessary paperwork before his or her death? Can the current spouse make a successful claim to the life insurance policy proceeds?  Or, can the ex-spouse prevail by arguing that the insured cannot change his or her beneficiary without following all of the life insurance policy’s procedures?

In the Sixth Circuit (the circuit which includes Tennessee), courts will usually recognize a change in beneficiary even when the insured did not “strictly comply” with all of the life insurance policy’s rules on how to designate a new beneficiary.  Still, courts will not award proceeds to a current spouse if he or she can do no more than show that the insured merely intended to designate a new beneficiary.  The general rule in the Sixth Circuit, and in Tennessee state courts, is that the insured must be in “substantial compliance” with the terms of the life insurance policy for the beneficiary change to be effective.

The courts in the Sixth Circuit have admitted that there is no easy definition for the term “substantial compliance.” Making matters even more confusing, courts in the Sixth Circuit usually, but not always, apply the substantial compliance test in examining an insured’s flawed beneficiary designation for life insurance policies governed by ERISA.  That complexity aside, this much is clear: If the intended beneficiary seeks to collect policy proceeds, he or she will have to establish that the insured completed several critical steps in designating a new beneficiary.

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Ex-spouses often enter into informal post-divorce arrangements intended to alter obligations set out in their marital dissolution agreements (MDAs). Such arrangements, whether they include an actual agreement or merely a pattern of conduct, can impact Tennessee life insurance policy cases involving the policies of deceased ex-spouses.

Sometimes, post-divorce agreements involve life insurance policies. These types of agreements are not automatically valid or invalid.  As explained in Holland v. Holland (Tenn. Ct. App. 2001),  whether such agreements are enforceable must be determined by applying contract law principles.  The Holland court made it clear that post-divorce agreements can be enforceable, even if they conflict with the MDA.

What if there’s no evidence of a binding agreement to modify the terms of the MDA or no evidence of a binding agreement that is otherwise contrary to the MDA? In such a case, an ex-spouse may still be able to persuade a Tennessee court to set aside provisions of the MDA. For example, in Puckett v. Harrison (Tenn.Ct. App. 1998), the trial court held that the provisions of an MDA were not binding because the deceased ex-husband intended to forgo the property settlement provisions of the MDA in order to allow his ex-wife to retain her interest in the property.  The trial court based its ruling on the testimony of numerous witnesses about the ex-husband’s intent.  In Puckett, there was no evidence of any agreement. Puckett was affirmed on appeal.

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Many life insurance policies include a conversion clause. A conversion clause provides a policy owner with the contractual right to update or to convert a policy.  The primary benefit of a conversion clause is that the person whose life is insured does not have to undergo medical underwriting for an updated policy to issue.  In Tennessee life insurance policy cases, a policy owner’s rights under a conversion clause may be important to understand.

Underwriting classes are determined based on the medical history, physical condition, habits, and smoking status of the life of the person insured by the policy. Sometimes though, an insurance company will change the names of its underwriting classes so that there is no underwriting class by the same name or description as the underwriting class which applied to the first policy. If that occurs, what type of underwriting class, and thus, premium rate, should apply when the policy is converted?  The classification of the life of an insured can mean thousands, or tens of thousands, of premium dollars.

A couple of federal cases provide some guidance.