In Travelers Ins. Co. v. Webb (1996), the Court of Appeals of Tennessee noted that a life insurance policy is a contract between the insured and the insurance company and, as such, courts will construe insurance policies from their “four corners.” In Webb, the decedent had a life insurance policy through his employer and named his wife at the time as his beneficiary. Later, the decedent and his wife divorced and the decedent re-married. At the time of his death, he never changed the beneficiary of his life insurance policy from his ex-wife to his subsequent wife.
The insurance company interpled the policy proceeds with the court on the grounds that both the ex-wife and widow of the decedent had competing claims to the proceeds of the insurance policy. After the trial court ruled in favor of the ex-wife, the decedent’s widow appealed arguing that the decedent intended to name her as a beneficiary.
In upholding the decision of the lower court, the Court of Appeals held that the parties’ intent is “irrelevant” when the language of the policy is clear and unambiguous. It found there was no ambiguity in the policy language at issue. The decedent had named his ex-wife as a beneficiary to his insurance policy and there was nothing in the four corners of the document suggesting any contrary intent.
The Webb opinion is at odds, somewhat, from the decision in S. Elec. Ret. Fund v. Gruel, (M.D. Tennessee 2019), an ERISA case decided by the federal district court for the Middle District of Tennessee which was the subject of a previous blog post. In Gruel, the district court upheld a plan administrator’s decision to deny benefits to a beneficiary designated by the decedent. At the time of the designation, the beneficiary was the decedent’s girlfriend. The decedent and the beneficiary later ended their relationship and, at the time of the decedent’s death, the beneficiary was married to someone else.
In denying benefits to the decedent’s girlfriend, the plan administrator stated that the decedent described her as his “girlfriend,” which meant that he intended her to be his beneficiary until, and unless, that status changed. In explaining its decision not to reverse the decision of the plan administrator, the district court found that the plan administrator’s decision was “sufficiently grounded in reason.”
On the surface, the underlying facts in Webb and Gruel seem remarkably similar in that, in both cases, the decedents did not change their designated beneficiaries after their relationships with each of them ended. Nonetheless, in Webb, the court ruled in favor of the original beneficiary, while in Gruel, the court ruled against her. Why were the outcomes completely different in the two cases?
First, Webb was decided under fundamental principles of contract law that Tennessee courts follow. Gruel, however, was an ERISA case which meant that the plan administrator merely needed to make a “reasoned” decision to award or deny the beneficiary the policy proceeds. That decision could have been made according to black letter contract law, or according to the plan administrator’s own interpretation of the decedent’s intent. It is not uncommon to read a district court ruling that, like the one in Gruel, interprets an ERISA plan without any discussion of state contract law principles.
That said, it is possible that the outcome in Gruel would have been the same, even if it were a non-ERISA case applying state contract law principles. Notably, the decedent expressly described his beneficiary as his “girlfriend.” One could argue that the contract should be interpreted to construe the decedent’s intent to be that his girlfriend would remain his beneficiary only so long as she remained his girlfriend.
When challenging a decision from an insurance company or a plan administrator to deny death benefits to a designated beneficiary, it is very important to determine the basis for that decision. Was it made according to the common law of contracts, the rules and procedures of an employee benefit plan or the whims of the plan administrator? If you believe you were wrongly denied proceeds under a life insurance policy, contact an experienced insurance litigation firm to evaluate your case.