Why Determining the Proper Beneficiary of a Life Insurance Policy Is Not Always Simple

Many life insurance lawsuits involve disputes over the designation of beneficiaries. In Humana Ins. Co. of Kentucky v. O’Neal (2018), the Sixth Circuit Court of Appeals had to evaluate two competing claims for life insurance proceeds under an ERISA plan (“Plan”).

Under the Plan, the decedent (“Decedent”) could name a beneficiary.  If the Decedent did not name a beneficiary, Humana, the administrator of the plan, would pay the benefit at its option to either the surviving spouse or the estate of the Decedent. One year prior to the Decedent’s death in 2015, he named his then girlfriend as his beneficiary (“Prior Beneficiary”). The following year, during the re-enrollment period, the Decedent did not select any person or entity to be his beneficiary.

Shortly after the Decedent’s death, Humana received claims from both the administrator of the Decedent’s estate (“Estate”) and the Prior Beneficiary. After the district court determined that the Estate was entitled to the Decedent’s life insurance benefit, the Prior Beneficiary appealed.

On appeal, the issue was whether the Decedent’s designation of the Prior Beneficiary in 2014 carried over to 2015 because he failed to select a beneficiary that yearꟷor whether he made an affirmative choice not to select a beneficiary. The Sixth Circuit affirmed the district court’s decision determining that the Decedent made an affirmative choice when he did not re-name the Prior Beneficiary as his beneficiary in 2015.

In explaining its decision, the court noted that, during the enrollment period in 2015, the Decedent logged into Humana’s portal and was provided with a prompt via a dropdown menu. The dropdown menu indicated to the Decedent that he had previously designated the Prior Beneficiary as his beneficiary. He did not select her again.

The Prior Beneficiary argued that there was no requirement in the language of the Plan itself that a participant in the Plan had to redesignate a previously named beneficiary every year. The court noted, however, that other Plan documents instructed participants to select affirmatively a beneficiary during each re-enrollment period. The court also pointed to evidence in the record that the Decedent and the Prior Beneficiary ended their relationship in August 2014.  (The court did not discuss whether the status of the Decedent’s relationship with the Prior Beneficiary, which would constitute parol evidence, could be considered in an ERISA case.)

In S. Elec. Ret. Fund v. Gruel, (M.D. Tennessee 2019), the district court dealt with a similar set of facts in which a prior girlfriend of the decedent (“Decedent”) and the Decedent’s family (“Family”) submitted competing claims for a pre-retirement death benefit under a retirement fund governed under ERISA (“Plan”). In this case, the Decedent filled out a beneficiary form listing “Christy Bender-Christina” (“Christy”) with a relationship description of “Girlfriend.” He listed his daughter as his contingent beneficiary.

The Decedent had made no changes to his beneficiary designations prior to his death in 2018.

However, Christy was not his girlfriend as of his death. In fact, at the time of Decedent’s passing, Christy had married someone else and had changed her name, while the Decedent had a new girlfriend. (Unlike in the Humana case, there was no requirement in this case that a participant in the Plan had to select a new beneficiary each year.)

Following the Decedent’s death, Christy made a claim for death benefits, which the Plan administrator denied. In explaining its decision, the Plan administrator stated that the Decedent described Christy as his girlfriend, which meant that he intended her to be his beneficiary until, and unless, that status changed. The administrator found that, once Christy and the Decedent went their separate ways, she could no longer be his beneficiary, even if the Decedent never designated a new beneficiary.

In reviewing the Plan administrator’s decision in the Gruel case, the district court noted that under ERISA, it could only overturn an administrator’s award or denial of benefits if it was arbitrary and capricious, a highly deferential standard of review. In applying this standard, the court determined that the Plan administrator’s decision was “sufficiently grounded in reason.” Accordingly, the court ruled the Decedent’s daughter, and not Christy, was entitled to the death benefits at issue.

It’s not hard to imagine the Gruel case turning out differently. For example, the Plan administrator could have determined that the Decedent had the opportunity to select a new beneficiary, and that his failure to do so evidenced that he intended that Christy remain his primary beneficiary.

Determining the proper beneficiary to a life insurance policy may involve a rigorous analysis of the plan and policy’s beneficiary requirements, as well as a fact-intensive inquiry that goes beyond the plan and policy language. If you believe that you have been denied your rights as a beneficiary under a life insurance policy, contact an experienced life insurance litigation firm.





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