Disputes over life insurance often lead to unintended consequences as illustrated by Hall v. Metropolitan Life Insurance Co., 2014 U.S.App.LEXIS 8652 (8th Cir. May 8, 2014), which involved the designation of a beneficiary.

In Hall, the 8th U.S. Circuit Court of Appeals ruled that someone other than the intended beneficiary was entitled to receive employer-sponsored life insurance indemnity. The case involved Dennis Hall’s group life insurance coverage. Because Hall received coverage under a MetLife policy sponsored by his employer, Newmont USA Ltd., the dispute over the proceeds was governed by the Employee Retirement Income Security Act.

In 1991, Hall had named his son, Dennis Hall II, as his life insurance beneficiary. However, in 2001, Dennis Hall married Jane Hall, to whom he was married at the time of his death in 2011. Before he passed away, Hall suffered from terminal cancer that was diagnosed in 2010.

In November 2010, Hall filled out and signed- but never submitted- a beneficiary designation form naming Jane Hall his sole beneficiary. On his deathbed, Dennis Hall dictated and executed a will requesting that his life insurance be distributed to his wife.

However, because Newmont forwarded to MetLife the beneficiary designation on file naming Dennis Hall II as the beneficiary, he made a claim for benefits. Jane Hall also submitted a claim for benefits. MetLife denied Jane Hall’s claim and paid the benefits to Dennis Hall II.

In the ensuing litigation, the court ruled for MetLife and upheld its payment as being consistent with the terms of the plan and a valid exercise of its discretionary authority stated in the plan.

The appeals court affirmed the finding that the will was inadequate to effect a change in beneficiary since the estate was not the beneficiary of the policy. The court also rejected the signed and executed change of beneficiary form because it was never submitted within 30 days of execution as the plan required.

Finally, the court rejected Jane Hall’s argument that she was entitled to benefits under the doctrine of “substantial compliance.”

“Where an ERISA plan administrator is given discretion under the plan to determine eligibility for benefits,” the court explained, “the substantial-compliance doctrine would not deprive the administrator of the power to require strict compliance with the terms of the plan.”

Thus, the court upheld the determination to pay benefits to Dennis Hall II.

This case illustrates how clearly expressed intentions can be frustrated. The outcome here, which deprived a widow of benefits that were rightfully hers, does not seem either fair or just. Surely, the reason that courts adopted a doctrine of “substantial compliance”was to create a safety valve to allow courts to bend the law a bit to do the right thing.

Surprisingly, MetLife paid the benefits rather than file an interpleader action and let the parties dispute their entitlement to the insurance proceeds. Had that been done, the court would have been able to award the benefits to the party presenting the most meritorious position.

Perhaps Dennis Hall II had a stronger case: it is conceivable that the deathbed will naming Jane Hall was procured by undue influence or that Dennis Hall may have been too feeble to understand the will’s terms, although the facts as recited suggest that when he dictated his will, it was with clear intent and sound mind.

The execution of a change of beneficiary form months earlier also suggests an intent to change beneficiaries, even though the failure to submit the change is inexplicable.

A recent 7th Circuit ruling touches on many of these same issues.

In Minnesota Life Insurance Co. v. Kagan, 724 F.3d 843 (7th Cir. 2013), the appeals court was presented with a life insurance dispute that also involved an executed but unsubmitted change of beneficiary form. The decedent’s widow, who was the named beneficiary, ultimately won an interpleader action despite evidence that the marriage was falling apart at the time the insured suddenly died. However, a change of beneficiary designation was not submitted, even though the decedent had named his children his beneficiaries for other benefits and assets he owned.

The court ultimately decided that because of a failure of both strict compliance as well as a lack of substantial compliance with the policy requirements relating to beneficiary changes, the widow was deemed entitled to the life insurance.

This article was initially published in the Chicago Daily Law Bulletin.

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