Life insurance seems straightforward. You buy a policy or get one through your employment that will pay money to your beneficiary after your death. You name your beneficiary or beneficiaries as part of the enrollment process and normally can change your beneficiary choices over the years as relationships evolve or people pass away.
Unfortunately, sometimes after a life insurance policyholder has died, the insurance company may not be able to determine the proper beneficiary. Or a dispute develops among two or more people who believe they are the rightful beneficiaries. At this point, life insurance is no longer straightforward, but potentially complex.
When an insurer does not know the proper beneficiary to whom to pay policy proceeds, one legal option is to file an interpleader action with the court. The insurer deposits the insurance proceeds with the court (or obtains a bond to protect the funds) and lets the court determine the proper beneficiary.
Insurance companies may bring interpleader lawsuits in federal or state court, depending on the circumstances. The insurer must identify, name and serve necessary parties to the action. These could be people who are in dispute over the proceeds or who are named in the beneficiary designation, but also immediate family members of the decedent, the personal representative of their estate, a divorced spouse and others who may have a potential beneficiary interest in the proceeds.
The defendants vying for the insurance proceeds will present evidence and arguments to the court as to why they believe they are the rightful beneficiaries. The court will decide the merits of the case and order the proceeds paid to the correct party or parties. The court may order legal fees and costs of the insurer-plaintiff paid out of the proceeds or by one of the defendants if they have contributed to costs excessively.
What kinds of beneficiary disputes arise?
The types of beneficiary disputes that can develop are limitless and sometimes unique. Here are some examples:
- A person alleges they were wrongfully excluded or removed as a beneficiary.
- The named beneficiary is unknown, deceased or missing.
- The policyholder told someone they were the beneficiary, but the designation does not reflect that.
- The policyholder tried to amend the beneficiary designation but did not do it properly.
- A party may claim that the policyholder named or changed a beneficiary designation under improper circumstances such as under duress or under the undue influence of another.
- A formerly named beneficiary may argue that the policyholder lacked the mental capacity to change their beneficiary.
- A named beneficiary may face allegations that they contributed to the death of the policyholder, which would normally prevent them from collecting the proceeds. (An actual criminal conviction may not be necessary for this law to apply.)
- The policy names a former spouse as beneficiary, or the divorce decree has language that affects the policy payout.
- A child, spouse or parent of the deceased policyholder believes the proceeds should go to the person’s estate and pass to heirs through the probate process because the beneficiary designation is invalid, unclear or empty.
- And others
Sometimes the court must interpret language in the policy or make other legal conclusions. For example, in one Florida case, the court had to decide if the deceased policyholder’s parental rights had been terminated during his life. According to the policy terms, if he had a child, they would receive the proceeds over the decedent’s parents.
The court reasoned that although the deceased had executed a document giving up his parental rights, Florida law does not give parents the power to terminate their own parental rights without proper court procedure. An adoption would also terminate a parent’s rights, but one underway at the time of the father’s death was not yet final, so he died still a legal father.
Seek experienced legal counsel
Anyone named as a defendant in an interpleader action should take immediate action to protect their interests in the proceeds. After having been served with the interpleader action, filing deadlines will start to kick in. For example, they must file with the court an answer and any cross-claims against the insurer.
An attorney can provide advice, guidance and representation in responding to an interpleader action as well as assessing potential claims against the insurance company. In addition, a lawyer can discuss legal remedies if you feel you should have been included as a necessary party in an interpleader action.
The legal and factual issues in an interpleader suit can be extremely complex, but experienced legal counsel can investigate and advocate on your behalf through potentially complicated issues of law or policy interpretation.
At our law firm, we advocate for life insurance beneficiaries seeking the payouts to which they are entitled. Often, parties can resolve these disputes through negotiation to a settlement agreement that leads to a faster and less costly solution, either before or after an interpleader filing.
How can Disability Insurance Law Group help?
A delay or denial of a disability claim can be financially devastating. Disability Insurance Law Group represents long term care and all disability insurance claimants at every stage of the insurance process. If you have any questions regarding your life insurance claim, our team of attorneys would be happy to provide you with a free consultation. Please contact us at 954-633-8811 or email us.