Common Reasons For Interpleader In Life Insurance Claims

When a dispute arises from multiple parties making a claim for the same life insurance benefits, the life insurance company may find many reasons for interpleader action or lawsuit to require a court to determine the owner of the life insurance proceeds. An interpleader lawsuit is filed by the life insurance company when there is a beneficiary dispute and allows a court to determine the lawful life insurance beneficiaries. Once settled by a court, the benefits are paid to the prevailing party(s). Additionally, the life proceeds may be disbursed in a Consent Order if a settlement is reached between the parties with interest in the life insurance proceeds.

There are many situations that can result in a beneficiary dispute, ultimately leading to an interpleader action. Some of the most common reasons for interpleader actions are listed below.

Divorce

Where the insured has been married several times, the ex-spouse and current spouse may assert claims to the life policy. It is very common for both the surviving spouse and ex-spouse to make a claim for the life insurance benefits. If the insured never changed their beneficiary after divorce and lived in a state where “automatic revocation upon divorce” laws control, the ex-spouse may still think they are still entitled to the life insurance benefits. However, the insured’s ex-spouse may be entitled to the life insurance benefits if the life benefits were included as part of the final judgment of the divorce. Beneficiary disputes can become increasingly complex when two individuals who are divorced both have children from prior marriages. Also, there are major differences between state and federal life insurance policies. Under servicemembers’ group life insurance (SGLI), veterans’ group life insurance, and federal employees’ group life insurance, an ex-spouse can be paid if they are the last lawful beneficiary designation on file with either Prudential (for SGLI and VGLI) and MetLife (FEGLI).

Example of Interpleader due to Divorce: During their first marriage, the insured took out a life insurance policy and named their spouse as the sole beneficiary. Several years later, the insured divorces the spouse. The insured lives in a state where automatic revocation upon divorce laws apply. During the divorce, the ex-spouse was NOT awarded the life insurance policy as part of the final judgment of divorce. The insured gets remarried and updates their life insurance policy to name the new spouse as the beneficiary. A few years later, the insured passes away. In this example, the ex-spouse, although not awarded the life insurance policy during the divorce judgment, believes they are still the beneficiary of the policy. Both the spouse and ex-spouse make a claim for the life insurance benefits. Because multiple parties are making a claim for the benefits, the life insurance company may file an interpleader lawsuit to determine the rightful beneficiary.

Remember – paying an ex-spouse under a life insurance policy can become increasingly complex if you live in a state that recognizes joint marital property. Technically, both spouses may have a right to the policy, and it would be unlawful for a policyholder to remove their spouse without their spouse’s consent.

Beneficiary Designation Error

There are many instances where the insured may make an error in designating a beneficiary on their life insurance policy, all of which may result in multiple parties thinking they have a claim to the life insurance benefits. For example, the insured may have not named a beneficiary, and therefore, multiple people may believe that they are entitled to the life benefits. Additionally, the insured may not have followed the correct rules or procedures in completing or submitting the beneficiary form pursuant to the life insurance company’s procedures. The insured may have failed to properly name a cognizable beneficiary and put a nickname, spelled the name incorrectly, failed to put a last name, etc. Problems may also arise where the insured lists beneficiaries and their percentages do not equal 100% (for example Tommy – 10%, Matt 10%, Tim 90%). If the life insurance company is unable to determine the split based on 100%, the life benefits may need to be filed into interpleader.

Timing can also play a significant factor in the changing of a beneficiary. The insured may have expressed their intent to change their beneficiary and completed the proper paperwork but did not submit the paperwork before passing away. In this instance, a dispute may arise between the proper form.

Example of Interpleader due to Beneficiary Designation Error: The insured, a single individual with two siblings and no children, grandchildren, or parents, takes out a life insurance policy. While completing their life application paperwork the insured fails to name a beneficiary under the policy. After the insured dies, the policy becomes payable, and both insured’s siblings make a claim to the life insurance benefits. Since no beneficiary was designated or named under the policy, the life insurance company may either: ascertain the rightful beneficiaries and work with any potential beneficiaries consistent with the order of precedence to determine the lawful beneficiaries of the policy or file an interpleader lawsuit to determine the rightful beneficiary.

Undue Influence, Duress, Fraud, Forgery, and Incapacity

Money can make individuals do crazy things and unlawful behavior happens more often than you know. Often, family members try to procure their own beneficiary designation by subjecting the insured to influence and coercing the insured to change their beneficiary. This type of behavior is self-serving and unlawful if the insured is unduly influenced, is made in the form of duress, if the document is fraudulent or forged, or if the insured lacks the mental capacity to understand what the insured is signing. This conduct from the family member is for their own benefit and gain and it is wrong. An ill-intentioned family member may try to coerce the insured, try to sign the beneficiary change form on the insured’s behalf, or take advantage of the insured while the insured is lacking the mental or physical capacity to change their beneficiary. Not only are all these acts illegal, but may cause a beneficiary dispute, leading to an interpleader. If any of the above-mentioned behavior has happened in your loved one’s life insurance case, you should contact an attorney immediately. If your attorney notifies the insurer of the dispute and potential defenses, the insurer may interplead the policy proceeds to avoid double payment of the life proceeds. Another example is when a certain beneficiary was told by the insured that they are entitled to policy proceeds, and then after the insured dies, the intended beneficiary files a claim and is told by the insurer that someone else is listed as the beneficiary. In this instance, the original beneficiary may dispute the beneficiary if they have a defense.

Example of Undue Influence – is made up of a variety of factors, including relationship to the insured, influence of the insured, the insured’s ability to understand, the insured’s mental capacity, any medications or other outside influences, the pecuniary gain of the individual who procured the change, pressure on the insured from an individual in a position of power, etc. Undue influence is a combination of a variety of situational pressures and is determined on a case-by-case basis. 

Duress – When the insured is forced beyond their own free will to sign a beneficiary change or to make a change to a document. Imagine a situation where someone asserts physical force or threatens physical violence unless the insured does a particular act or change.

Fraud – A person executes a document with the insured but conceals the true nature of the document or the true nature of the change. In this scenario, the insured must not have been influenced or defrauded to make a change from a person. Typically, this is seen where an insured’s child influences the insured to leave all proceeds to one child and that child will fulfill the insured’s wishes by splitting the proceeds with their siblings. Unfortunately, when the insured dies, the one child that the insured trusted disregards the insured’s wishes and attempts to keep the proceeds for themselves. This is fraud against the estate and the estate may bring a claim on behalf of the entitled beneficiaries.

Forgery – A person executes a document to change a life insurance policy without the insured’s consent or knowledge, including when someone signed on behalf of the insured but did not have a legal right to do so. In many federal life insurance policies, only the insured can change their beneficiary with a wet signature. No power of attorney or other people can sign a federal life insurance policy that is not the insured or assigned party.

Additionally, in many states, a power of attorney cannot procure their own beneficiary designation. Specifically, a power of attorney cannot sign on behalf of the insured, to name the power of attorney as beneficiary. 

Incapacity – Lack of mental capacity is one of the more difficult claims to prove. Courts require the party to show that at the exact signing of the life change or beneficiary form, the insured had no clue what they were signing. Potential challengers or beneficiaries can submit medical evidence or record to show the incapacity or pain medication that may have influenced the insured; however, this testimony is often a battle between fact witnesses or people with different opinions. Without actual medical evidence or corroboration, incapacity may be extremely difficult to prove.

If you or a loved one are involved in a beneficiary dispute involving a life insurance policy, life insurance claim, life insurance lawsuit, interpleader action, or life insurance interpleader lawsuit, you should contact an attorney immediately. Once a life insurance company files an interpleader action, you may have as little as 21 days to respond to the complaint. Failure to respond to the complaint could lead to a default judgment against you causing you to lose the claim without having a chance to defend yourself.

Brochu Law, PLLC represents Interpleader cases on a contingency fee basis. There is no fee unless you win. We advance all costs on behalf of military families and consumers.

Brochu Law, PLLC represents military families and consumers nationwide*

*Disclaimer –Christopher J. Brochu, Esq. is licensed to practice law in the State of Florida. Brochu Law, PLLC works with co-counsel in accordance with state and federal law.