The Case of the Missing Beneficiary Form

Is a life insurance company liable for a missing beneficiary form?

The Case of the Missing Beneficiary Form

The Cast of “I Love Lucy”

The Case

Ricky became responsible for child support payments for the benefit of Ricky Jr. As part of his support obligation, Ricky was required to maintain $35,000 of life insurance payable to his son for as long as his child support obligation continued. Unless the child was still in high school, or pursuing further post-secondary education, this support obligation ended when Ricky Jr. turned 18.

Ricky married Lucy when Ricky, Jr. was 5 years old. That same year, they met with Fred Mertz, an agent for Cuban Musicians Life Insurance Company (CMLI), to discuss life insurance. Ricky and Lucy were interested in purchasing a life insurance policy that would satisfy Ricky’s child support obligation and provide a benefit to Lucy if she were to survive Ricky. Ricky purchased a life insurance policy from CMLI and signed a beneficiary designation listing Ricky Jr. as the primary beneficiary for the first $50,000 in proceeds and listing Lucy as the beneficiary of the balance of the proceeds. Two years later, Ricky completed and filed a new beneficiary designation form. After the change, Ricky’s son was the primary beneficiary of the first $35,000 of life insurance proceeds, and the balance was to be paid to Lucy if she survived Ricky.

According to Mertz, this was the last change in beneficiary designation that Ricky made, and neither party produced any other written documentation regarding a subsequent change in beneficiary. According to Lucy, shortly after Ricky’s support obligation ended, Ricky asked Mertz to change the beneficiary designation on the life insurance policy so that his son would no longer be the primary beneficiary of the first $35,000 of insurance proceeds. Lucy believed Ricky filled out paperwork to complete this change, but she did not know what he did with the paperwork. Lucy claims that on separate occasions Mertz told her and Ricky that Ricky’s son was no longer listed as a beneficiary under the policy and that Lucy was now the full beneficiary. No beneficiary designation was recorded at the CMLI home office.

The Missing Beneficiary Form

After Ricky passed away, Lucy went to Mertz’s office to fill out the paperwork needed to claim the proceeds of the life insurance policy. Mertz allegedly told Lucy, in the presence of her parents, that she would be receiving the full amount of Ricky’s life insurance proceeds. While she was in the office, Mertz’s telephone rang, and she heard him say, “Are you sure?” and “Ricky and I always talked about percentages for the kids.” After he hung up the telephone, Mertz informed Lucy that Ricky’s son was still the primary beneficiary for the first $35,000 in insurance proceeds.

Lucy filed suit against Mertz and CMLI. Her claim against Mertz alleged negligence and negligent misrepresentation, and the claim against CMLI alleged liability for the actions of their agents. CMLI claimed it was entitled to summary judgment on the negligence claim because the policy required any change in beneficiary to be in writing and signed by the owner. Since Lucy had not provided any evidence of such a writing, CMLI was under no duty to change the beneficiary. CMLI also argued that it did not owe a duty to Lucy because she was not the policyholder.

CMLI also argued that Mertz was not in the business or profession of supplying information for the guidance of another in an advisory capacity and therefore, as a matter of law, could not be liable for negligent misrepresentation. Finally, CMLI claimed that Lucy had not come forward with admissible evidence that she was the intended beneficiary of the first $35,000 in insurance proceeds.

The Court’s Conclusion

In this real case from the Iowa Supreme Court (I changed the names for entertainment value), the Court ruled in favor of Lucy. The court found it reasonable to infer that Ricky told Mertz he wanted to change the beneficiary of his policy. The court also found it reasonable to infer that Mertz provided Ricky with a now missing beneficiary form and that Mertz believed that Ricky returned the completed form. The court reasoned that if Ricky provided Mertz with the paperwork necessary to change his beneficiary designation, but the beneficiary designation was not changed, that some negligence on Mertz’s part led to Ricky’s beneficiary designation remaining unchanged.

As part of my estate planning practice I ask people to request copies of beneficiary forms on file with their life insurance companies.  Know what Beneficiary Forms are on file with every life insurance policy, annuity and retirement account. If there is a Missing Beneficiary Form, or an ex is still listed, you can create a new form as long as you are alive and mentally competent. If you want help reviewing your entire estate plan, give me a call.

By | 2017-03-10T07:46:43+00:00 March 10th, 2017|Estate Planning|