Divorces Can Be Messy…For Life Insurers

Divorces are often characterized as “messy” for good reason. While divorce proceedings can prove particularly challenging for the individual participants, they can also pose challenges for those adjudicating competing life insurance claims when the decedent insured’s ex-spouse, who has been designated as a policy beneficiary, claims a right to the death benefit instead of the surviving spouse, the insured’s estate or a secondary beneficiary.

Divorce-related life insurance disputes can end up before courts in litigation over the decedent insured’s estate, in litigation brought by a purported beneficiary against the insurance company, or in interpleader actions filed by the insurer. In an interpleader action, the insurance company files a petition with the court seeking an order determining, for instance, which spouse – surviving or ex – is entitled to the decedent insured’s policy proceeds following a divorce.

As highlighted in the case described below, it is important for those processing life insurance claims when divorces are involved to carefully examine (i) the express language of the policy at issue, (ii) the divorce record, including the content of any divorce decree, as well as (iii) the law in the applicable jurisdiction. The insurance company must determine who is entitled to the death benefit – or consider submitting the issue to a court in an interpleader for resolution, where appropriate.

Recently, in Hertzske v. Snyder, 2017 UT 4 (Utah Jan. 18, 2017), the Utah Supreme Court weighed in on this issue in connection with a $500,000 death benefit. The court had to decide whether the benefit was properly payable to a decedent insured’s ex-wife or the secondary beneficiary named in the policy. The policy at issue originally named Ms. Snyder, then the insured’s fiancée, as primary beneficiary. The policy also named a secondary beneficiary. The insured and Ms. Snyder later married, but then divorced. The insured’s life insurance policy was never mentioned during the divorce proceedings or in the eventual divorce decree. The insured died after the divorce was final. Ms. Snyder and the secondary beneficiary then asserted competing claims to the policy’s death benefit.

Under Utah Code § 75-2-804(2), there is a rebuttable presumption that a beneficiary designation of a spouse in a life insurance policy is revoked upon divorce. The presumption can be rebutted by express terms in the policy, a court order (including a divorce decree), or a contract relating to the division of the marital estate made between the divorced individuals.

The presumption can be rebutted via divorce decree only if the decree includes specific language required by Utah Code Section 30-3-5(1)(e). That statute requires an express acknowledgement by the divorce court that the policy owner has (i) reviewed and updated his or her beneficiaries, (ii) affirmed that those listed as beneficiaries are in fact the intended beneficiaries after the divorce becomes final, and (iii) the owner understands that if no changes are made to the policy, the beneficiaries currently listed will receive the policy proceeds.

In evaluating the competing claims to the insured’s death benefit, the court in Hertzske first examined the express terms of the policy at issue. The policy provided a method for naming new beneficiaries during the insured’s lifetime, but the terms of policy were silent as to whether the designation of a spouse as beneficiary would survive a divorce. The court thus concluded that the policy lacked the “express terms” necessary to rebut the presumption that Ms. Snyder’s beneficiary designation had been revoked pursuant to Utah Code § 75-2-804(2).

The court next examined the divorce record and concluded that “[i]n the underlying divorce case … no mention was ever made of any life insurance policies in the petition, findings or decree.” Because the divorce court had not been apprised of any existing life insurance policy, the statutory language from Section 30-3-5(1)(e) was not included in the divorce decree, and the presumption of revocation of Ms. Snyder’s beneficiary designation remained intact. The court therefore affirmed the lower court’s ruling “that the divorce revoke[d] Ms. Snyder’s status as beneficiary” and held that the secondary beneficiary was the sole remaining beneficiary holding an interest in the policy.