Needing to Know Your ERISA Life Insurance Policy Beneficiary Designations … and Your Spouse’s

Employees in Chicago who have life insurance coverage under an employer-sponsored and ERISA governed life insurance policy usually coordinate with their spouses to plan support for the spouses and children should one of the spouses pass away. The amount of coverage is greatest when there are minor children, and he need for coverage usually gradually reduces as the couple ages. A frequent scenario clients bring to the attention of an ERISA lawyer is where a spouse changed a beneficiary designation, before or after a divorce. Sometimes a spouse does not even know there was life insurance coverage.

There is often little you can do if you believe you were the intended beneficiary after the insured passes away, but the insured changed a beneficiary designation before the death. Sometimes claimants assert there was some undue influence in changing the beneficiary designation, which may trigger a dispute over entitlement by several purported life insurance beneficiaries. The insurer is often disinterested, as it knows it has to pay somebody, but will not risk paying the wrong party if there is a dispute. This gives rise to the Federal Rule 22 Interpleader—where an insurer brings suit against the two people claiming the benefits and lets them fight in court over who is supposed to get the insurance proceeds. Conventional wisdom—and perhaps some John Grisham novels—would lead one to assume the court will engage in a fact finding process about what the true intentions of the insured were before passing away. But the reality is courts will usually enforce whatever is on the last beneficiary designation. A recent example just emerged from the United States District Court for the Northern District of Illinois in Dixneuf v. Wong, No. 15 C 8785, 2016 U.S. Dist. LEXIS 107983 (N.D. Ill. Aug. 16, 2016).

In Dixneuf, the sister (Dixneuf) and ex-wife (Wong) of the insured disputed eligibility to Mr. Cehovic’s supplemental life insurance policy. Cehovic named his sister the beneficiary on the regular life insurance policy and on the supplemental policy. His ex-wife, however, argued she did not know about the supplemental policy when they entered into an agreed divorce decree, and had she known, she would have insisted the minor child be named as beneficiary, instead of the insured’s sister. She even had a case pending in divorce court to reopen the divorce to address this in the divorce decree. Even though state law requires spouses disclose to one another all assets in order to enforce a divorce decree, and there was a case pending in state court regarding this divorce decree, the District Court enforced the beneficiary designation as written, awarding the policy proceeds to the sister, instead of the ex-wife as custodian for the minor child. This seems like all the more reason when going through a divorce to consult an ERISA lawyer about the types of benefit plans that may exist and ensure the beneficiary designations are assigned according to the agreement.

If you need to investigate what sorts of benefit plans you or a spouse has in order to protect your rights, call an experienced ERISA lawyer today.