Who is the named beneficiary primary beneficiary under the policy and will that person always be the person who receives the policy benefits is a question many life insurance attorneys are asked by prospective client.
This issue is discussed in a 1981 Eastland Court of Appeals opinion styled, Pilot Life Insurance Company v. Koch. This is a declaratory judgement case.
Pilot sought a judgment declaring it had no duty to pay life insurance proceeds to Lawrence Koch because of the death of his wife. Pilot has issued a group policy to Koch’s employer. The policy afforded life insurance coverage for employees and their eligible dependents. Eligible dependents were defined to include “your husband or wife, unless you were legally separated or divorced.” Pilot alleged that Mr. and Mrs. Koch were legally separated on the date of her death. Koch filed a counterclaim seeking the policy proceeds. The jury found that Mr. and Mrs. Koch were separated at the time of her death. Although that separation was pursuant to a “temporary” court order entered in the pending divorce proceedings between the Koch’s, the trial court entered judgment for Koch notwithstanding the verdict on the theory that under Texas law there is no status of legal separation of a husband and wife before the marriage is dissolved by a decree of divorce.
Pilot contends that the trial court erred in granting judgment notwithstanding the verdict because the evidence established the Koch’s were separated pursuant to a court order and thus they were legally separated on the date of Mrs. Koch’s death; and, were, therefore, legally separated within the contemplation of the policy. Pilot also urges that the trial court erred in ruling, as a matter of law, the Koch’s were not legally separated on the date of Mrs. Koch’s death.
The Koch’s separated and began living apart on December 23, 1977. On March 23, 1978, Mrs. Koch filed suit for divorce. Temporary orders were entered on March 24, 1978. The orders set aside a residence to Mrs. Koch, divided the household goods and furnishings, set aside certain vehicles for the parties and provided for the discharge of debts.
Mrs. Koch died September 16, 1978. It was much in dispute whether there was a reconciliation between the parties prior to her death. The evidence did show that the parties lived in separate residences until Mrs. Koch died.
The issue is whether the parties were legally separated at the time of Mrs. Koch’s death. The term “legally separated” as used in the insurance policy is not specifically defined in the policy, nor have we found a Texas case that defines the term.
Since the policy in issue was not specifically drafted for Texas but was intended for use in every state that Pilot is authorized to do business, the words “legally separated” should not be considered only on the basis of Texas law which does not recognize legal separation. The meaning of the words have been examined by both state and federal courts in cases in which the decision turns on whether a party is legally separated for insurance and tax purposes. The Court was not cited, nor did it find, a single case where a court has held that a temporary order, as distinguished from a final judgment or decree, is a legal separation.
It is a settled rule that policies of insurance will be interpreted and construed liberally in favor of the insured and strictly against the insurer, and especially so when dealing with exceptions and words of limitation. When the language of a policy is susceptible of more than one reasonable construction, the courts will apply the construction which favors the insured and permits recovery.
The Court found that a reasonable construction of the policy language, “unless you were legally separated or divorced,” means finality of judgment.