Delay In Paying Life Insurance Claim In Texas

If someone in Dallas, Fort Worth, Grand Prairie, Arlington, Carrollton, Garland, Mesquite, Grapevine, Duncanville, Burleson, or anywhere else in Texas, has a life insurance policy, how long does the life insurance company have before it has to pay the benefits to the beneficiary? The answer is, it depends. But the Texas Prompt Payment of Claims Act still applies.
There is a Waco Court of Appeals case decided in August of 2005, that explains how the Prompt Payment of Claims Act can apply in a life insurance situation. The style of the case is, State Farm Life Insurance Company and Lisa Martinez Paul v. Toni Wasson.
This is a case where the insurance company, State Farm Life Insurance Company, confused itself about who it was suppose to pay policy proceeds to. It is not that unusual for an insurance company to have some doubt about who the rightful beneficiary is under a policy of life insurance. When there is confusion the life insurance company will usually file an “interpleader action” in a local court and then let the court decide who should receive the proceeds of the life insurance policy.
The facts are confusing and the case should be read to get a good understanding of what happened but here is a brief description of the chain of events:
Ed and Linda Martinez married on June 15, 1981. In November, Ed obtained a large life insurance policy naming Linda as the beneficiary. Ed and Linda divorced on September 15, 1994 and entered into an agreed divorce agreement whereby Ed made monthly contractual alimony payments of $5,000 to Linda beginning in Septermber of 1994 and continuing until August 2004. The agreement provided that if Ed died before fulfilling his contractual obligations, that the agreement was binding on his estate.
The agreement provided that as long as Ed owed monies that Linda would be an irrevocable beneficiary to a portion of the proceeds of the life insurance policy. The agreement also provided that as long as he maintained Linda as a beneficiary in an amount to pay his obligation, that he could change beneficiaries for the remainder of the policy.
For changing beneficiaries, the State Farm policy provides:
Change of Beneficiary Designation.
You may make a change while the Insured is alive by sending us a request. The change will take effect the date the request is signed, but the change will not effect any action we have taken before we receive the request. We have the right to request your policy to make the change on it.
The policy defines “request” as follows:
Request A written request signed by the person making the request. Such request must be sent to us and be in a form acceptable to us.
On September 28, 1994, Ed signed a State Farm “Change of Beneficiary” form that named as primary beneficary “Linda …,” and as successor beneficiary “the estate of J.E. Martinez.” State Farm recorded the change.
Ed then changed the successory beneficiary to Linda on May 16, 1996 by signing another State Farm “Change of Beneficiary” form, which continued to name “Linda …” This change was also recorded by State Farm.
On June 30, 1996, Ed and Toni married. On August 1, 2002, Ed signed a State Farm “Change of Beneficiary” form that named Toni as primary beneficiary and did not name a successor beneficiary. State Farm refused to honor this request.
Ed died on August 25, 2002. Ed still owed Linda twenty-four months alimony or $120,000.
Toni made a claim for the life insurance proceeds as did Linda and his estate. State Farm claimed to be unsure who they should pay. As a result they filed the interpleader action in court and attempted to wash their hands of the matter and let the court decide who should get the life insurance proceeds. As a result they were sued.
The court held for Toni and also assessed against State Farm the 18% penalty called for by its violation of the Texas Prompt Payment of Claims Act.
This court wrote a well reasoned opinion as to why it ruled the way it did and because of the confusing nature of this case, it is necessary to read it to fully understand. What is important here is the realization that only an experienced Insurance Law Attorney can help someone navigate the law and facts of a case to a successful outcome.
Also it is important to realize the Prompt Payment of Claims Act can apply to life insurance policies even when the money is interplead to the court. This is important because a lot of life insurance policies involve large sums of money and the 18% penalty is significant and especially so if the case drags out for a couple of years.