Dallas Fort Worth Insurance Lawyer Blog
The designated beneficiary of a life insurance policy generally is entitled to the proceeds upon the death of the insured. Absent an adverse claim, the insurer may pay the benefits to the designated beneficiary.
This is discussed in the 1967, Texas Supreme Court opinion styled, McFarland v. Franklin Life Ins. Co.
In 1950 respondent issued a policy of insurance on the life of John V. McFarland, who was about nine years of age at the time. The policy was taken out by his parents, Bernard and Gwendolyn McFarland, the latter of whom is petitioner here. Bernard was named in the policy as primary beneficiary, and petitioner was designated as contingent beneficiary. John married in 1962 and died the following year. His father predeceased him; he was survived by his widow and petitioner.
Petitioner brought this suit against respondent to recover the amount due on the policy plus the statutory penalty and attorney’s fees. Respondent interpleaded Mrs. John V. McFarland, admitted liability for the proceeds of the policy, and paid the funds into court. The trial court, sitting without a jury, awarded petitioner the money so deposited but allowed no penalty or attorney’s fee. The only question brought forward on appeal is whether petitioner is entitled to recover such penalty, attorney’s fee and court costs.
It is generally held that where the insurer admits liability, but has reasonable grounds for anticipating rival claims, and in good faith declines to pay the named beneficiary, and deposits the money in court to be paid to the rightful person as determined by the court, it is not liable for more than the face amount of the policy.
An insurance company which knows that rival claimants are actively asserting their rights is usually held to have reasonable grounds for withholding payment; it will not be subjected to the statutory penalties if the other conditions set out above are satisfied. That is not, however, the situation here. The October 29th letter from Mrs. John V. McFarland’s attorney gave no indication that she intended to claim all or any part of the policy proceeds. It was a mere inquiry — nothing more. Any misgivings about her attitude which the letter may have caused should have been dispelled when respondent was advised that she had dismissed her attorney because there were no more family problems.
Petitioner is the beneficiary named in the policy and as such would ordinarily be entitled to the proceeds thereof. In that respect the case differs from other cases cited. In the other cases cited, the estate of the insured was the designated beneficiary, and the heirs were demanding payment. It was held that the insurance company was justified in withholding the money until proper authority could be obtained for making payment to the heirs.
In each of the cases cited by Respondent, the company knew that the wife of the insured, who was the beneficiary named in the policy, had been charged with murdering her husband. There was thus a reasonable basis for anticipating rival claims, because the Insurance Code provides that the nearest relative of the insured shall receive the insurance when the beneficiary has wilfully brought about the death of the insured. In the present case respondent had no information suggesting that the widow was asserting a right under the policy or that payment to the named beneficiary would subject it to a substantial risk of double liability. An investigation, which could have been made during the period of thirty days allowed by law, would have disclosed that the policy was taken out while the insured was unmarried and that all premiums were paid by petitioner and her husband. It thus appears that the widow did not have a valid claim, and there was nothing within respondent’s knowledge to warrant the belief that she did. Respondent was not justified, therefore, in requiring that petitioner obtain a release from the widow, and petitioner was under no duty to explain her failure to furnish the same. The mere possibility that facts giving rise to an adverse claim could exist does not constitute reasonable grounds for refusing to pay the designated beneficiary.
As previously indicated, respondent also contends that petitioner failed to demand payment as required by law. The letter of January 7th makes it clear that petitioner was insisting upon payment and would file suit unless respondent had some valid reason for withholding the money other than its practice of requiring a release from the widow. This constitutes a sufficient demand under the statute.
To get a full understanding of this case, it would be necessary to read the opinion with the facts.