Representing clients in California life insurance beneficiary disputes is one of Hackard Law’s key practice areas in addition to estate and trust litigation.

According to the latest data from the American Council of Life Insurers, in 2018 the life insurance industry paid out a total of $79 billion to the beneficiaries of deceased policyholders. Of these payments, individual life insurance policies accounted for $56 billion while group beneficiaries received over $22 billion.

Life insurance beneficiary designations are not always ironclad, especially when certain factors make them subject to legal challenge. A policy might come under dispute if the following considerations come into play:

  • Change in circumstances
  • Neglect
  • Mistake
  • Poorly articulated intent

Even though a beneficiary designation might look like it’s unassailable, experience and the law show otherwise. Scrutiny of an “airtight” life insurance beneficiary designation might just determine that it resulted from undue influence or elder financial abuse. The economic stakes can be high for all parties to a case – wrongdoers who hijack a policy and make themselves the main beneficiary must be held accountable.

Life Insurance Policy Basics

How does a life insurance policy work? A life insurance policy can be purchased on either an individual or a group basis. Life insurance effectively acts as a substitute for a will or trust – it is a wealth transfer minus some of the formalities necessary for composing and executing an estate document. In fact, life insurance beneficiary designations fall under the category of non-probate assets, which means that life insurance functions like a non-probate will.

The majority of policies don’t prevent an insured individual from amending beneficiary designations during their lifetime. The beneficial interest of a life insurance policy only becomes fixed when the insured passes away. Until that time, the interest is known as an “unvested expectancy.” When someone purchases a life insurance policy, they will name a beneficiary who will receive the proceeds of that beneficiary designation upon the insured’s death.

The life insurance process is pretty simple, so where can things go wrong? The first problem concerns whether there is an active policy to begin with. If you’re the policy holder, it’s important to let trusted family members know where life insurance documents are located. In addition, keep time limits in mind – a policy can lapse, or eligibility for group policies may no longer be unavailable.

Life insurance policies provide death benefits to designated beneficiaries – these benefits usually come with certain conditions of eligibility. Once it’s established the policy is active, further steps are taken to document the death of the insured. When the claims process confirms the death of the insured is properly documented, the beneficiary designation is open to challenge.

Challenging a Life Insurance Claim in California

Typically challenges to a life insurance beneficiary claim are filed by family members of the decedent against the latter’s divorced spouse. That spouse will remain listed as the primary beneficiary on the decedent’s life insurance policy. For whatever reason, the insured didn’t remove the divorced spouse from the policy during their lifetime. A life insurance beneficiary designation must be contested within the framework of California state law and rules of evidence. These types of cases are also known as revocation-upon-divorce presumptions. Another common type of dispute is the conflict between stepmothers and stepchildren over beneficiary designations.

One of the most critical factors in contesting a life insurance claim is timeliness. If a family member can dispute a life insurance payout in a timely manner, the life insurance company will freeze the payout and place it in a trust under the authority of the Superior Court.

Once a claim is contested in California, the life insurance company files a complaint for declaratory relief and for interpleader. Within the filing the parties who claim rights to the beneficiary designation are identified. The complaint will recognize that the life insurance company stands liable for payout on a life insurance policy. It will also detail the communications the company has received from the opposing parties.

The life insurance company then requests that the Superior Court issue a judgment that:

  • discharges the company from any further liability;
  • orders the cancellation of the life insurance policy; and
  • requires the named defendants to litigate the dispute between each other.

The opposing parties are termed the “defendants” in the interpleader action. The dispute between them frequently concerns claims that the current named beneficiary exercised undue influence on the insured decedent in order to designate themselves the main beneficiary.

Often a litigation over a life insurance claim will feature a story of cognitive decline and manipulation by a wrongdoer. The policy owner may have been diagnosed with dementia or Alzheimer’s and will be vulnerable to excessive persuasion.

Financial impairment is a feature of cognitive decline in elder. It is upsetting for family members and the elder alike. Typically this will include suspicions that someone is stealing their money, confusion over bank accounts, unpaid bills, and an inability to manage personal finances.

When Hackard Law attorneys evaluate a potential challenge to a life insurance claim, we will check whether the insured (decedent) was reliant on the current beneficiary for their daily needs. Was the current beneficiary a caregiver? Did they live in the same house? Was there a co-dependent relationship? We’ll look and see whether the beneficiary exploited this dependency. Deathbed changes to beneficiary designations come under heightened suspicion.

Elder Financial Abuse & Life Insurance Claims

California’s Elder Abuse Act is a powerful tool in protecting elders from financial exploitation, and it provides plaintiffs with remedies to civilly prosecute wrongdoers who have committed abuse or neglect. If an elder financial abuse claim is proven by preponderance of evidence, damages in the form of cost awards and attorney fees are also possible. This also applies to undue influence in life insurance beneficiary litigation. Under the Elder Abuse Act, plaintiffs can also file lawsuits based on deprivation of property by undue influence. Welfare and Institutions Code Section § 15610.30 states:

“(a) “Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the following:

(1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(2) Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both.

(3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Section 15610.70.

(b) A person or entity shall be deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity takes, secretes, appropriates, obtains, or retains the property and the person or entity knew or should have known that this conduct is likely to be harmful to the elder or dependent adult.

(c) For purposes of this section, a person or entity takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult is deprived of any property right, including by means of an agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.”

Undue Influence in Life Insurance Beneficiary Cases

Both Probate Code §86 and Welfare and Institutions Code §15410.70 provide a clear definition of undue influence that applies to contested life insurance beneficiary designations. According to California law, “undue influence” is excessive persuasion that causes another person to act or refrain from action by overcoming that person’s free will and results in inequity. The vulnerability of the victim plays a major role in determining undue influence.

Evidence of vulnerability includes a number a factors, such as:

  • Incapacity
  • Illness
  • Disability
  • Injury
  • Age
  • Education
  • Impaired cognitive function
  • Emotional distress
  • Isolation
  • Dependency

If the influencer was aware of the alleged victim’s vulnerability in order to exploit it, then this also counts toward undue influence.

The second element of undue influence is the apparent authority of the influencer over the victim. Apparent authority might be status as a family member, fiduciary or trustee, caregiver, doctor or nurse, attorney, spiritual advisor, expert, or other qualifications.

The third element of undue influence considers actions or tactics used by the wrongdoer. Evidence may include, but is not limited to, the following methods:

  1. Controlling necessaries of life, medication, the victim’s interactions with others, access to information, or sleep. b. Use of affection, intimidation, or coercion. c. Initiation of changes in personal or property rights, use of haste or secrecy in effecting those changes, effecting changes at inappropriate times and places, and claims of expertise in effecting changes.

Equity of result is the fourth element of any undue influence case. Evidence showing the equity of the result man include, but is not limited to:

  • The economic consequences to the victim
  • Any divergence from the victim’s prior intent or course of conduct or dealing
  • The relationship of the value conveyed to the appropriateness of the change in light of the length and nature of the relationship.

Evidence of an inequitable result (an unfair outcome) is not enough to prove undue influence – other contributing elements must also be present.

Need Help with Your Life Insurance Beneficiary Claim?

Attorney Michael Hackard

At Hackard Law we litigate California life insurance beneficiary cases – these disputes often tie into undue influence and elder financial abuse. Litigation can be expensive and time-intensive. We always prepare for a tough litigation fight, but often the most favorable resolutions can be reached through pre-trial mediation, saving our clients time, money and emotional energy.

Call: 916-229-6991