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Life Insurance Disbursement

February 13, 2013

Life Insurance Disbursement

Case:  Erik Hood v. Casey Jenkins, et al.

Facts: Father died after naming Son as the beneficiary of his life insurance policy.  After receiving a claim from Son and realizing he was still a minor, Insurance Company requested proof of guardianship.  Sister obtained an order of guardianship, but Company responded that the order did not indicate guardianship for finances, so Sister obtained a new order that so provided (which was merely a copy of the first with handwritten notations).  Company then obtained a document from the court confirming the second order was valid.  However, it turned out that the orders failed to meet the statutory requirements and were not actually valid.  Sister squandered the funds, and Son sued Company for re-issue of the proceeds.  The trial court held for Son, and the Court of Appeals affirmed.

Issue:  Must Insurance Company re-issue insurance proceeds after erroneously disbursing to minor beneficiary’s purported guardian?

Review Granted: February 13, 2013

Prediction:  The intermediate court noted that at least two of its prior opinions held that insurance companies need not re-issue when payment is made in good faith, unless it is aware of “suspicious circumstances.”  The court reaffirmed this rule but concluded that Company could not avail itself of it under the circumstances.  Ben thinks this is a close call because the Company should be credited for (1) seeking the guardianship order in the first place, (2) requesting an order providing for financial guardianship, and (3) seeking clarification from the court that the second order was valid.  Requiring further inquiry into the legal sufficiency of the order seems to go beyond mere good faith.  Thus, Ben believes this case will ultimately turn on whether the Supreme Court decides to endorse the good faith rule.