June 30, 2022

Change of Beneficiary Forms Submitted and Processed in Good Order Do Not Provide Grounds for Imposing Liability on the Issuing Company

The death of a loved one brings stress, despair and grief. It also often precipitates disagreements regarding the intended beneficiary of an annuity, life insurance policy or other account of the decedent.

The financial services industry is all too familiar with the following scenario: someone claims to have been told by the now-deceased individual decades prior that they were designated as the primary beneficiary on a financial product or policy. The annuitant, account holder or policyholder — perhaps a parent, grandparent, aunt, uncle, sibling, other relative or even a friend — dies, and the expectant individual awaits receipt of the account or policy proceeds. The funds never arrive, and after inquiring as to the status, the surviving individual learns that the designated beneficiary was changed prior to the decedent’s death. At times, the beneficiary change was received and recorded just a short time before the decedent passed away. Often a challenge as to the rightful beneficiary follows, and, at times, begins with outreach to the issuing company demanding information that the requesting individual usually has no authorization to receive.  

In challenging the rightful recipient of the funds, an ex-beneficiary often alleges the company accepted and processed a beneficiary change form bearing a forged or fraudulently-obtained signature. The ex-beneficiary may attempt to impose obligations on the company for verifying signatures without regard for the realities of the change of beneficiary process and factors that may alter the appearance of valid and legitimate signatures. For instance, ex-beneficiaries are rarely familiar with a company’s internal policies and procedures for accepting and processing requests to change the beneficiary on financial products and do not take into consideration the effects of age, medical conditions, complications, weak extremities and the passage of time on a person’s signature. Additionally, ex-beneficiaries are generally unable to point to any requirements imposed upon companies to investigate signatures on change of beneficiary forms. In fact, many states do not require companies to investigate signatures on change of beneficiary forms.

Taking insurance companies as an example, 11 states have enacted statutes to protect companies from liability after distributing proceeds to the person identified on the face of the change of beneficiary form. This statute typically provides that “[w]henever the proceeds of or payments under a life…insurance policy or annuity contract become payable…the person then designated in the policy or contract…as being entitled to the proceeds or payments…shall be entitled to receive the proceeds or payments…and the payments shall fully discharge the insurer from all claims under the policy or contract[.]” Courts have applied this statute to resolve issues raised in litigation, too. In Georgia, an insurer issued a life insurance policy to an individual whose grandchild became the sole beneficiary and owner of the policy five years later. Shortly before the original owner passed away, his wife inquired with the company as to the named beneficiary and named herself the new beneficiary without the new owner’s — the grandchild’s — consent. After the original owner passed away, the company paid the policy proceeds to the surviving wife, but the grandchild claimed that the spouse forged her signature on the change form. The Court, relying on a similar statute and ruling in Alabama, found that the company properly paid the claim because it was precluded from comparing signatures on any of the relevant documents. The statute effectively discharged the company from liability after having paid out the claim to the individual identified on the claim form, and the ex-beneficiary was out of luck.

It often takes ex-beneficiaries excessive time and resources to reach the conclusion that there was no wrongdoing on behalf of the company and that, perhaps, the account or policy holder may have simply decided to name someone else as a beneficiary. Thus, seeking to have the company remit payment more than once is typically an exercise in futility.

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